Payer Performance Monitoring: Empowering Data-Driven Negotiations and Decisions

With payers and providers locked in an uneasy union, the Healthcare Financial Management Association (HFMA) could be stepping up as an ersatz marriage counselor. 

Policy directors at HFMA are developing a standardized national scorecard for release this fall. This scorecard aims to accurately evaluate revenue cycle metrics and the performance of multiple plans at provider organizations. Leading the effort is Shawn Stack, one of HFMA’s policy directors. He explains, 

“Our approach to a national scorecard is extremely important for both payers and providers. I hesitate to call it a payer scorecard because I think it's important that health plans and providers are weighted equally in the responsibility for payment and claims reimbursement performance. Building a national, uniform, apples-to-apples comparison should assist all stakeholders in collaborating and learning from each other.”

Could this performance scorecard lead to a fairy tale reconciliation? 

Payer performance monitoring is a relatively recent phenomenon. Where once providers only casually kept track of reimbursements coming in from payers, in today’s high merger-and-acquisition environment where every revenue dollar matters, knowing which payers honor their contracted rates and which are skimming provider revenue is critical. 

Here you’ll discover the latest in payer performance monitoring, including its benefits, key performance indicators, implementation best practices, and more.  

What is payer performance monitoring? 

Payer performance monitoring is the tracking and evaluation of how well insurance companies adhere to their contractual obligations and regulatory requirements when processing and paying claims. An ongoing assessment, it typically includes measuring key performance indicators such as reimbursement rates, denial rates, claims processing time, payment accuracy, and prior authorization efficiency. 

By implementing robust payer performance monitoring systems, healthcare organizations can identify issues early, negotiate better contracts, improve cash flow, and ensure they receive appropriate reimbursement for services provided. Effective monitoring also helps healthcare providers maintain regulatory compliance, reduce administrative burdens, and ultimately enhance patient care by optimizing financial operations.

Benefits of payer performance monitoring

Wondering whether the payoff is worth the groans from your staff about implementing yet another revenue cycle system? Rest assured, once physicians and staff realize how ranking payers by performance helps them stand up to payers, improve revenue, and ease their workflows, they’re fans. 

Share with peers and staff how payer performance monitoring has proven to: 

Improve net revenue

When a payer performance monitoring system reports on underpayments and denials by payer, CPT code, provider location, and individual provider, healthcare organizations are empowered to go after and recover that revenue. 

Cathy Beebe is the director of OSF Healthcare in Peoria, Illinois. She explains to HFMA that the reports generated by their payer performance monitoring system deliver key data. Now when meets with the payer, she can share those findings with the payer rep and say, “‘We have a problem here. We see that the administrative cost of participating with your plan and getting our claims paid is too high. And unless you get this cleaned up, we will not extend your contract with us.’ And then they get pretty motivated to attempt to resolve things.”

Further, payer performance monitoring conveys just which payers are more valuable to them. When contract renewal time comes around, providers are armed with the data to pressure payers to improve their rates and terms. They can even marshal the numbers that help them walk away from a payer that proves too much of a hassle to be worthwhile. A data-driven approach empowers providers to hold payers accountable for their contractual commitments, ensuring fair terms and timely payments. By leveraging these insights, healthcare organizations can assertively communicate their expectations to payers, reinforcing the legal obligation to fulfill contractual terms and fostering more equitable partnerships in the healthcare ecosystem. 

Improve operational efficiency

Payer performance monitoring streamlines healthcare organizations and eases staff workloads by identifying problematic trends with specific payers early on. Address problems proactively before they escalate into larger issues that consume more time and resources. By providing data-driven insights, payer performance monitoring helps negotiate better contracts, ultimately reducing administrative burdens. Clear visibility into payer performance lets staff prioritize their efforts on the most problematic areas or payers, rather than spending time on issues that may not have a significant impact. For those who use automated contract performance tools, reporting and analytics tools generate insights quickly, freeing up staff time that would otherwise be spent compiling and analyzing data manually.

Support Decisions

When you make all your contract terms and rates searchable, it’s far easier to identify opportunities for cost savings, enhance service delivery, and strategically plan for contract renewals or negotiations. 

Contain denials

By systematically tracking key metrics such as denial rates, reasons for denials, and payment turnaround times for each payer, healthcare organizations can identify trends and potential issues before they escalate into significant revenue losses. 

This proactive approach allows providers to address root causes of denials, such as coding errors, documentation gaps, or payer-specific requirements. Targeted improvements in billing and claims submission processes come next. By leveraging this data-driven approach, healthcare organizations can significantly reduce denial rates.

Key Performance Indicators (KPIs) for Payer Performance

KPIs render valuable insights into the performance of payers and the overall health of an organization's billing processes. By regularly analyzing these metrics, healthcare organizations can identify trends, address areas for improvement, and make informed decisions in payer contract negotiations and operational strategies.

Reimbursement Rates

Definition: The percentage of billed charges that are actually paid by insurance companies or payers.

Calculation: total payments received / total charges billed

Value: 

•  Provides insight into the financial health of the organization
•  Helps identify payers with low reimbursement rates for contract negotiations
•  Allows for comparison of reimbursement across different services or procedures

Best practices:

•  Track reimbursement rates by payer, service line, and procedure code
•  Compare to industry benchmarks (typically 35 to 40 percent for overall average)[8]
•  Aim for consistent improvement over time

Payer Compliance Rate

Definition: the percentage of claims paid in compliance with contractual commitments. 

Calculation: total number of claims submitted that were paid correctly on first submission / total number of claims submitted

How it helps:

• Spot potential problems with payer agreements and negotiate more favorable terms with insurers. A low payer compliance rate reveals issues with contract terms or the claims processing procedure.

Best Practices: 

• Conduct routine audits to locate errors or discrepancies in the billing process.
• Keep current with payer policies. Have staff attend payer webinars, read newsletters, and engage in industry events.
• Establish a denial management process. Identify root causes of denials, appeal, and track the outcomes.
• Train staff on payer policies so they remain aware of the latest updates and can adhere to the payer's guidelines.
• Leverage technology to automate processes that minimize errors, streamline billing, and boost payer compliance rates.

Denial Rates

Definition: The percentage of claims denied by payers.

Calculation: number of denied claims / total number of claims submitted 

How it helps:

•  Identifies issues in coding, documentation, or billing processes
•  Highlights problematic payers or service lines
•  Guides staff training and process improvement efforts

Best practices:

•  Industry benchmark is typically 5 - 14 percent 
•  Analyze denial reasons to address root causes
•  Track denial rates by payer, provider, and service type

Insurance payment turnaround time

Definition: The average time it takes for a claim to be processed and paid by a payer.

Calculation:

Insurance payment turnaround time is days between the start and end dates /  the number of claims processed during that period

How it helps:

•  Indicates efficiency of the revenue cycle
•  Identifies slow-paying payers
•  Helps predict cash flow

Best practices:

•  Aim for 30 to 40 days in accounts receivable (A/R)[8]
•  Monitor claims aging reports regularly
•  Implement electronic claims submission and follow-up processes

Payment Accuracy

Definition: The percentage of claims paid correctly according to contracted rates and terms.

Calculation:

Number of correctly paid claims / total number of paid claims 

How it helps:

•  Ensures proper reimbursement
•  Identifies payers with frequent payment errors
•  Guides contract compliance efforts

Best practices:

•  Regularly audit paid claims against contracted rates
•  Implement automated payment variance detection tools
•  Follow up promptly on underpayments or overpayments

Prior Authorization Efficiency

Definition: The effectiveness of obtaining prior authorizations for services requiring them.

Calculation:

Number of successful prior authorizations / total number of prior authorization requests 

How it helps:

•  Reduces claim denials due to lack of authorization
•  Improves patient satisfaction by avoiding unexpected out-of-pocket costs
•  Streamlines the revenue cycle process

Best practices:

•  Implement a robust prior authorization tracking system
•  Monitor authorization requirements by payer and service type
•  Educate providers on the importance of obtaining prior authorizations

Regular analysis of these metrics can help identify trends, pinpoint areas for improvement, and guide strategic decision-making in payer contract negotiations and operational processes.

Tools and Technologies for Monitoring Payer Performance

Until just a few years ago, physician groups and management services organizations used spreadsheets and brute force to evaluate payer performance. Unless they didn’t do it at all. 

At organizations that made an effort, staff manually extracted details and compared actual payments against contractual requirements. They also compiled data from various sources to generate reports, often leading to time-consuming and error-prone results, especially as the volume and complexity of contracts increased.

Revenue cycle management software, payer scorecards, and data analytics platforms are three powerful technologies that significantly enhance payer performance monitoring in healthcare organizations. These tactics work together to provide a comprehensive approach to managing payer relationships and optimizing financial performance.

Automated RCM Solutions

Automated payer performance monitoring – also known as contract management and modeling software –  leverages advanced technologies to streamline and enhance the monitoring process. Automation allows for real-time data collection and analysis, reducing the manual workload and minimizing human error. 

Payer performance monitoring software automates many aspects of the billing and claims process, reducing errors and ensuring consistency in compliance with payer requirements. 

These systems provide real-time visibility into claims status, allowing for quick identification and resolution of performance issues. This software often integrates with electronic health records (EHR) systems, ensuring accurate coding and documentation to support compliant billing practices. Advanced reporting capabilities allow healthcare organizations to monitor key performance indicators related to payer compliance, such as clean claim rates and denial rates.

Automated systems also deliver immediate alerts when issues are detected, and provide comprehensive insights into payer performance. They improve efficiency and enable healthcare organizations to focus more closely on patient interaction and service. 

Take a quick, self-guided tour through a powerful payer performance monitoring and underpayments recovery tool:

Payer Scorecards

We are excited to see how the HFMA’s national standardized scorecard for both payers and providers mentioned above will impact a historically contentious relationship. 

Stories of hostility blaze across RCM publications regularly. 

Things got testy at a Becker’s Hospital Review CEO and CFO event last year when one CEO was asked how he approaches negotiations with health insurers.  “I don’t negotiate with terrorists,” he replied. 

During the BCBS dispute with University of Mississippi Medical Center, state Insurance Commissioner Mike Chaney likened Blue Cross Blue Shield’s contract negotiation behavior to “a shakedown.” 

This conflict became so hostile that BCBS sued three UMMC executives for defamation. (Within a matter of months, however, they dropped the suit.) 

Many more examples make it tough for providers and payers to get along. HFMA’s hopes for their standardized scorecard are that they will create a neutral common ground where revenue-destabilizing issues from both the provider and payer sides can be identified and addressed. Having two sides view a trusted, common data source and collaborate on solutions could be the first step on the road to relationship repair. 

Payer scorecards help healthcare providers measure the KPIs the providers establish. But – if HFMA gets its way – payers, too, will have a set of KPIs they’ll measure provider performance by. We wish the best for this bidirectional approach!

For providers, data from scorecards can be invaluable in supporting contract negotiations, helping providers secure more favorable terms based on objective performance metrics. Additionally, by tracking performance over time, scorecards can reveal trends and patterns in payer behavior, allowing providers to address issues proactively.

Data analytics

Healthcare lags other industries in this, the big data era. Netflix uses data to tailor movie recommendations for users. Uber data mines to get rides to you faster, and Redfin shows you a range of your perfect forever homes. How does it know? Data. 

A few big healthcare systems are unlocking the wealth that lies in their data. In part because Johns Hopkins uses individual patient data to tailor medical treatments to individual patients, their patient satisfaction rates stay 20 percent higher than national and state averages. Once Utah’s Intermountain Healthcare integrated clinical, financial, and operational data across its health system, it achieved a 21 percent drop in heart failure readmissions, $30 million in annual savings via an optimized supply chain, and robust preventative care strategies for high-risk patients. All of these improvements appeal to investors preferring the value-based care model. 

Data analytics platforms leverage advanced technologies to process and analyze large volumes of healthcare data. They enhance payer performance monitoring through predictive analytics, which can forecast potential performance issues before they occur, allowing for proactive measures. These tools can drill down into the data to identify the root causes of performance issues, enabling targeted improvements. By analyzing vast amounts of data, these platforms can suggest optimizations to improve overall compliance and revenue cycle performance.

Robust payer performance monitoring should integrate data analytics, revenue cycle management (RCM) software, and payer scorecards can be integrated into a single software tool. This tool should feature:

• analytic dashboards for performance management, 
• scorecard dashboards for tracking revenue cycle improvements, 
• real-time data analytics to monitor claims and remittance data[1][2]. 

Of course, the best healthcare RCM software companies consolidate software, performance scorecards, and data analytics into one platform.  Integrated, comprehensive data insights help reduce manual efforts, enhance efficiency, and optimize financial outcomes by providing a unified view of payer performance and revenue cycle health. Together, these technologies enable healthcare providers to maintain high levels of performance, optimize their revenue cycle, and build more productive relationships with payers.

4 Steps for Implementing Payer Performance Monitoring

If the benefits of payer performance monitoring intrigue you, review these steps to understand how to roll it out. HFMA’s Stack and others outline these four steps.

1. Establish baseline metrics

Baseline metrics will be your reference point for measuring improvements and identifying areas that need attention. Key performance indicators (KPIs) such as reimbursement rates, denial rates, collections rates, and days in accounts receivable are commonly used to assess financial performance and payer relationships. By setting these benchmarks, healthcare organizations can track their progress over time and make informed decisions to optimize their revenue cycle management.

2. Regular data collection and analysis

Consistent data gathering allows organizations to monitor trends, detect anomalies, and respond to changes in payer behavior promptly. The analytics tools within contract management software verify adherence to contractual obligations and identify underpayment trends. Underpayments can amount to millions of dollars, as reviewed in this orthopedics group case study. Address issues proactively and refine strategies to enhance performance. Identify both areas of strong positive performance and underpayments and denials that require attention. Focus on areas where the payer exerts a discernible influence on any metric.

Benchmarks and thresholds should be set for each payer and metric, taking into account both the volume of claims and the associated dollar amounts. This strategy is essential for thoroughly monitoring the administrative workload as well as the financial impact of payments.

3. Collaboration between clinical and financial team

Get clinical, financial, and administrative teams aligned so that billing practices match with clinical documentation and payer requirements. Your performance monitoring system should be built from the insights of all stakeholders. You not only get a better system that way, you win buy-in from all involved. 

Then, establishing a unified data platform all can rely on goes further in enhancing productivity and minimizing miscommunication. Finally, integrating insights from both perspectives can lead to more accurate billing and better payer relationships. 

All of this collaborative effort also improves revenue cycle and cash flow. As healthcare operations expert Matt Houston explains to HFMA, it enables providers to:

• “better utilize cost-effective capital sources
• manage working capital and days cash-on-hand
• avoid credit holds and negative effects on credit rating
• drive toward increased automation and efficiency for overall supply chain, and
• bring transparency, visibility and predictability to the cash process.”

4. Leverage Automation and Artificial Intelligence

Leveraging automation and artificial intelligence can significantly enhance the efficiency of payer performance monitoring systems, according to many, including McKinsey experts. Automation reduces manual tasks and errors, streamlining processes such as claims submission and payment tracking. AI can predict potential performance issues and optimize resource allocation by analyzing large datasets. HFMA policy director Stark, mentioned above, echoes that AI-driven tools can identify patterns in denials or underpayments, allowing healthcare organizations to address root causes and identify payer performance issues. By adopting these technologies, healthcare providers can achieve faster, more accurate revenue cycle management and maintain a competitive edge in the industry.

Payer performance monitoring: the foundation of your future success

Will the HFMA’s nationalized scorecard be the love potion to reunite providers and payers? However it’s concocted, keep in mind that it’s designed as a template which all healthcare organizations will adapt. You will still need payer performance metrics, workflows, and data analysis. 

Achieve these goals with MD Clarity's RevFind contract management tool. RevFind meticulously compares each actual payment against the terms specified in the contract, promptly alerting staff to any over- or underpayments. RevFind's ability to ingest, digitize, and analyze all contracts not only detects individual underpayments but also identifies payment trends, makes terms and fees easily searchable, highlights the best and worst payers, and sends alerts for contract renewal deadlines. Physician groups and MSOs improve cash flow, EBITDA, and costs to collect using RevFind. Additionally, RevFind's contract modeling features allow revenue cycle leaders to assess potential revenue gains or losses from proposed payer changes. Users can input their own rates and terms to tweak numbers, receiving unlimited scenario modeling possibilities.

Schedule a demo to watch RevFind uncover which of your payers need to step up and pay more, which of your CPT codes are causing revenue leaks, and which location is struggling. 

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