Reviewing Payer Contracts: Essential Strategies for Strengthening the Revenue Cycle

In healthcare revenue cycle management, financial stability and growth start well before patient care. One of the most critical, and often overlooked, aspects of this process is the payer contract itself. Each contract you sign with a payer is a financial agreement that determines the structure of your revenue for years. By proactively managing these contracts, you can set your practice up for long-term financial stability, even as payer expectations and reimbursement models evolve. Here’s a deep dive into how to review, manage, and leverage payer contracts to future-proof your finances.

Understanding Payer Contracts and ‘Evergreen’ Clauses

The revenue cycle begins when a contract is signed with a payer. Without diligent management, many contracts enter ‘evergreen’ mode, which means they automatically renew without review. This might seem convenient but often results in outdated reimbursement terms and missed opportunities to adjust rates or renegotiate terms as your costs increase. Regularly revisiting contracts before they renew helps your practice stay aligned with current market rates and regulatory requirements.

Case in Point: One of our esteemed clients, a large family medicine practice continued with an evergreen contract from a leading payer, which was tied to outdated Medicare rates. Over time, we noticed significant revenue discrepancies compared to similar practices. By renegotiating the contract terms, we were able to secure reimbursement based on current-year Medicare rates, resulting in a 15% increase in revenue for our client.

Getting Granular with Pricing: Beyond the Basics

When reviewing payer contracts, it’s essential to understand specific reimbursement rates rather than accepting a generalized payment structure. Many payers tie reimbursements to a percentage of Medicare rates, but the reference year can vary greatly. For instance, if the payer is using an old rate schedule, you could be losing money with each procedure.

To ensure clarity, request specific information about reimbursement schedules, including the rates for different years and how modifiers and multiple procedures impact these payments. State medical societies can provide additional support for transparency if this information is challenging to obtain.

Pinning Down Terms in Value-Based Contracts

Value-based contracts, which focus on quality and efficiency metrics, are becoming increasingly common. They often come with confusing terms, including:

• Withholds: A portion of payments is held back and only released if certain quality metrics are met.
• Bonus Payments and Bundled Payments: These payments can vary based on outcomes or patient satisfaction.
• Risk-Based Distribution: Reimbursement is tied to performance on certain utilization metrics, like reduced readmissions or improved preventive care for chronic conditions.

Because of these complex terms, it’s crucial to know which patient populations are being measured and how attribution affects your performance on these targets. It’s also vital to integrate your contracting and revenue cycle teams to navigate these terms and ensure you’re meeting targets for full payment.

Case in point: One of our esteemed clients, a multi-specialty group practice had entered a risk-sharing contract with a payer, with part of the payments tied to reducing unplanned readmissions. However, we discovered that the attribution of patients was inconsistent, causing confusion about which patients counted towards their target. By clarifying attribution with the payer, we managed to focus on the right patient population, leading to an improved readmission rate and the release of withheld payments.

Monitoring Patient Payments and Managing Revenue Gaps

In addition to ensuring reimbursement from payers, it’s critical to account for patient payments. Increasing patient financial responsibility, from copays to high deductibles, means that patient payments are a large component of practice revenue. However, these payments can be inconsistent, creating gaps in expected revenue.

For example: Suppose Payer A allows $200 for an office visit, but the patient fails to pay their $60 copay. Instead of receiving the full allowable amount, your practice ends up with $140. When these patient payments aren’t met, it’s not only a blow to revenue but can complicate financial forecasting and collections processes.

To bridge this gap, consider implementing automated payment reminders or digital payment options that facilitate quicker collections. Additionally, evaluating the cost of services against these payment trends can help identify whether certain services or payer contracts are financially viable.

Performing a Cost Analysis to Inform Negotiations

Evaluating the cost of services compared to reimbursement rates is essential in understanding your practice’s financial health. By conducting a cost-per-RVU analysis, you can pinpoint which procedures and services are profitable and which might need to be renegotiated.

Cost-Per-RVU Formula: Sum of Operating Costs ÷ Total RVUs Produced = Cost per RVU

Why it Matters: Once you know your cost-per-RVU, translate it to the procedure code level to compare with expected reimbursements. This process reveals services that may not be sustainable at current reimbursement rates and provides data to leverage during contract negotiations.

Assessing Payer ‘Hassle Factors’

Each payer comes with administrative burdens that can significantly impact your practice’s efficiency and cash flow. Common hassle factors include:

• Pre-authorization requirements: Percentage of services requiring payer authorization.
• Denial rates: Frequency of denied claims on the first submission.
• Appeal success: Success rate for appealing denied claims.

Tracking these metrics can help you determine which payers are more time-consuming and resource-intensive. Automating parts of the remittance and denial management process can reduce these hassles, allowing your team to focus on higher-value tasks.

Case in point: We’ve helped one of our clients, a medium-sized orthopedics clinic, track their denials by payer and found that one specific payer had a significantly higher rate of initial claim denials. By incorporating an automated claim submission and denial management system, they reduced denial-related delays and improved cash flow.

Reviewing the Fine Print for Better Risk Management

Don’t overlook the fine print in your payer contracts. Important clauses to review include:

• Termination Clauses: Understanding termination terms can help you anticipate contract end dates and avoid evergreen renewals.
• Filing Deadlines: Missing claim submission deadlines can result in lost revenue.
• Recoupments: Knowing how and when payers may recoup payments can help you manage cash flow effectively.

Assigning someone on your team, or even hiring an intern, to audit these clauses and ensure they align with your practice’s financial goals is a low-cost way to mitigate financial risks.

Taking Action with Business Intelligence

In today’s competitive environment, leveraging contract intelligence is crucial for financial health. This means gathering and analyzing data from your contracts and using it to make strategic decisions. Here are some actionable steps:

• Report Anomalies: If you notice consistent underpayment or other issues, consider reporting them to insurance commissioners or advocacy groups.
• Negotiate Specific Terms: Adjust contract clauses, such as extending filing deadlines, to meet your practice’s needs better.
• Consider Dropping Low-Performing Payers: If certain payers are not financially viable, explore the feasibility of ending contracts. Given provider shortages, payers may return to the table with better offers.

Case in point: A small independent primary care group found that one of their payers was consistently failing to reimburse at market rates. By signaling their intent to end the contract, they successfully renegotiated terms that better aligned with their practice’s financial goals.

Future-Proofing Finances through Strategic Contract Management

Managing payer contracts proactively is one of the best ways to secure long-term financial health for your practice. By understanding pricing details, clarifying terms, performing cost analyses, and leveraging data on hassle factors, your practice can transform contract management into a tool for financial security. Taking a proactive approach can prevent evergreen contracts, mitigate revenue losses, and even open doors to more favorable terms and conditions, enabling your organization to navigate the complexities of today’s healthcare reimbursement landscape successfully.

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