Guest Post: 3 Steps to Successfully Model Hospital-Payer Contracts

Thursday, May 24th, 2018
This post was written by Brad Olin

Allowing your healthcare organization time to prepare for modeling long-term contracts can be the difference in maintaining revenue integrity.

When a hospital’s financial success is largely based on its ability to accurately collect reimbursement, allowing your healthcare organization time to prepare for modeling long-term contracts can be the difference in maintaining revenue integrity.

But how can you be absolutely sure your organization isn’t leaving money on the table?

One way (and probably the most direct route to the answer) is to start with contract governance by establishing a foundation of accuracy to (re)evaluate the current process your organization has for modeling contracts. This allows your organization to take a deeper dive into your payer contracts and determine the root cause(s) of your current issues.

Because without accurate data and analytics supporting your current contracts, how can you be expected to confidently predict future reimbursement and outcomes?

Ask yourself these questions:

  • Do I understand my current contract composition?
  • Am I benchmarking against competing payers’ overall performance, current market rate, leadership dependencies, etc.?
  • Has my organization implemented a scorecard to measure its performance?

Initiating the Negotiation

Let’s begin with understanding the components within your current contracts.

Ask yourself “What don’t I know about my current contracts?”

While knowing which specific areas of care you need to address is certainly important to discuss prior to (re)negotiations, being aware of what you don’t know lets you gain a more comprehensive understanding of other aspects of care you may be neglecting, but have significant impact on your reimbursement rates (i.e. reimbursement rate schedule, claims adjustment schedule, etc.)

Before the negotiations begin, it’s important to look at all options for negotiating the conversation and identify any barriers that may hinder your organization’s ability to leverage any power in the negotiation. For example, some contracts include provisions with a notice window prior to its auto-renewal.

Keep in mind, however, that if both parties are on good terms and mutually agree to discuss payer contracts, negotiations can still take place despite what the contract may say.

The next step is to reassess the contract terms of the base agreement and its amendments, regardless of the date of those initial agreements. Take note that generic language and changes during prior negotiations do not necessarily dictate future contract terms. Then, you can isolate which areas of care within your organization are most important to your organization that is not a provision of the current contract.

Setting Benchmarks

After an organization has done their homework and prepared a list of objectives to achieve during the negotiations, the next step is to figure out with the payer how you’re currently performing under the current contracts.

Using a set of predetermined contract performance metrics, you can compare projected and current conditions side-by-side to determine what financial improvements you can realistically expect to see in the near future.

While every hospital comes with its own unique set of challenges, here is a list of common performance benchmarks any organization can use to establish a basis for how they should be performing in specific areas of care:

  • Benchmark against original projections—Comparing actual performance against what was projected when negotiated.
  • Benchmark against current/projected high-volume services—Mining your claims data and assess the current revenue value per service, particularly those that are growing in volume.
  • Benchmark against industry benchmarks—Convert proprietary contract reimbursements to a percentage or charge equivalent and a Medicare relativity to assess the playing field.
  • Benchmark against leadership dependencies—Establish what role this payer needs to play in supporting your organization.
  • Benchmark against competing payers’ overall performance—Revisit against competing payers’ overall performance.

By combining industry benchmarks with accurate data to gain a clearer understanding of your projected financial impact, the hospital can gain a clearer understanding of how they’ll execute their goals and eventually develop a consistent routine for modeling future payer contracts as well.

Using Scorecards to Measure Payer Performance

After you’ve established set goals and a realistic plan for executing those goals, the final step involves measuring the success of your payer contracts using a variety of standardized metrics. These metrics include:

  • Year-over-year collections
  • Collections by payer
  • Collections by month
  • Collections by service code

Through the use of a scorecard, hospitals can engage in more proactive negotiations with the payer by presenting accurate data metrics to justify future contracts and mapping out any areas that are falling short of expectations. Then, hospitals can focus on why it did not meet expectations and use that information to be better prepared for the next set of payer negotiations.

Any organization can make a list of things they need to improve on for future contract negotiations, but without accurate data driving each negotiation, hospitals can’t confidently make realistic predictions on how it will affect their financial standing, say, a year from now.

At the end of the day, what all the negotiations really comes down to is whether or not your organization is able to maintain revenue integrity year-in and year-out. Building on a foundation of accurate data, hospitals can prepare for negotiations by learning how to properly initiate the negotiation, set benchmarks, and measure the payer performance. This, in turn, will allow your organization to meet their financial goals and produce more predictable results.

Brad Olin

Brad Olin

About the Author:

Brad Olin is the Marketing Communications Specialist at PMMC, a leading provider of revenue cycle management solutions for hospitals and healthcare systems across the U.S. Brad offers a modern outlook into the evolution of the healthcare industry and general practices used to grow an organization’s revenue integrity.

HIN Disclaimer: The opinions, representations and statements made within this guest article are those of the author and not of the Healthcare Intelligence Network as a whole. Any copyright remains with the author and any liability with regard to infringement of intellectual property rights remains with them. The company accepts no liability for any errors, omissions or representations.

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