Contract Negotiation: Your best defense against leaving money on the table when negotiating new payer contracts

On 17th Apr 2019
healthcare contract negotiation

No one likes contract negotiations with payers. They are time-consuming, complex and in some cases, downright intimidating. Payers have a lot of staff, a lot of money and the ability to dissect every word of every contract. They can manage contract negotiations to their favor and leave healthcare providers with minimum payments, substantially discounted fees, and hidden cancellation and renewal clauses. Providers, on the other hand, may enter the negotiations at a disadvantage. They have little time to prepare and even less time to become familiar with the intricacies of each contract. It’s an equation that doesn’t bode well for reimbursement. However, healthcare contract management software can shift the balance back into the provider’s favor. Knowledge is power and nowhere is that more relevant than during contract negotiations with your payers.

The essential need for informed negotiations  

Navigating the deep waters of 3rd party payor contract negotiations is best handled with the help of a contract negotiation tool. It’s a requisite life jacket that can help the healthcare organization traverse from one shore of the negotiations to the other safely - and above water financially. A contract negotiation tool gives the organization powerful information for beneficial negotiations, for example:

  • Payer history of timely payments

  • Payor track record of meeting conditions for payments

  • Rates for services and payer history of underpayments and denials

  • Covered services and caveats for coverage

Armed with these insights, hospitals and providers can negotiate beneficial contract terms.

Start at the beginning

Knowing when contracts renew, and when payers require notification of renegotiation is the most important first step. It’s a window of opportunity that can be missed easily. For example, some payers require notification of non-renewal 90 to 120 days before the contract anniversary date. If you do not know that, the contract renews automatically on the current terms.

This may sound like a simple step but given the number of payers any one hospital may contract with and rolling renewal dates, it can be a puzzle equal to a Pythagorean theorem. To get to the starting gate you need to know and track renewal dates and other minute details for each payor including:  

  • Knowing where the contracts are kept

  • Opening mailed communications from the payor when they are received

  • Knowing what type of communications payors use – mail, email, etc.

  • Knowing when clauses can trigger automatic renewals, missing renegotiation opportunities

  • Dates when actions are required to maintain the contract

A healthcare contract management tool provides the infrastructure necessary to organize these details so they don’t slip through the cracks and cause lost revenue for providers.

Rates are king

The first goal of healthcare contract negotiations is to secure a favorable fee schedule for services. Before entering negotiations, study your current fee schedule and know your terms. Then talk to people. Talk to internal stakeholders like department heads in finance, patient accounting and medical staff.  Learn how service lines are doing and what the bandwidth is for rates. What are net revenue targets for each service line and what payor issues exist in those areas? It’s essential fact finding that will arm you with actionable knowledge for successful negotiations.

Once you have this information, look at service trends for your organization. Review the most common services provided by your physicians and the contracted reimbursement rates for those services.

  • Study productivity by CPT code

  • Review ICD-10 frequency

When you know the codes for the services you provide, you can ensure they are included in negotiations. Even rare services should be fully paid and included in the fee schedule.

Once you know where the business is, where it is slated to grow, and what the reimbursement should be, you will have the first draft of your rate map for the negotiations. The goal is to make sure your rates remain competitive, while giving the organization the income it needs to remain viable and grow.  

One more point; in your analysis of service lines and payors, make note of the payors that have the most impact on the organization, either through low reimbursement rates or underpayments and denials. Those issues will have to be addressed during negotiations. A healthcare contract management tool will track these details and give you all the insights you need well in advance of entering negotiations.

New services, value and the contract

Understanding your patient population is key to negotiating appropriate reimbursement. As you talk with payors, you will need to know exactly what your population is and what they consume for services. Where will you be adding new services to meet the needs of your population and what will you need for rates? Possessing this information allows you to negotiate for rates for new services and avoid leaving money on the table.

The other side of the coin is knowing which services are underperforming. What is the outlook for those services? If they are going to be phased out, they will require less focus during negotiations.

You will also want to have data on value, quality, safety and efficiency. It’s just as important as understanding service lines. Payors will want to know how providers are performing. Strong performance measures give you added negotiating power.

How to simplify the contract negotiation process

The bottom line is that the only way to simplify a complicated, time consuming contract negotiation process is to implement a healthcare contract management and modeling tool. If an automated system is gathering data throughout the year, it is managing information for contract negotiations. It will deliver actionable data that allows you to determine with internal stakeholders, organizational goals and objectives for payor contract negotiations. Otherwise, you are left to a convoluted, lengthy fact gathering process that consumes valuable time better spent on patient care.

When you look for a payer contract management tool, make sure it has the following features:

  • Accurate contract modeling that can model any contract

  • Functionality that works with any patient accounting system

  • An easy to use, intuitive interface

  • A cloud-based, HIPAA compliant, secure system that combines healthcare contract management, reimbursement modeling and payment recovery

  • Easy implementation with launch in as little time as 30 days and as few as 10 FTE hours

The best contract management tools include healthcare contract simulation. It helps providers perform “what if” scenarios for comparing new proposed payer rates for multiple scenarios, helping assure they make quality contract negotiating decisions. More knowledge is more contracting power.

Contract negotiations always seem complicated and the process can become overwhelming. But there is hope! Tracy Watrous, Vice President Member Services and Content Development at MGMA, was quoted as saying, “Most of the payers count on the fact that the majority of their providers don’t have the time to go through this process. So, don’t give up. Any work that you do in this area is good work. If you just start with the basics and create that foundation, any progress you make from there is good progress.”

Revenue Masters SaaS platform offers a powerful contract simulation tool for better contract negotiation decisions, along with that we offer full transparency into contract management & modeling for 100% collections. Revenue Masters also offers a mobile app for tracking collected vs. collectable revenue 24/7. Click here to learn more about Revenue Masters, contact us today at (877) 591 2590, or email us at