Payer Contracting: 4 Steps to Maximizing Provider Reimbursement

In a recent AHA survey, 78 percent of hospitals and health systems report that their experience with commercial insurers is getting worse.

Less than 1 percent report any improvement.

Providers claim payers risk patient lives with slow prior authorization approvals and high denials, among other failings.

For their part, payers lament providers’ inaccurate patient data and error-filled claims. 

Tirades targeting each other fill healthcare publications and provider and insurer offices daily.

And then, the two sides must come together via payer contracting to determine how they will trudge through this contentious relationship. 

When provider groups and MSOs make payer contracting the rock in this blame storm, the animosity diminishes, allowing for respect, satisfaction, and a fair partnership to emerge. 

Here, you’ll learn the four steps to payer contracting that establish clear, empowered relationships with your payers and win the fees and terms your healthcare organization needs to thrive. 

Provider investment in assertive payer contracting yields benefits

Given the expanding amount and complexity of data, legislation, and payer restrictions, providers must execute proactive, focused payer contracting. Devoting a year to establishing a modern, streamlined contract management system yields years of advantages.  

Control of payer contracts leads to better:

• reimbursements and compliance
• on-time renewals and renegotiations
• insights into payer performance and contract compliance
• business decisions
• collaboration with payers
• staff time for more patient-centered care
• financial transparency for patients

…and fewer:

• compliance penalties
•  underpayments
• payer disputes
• administrative costs

Only by implementing proactive contract management can healthcare organizations significantly enhance their revenue cycle management.

Contract management wins you a competitive edge

Despite these benefits, 33 percent of providers do not review – not to mention renegotiate – their contracts yearly. 17 percent never review contracts, and 16 percent review every 2 to 3 years or more. Frankly, we’ve had clients pull crumpled hard copies from file drawers that haven’t been opened for five years or more. Given a dire staffing shortage and lack of legal expertise – not to mention the time attention to contracts may take from providing quality care – most providers find it frustrating to devote time to keep up with contract renewal and expiration dates. While 58 percent do review annually, many simply accept payer-initiated fees and terms.

Steps to effective payer contracting

Winning fair reimbursement from payers requires time, expertise, and effort. Still, whether conducted in-house by provider staff, by a part-time contract specialist, or outsourced to a third party, dedicated contract management supports practice and provider group operations. We cover the options for selecting the individuals to lead your contract management here. 

With staff and time assigned, follow these steps to begin the modernization and optimization of your contract management. 

Step 1: Assess your payers’ performance

Payer data, history, and dates you must know

Diving into your contracts and documenting key metrics is the groundwork / grunt work of payer contracting. 

Establish your payer mix: 

After compiling your contracts in one location, get clear figures on how many of your patients utilize which type of insurance: commercial, Medicare, Medicaid, and self-pay. Our recent blog post on payer strategy covers payer mix in depth. Document your payer mix with these steps:

1. Review distribution of payers and calculate revenue contribution from each.
2. Find your fee schedules and evaluate reimbursement rates and terms for top services. Enter these into a spreadsheet, possibly using Excel’s VLookUp function as recommended by business intelligence expert Nate Moore. 
3. Assess patient demographics and healthcare trends
4. Conduct a financial analysis to determine the profitability of each payer
5. Evaluate each payer’s risks
6. Benchmark against industry standards -  private payers pay an average 224% above Medicare rates, according to a Rand Corporation study. 
7. Use analytics tools to monitor KPIs like reimbursement rates, claims denials and more  

Leverage in your negotiations:  the figures you derive from this process provide firepower for your negotiations. For instance, you can share with a payer that, since they insure just five percent of your patients, your revenue will not be significantly impacted should you end your partnership. 

Even better, clear data of your top payers and best terms helps you benchmark how other payers measure up. Later on, we share how contract experts urge providers to negotiate for that top rate PLUS a bit of a buffer. Explaining that you’re getting that rate from your other payers gives you leverage.   

You won’t have any data for the new payers you’re considering bringing on. In this case, your best bet is to evaluate via references. Ask the payer’s other providers whether they’re satisfied with reimbursement rates, contract performance, timeliness and more. 

Explore the payer’s “hassle factor”

Hard numbers don’t tell the whole story, however. At this point, you turn away from contract data and go to your revenue cycle and front desk staff to ask them their perspective on the payer’s number of denials, days their bills languish in AR, record request burdens, time they keep staff on the phone, prior authorization demands. Ask staff to rate them from A to F on how much hassle the payer causes. Administrative tasks take up 30 percent of the provider’s outlays, after all. Delays and excess work that cost you are a key component of the contract, even if measured subjectively. It’s possible you even have to hire more staff because of their disorganization and understaffing – their hassle factor. 

Leverage in your negotiations: mention that your staff gets frustrated with their inordinate delays, denials, and documentation requests at a higher frequency than with other payers. This will not be the first time they’ve heard it. Sharing this information implies that ending the relationship with the payer could bring some relief. 

Time since last negotiation

Back to the contracts to look for one key detail: last renegotiation. 

Payers are happy to keep their terms and fees static year over year without ever hearing from you or getting a signature. Payer contracting expert Doral Jacobsen, urges providers to renegotiate contracts every year.  Still, many healthcare organizations only go through the process every three years or more. In cases where you haven’t renegotiated for over a year, bring that up to the payer representative, mentioning that it’s time you budget for increases. 

Leverage in your negotiations:  mention you’re bringing all of your contracts up to date to modernize and remain compliant with their stipulations and federal regulations. 

Evaluate contract terms

Another aspect you should evaluate in the contract is language surrounding several terms. The language in the following terms often favors payers:

• “Lesser of” language
• Reduction of charges
• Stop-loss
• Charge loss
• Implant definitions
• Contract modifications
• Dispute resolution

One term that particularly frustrates revenue cycle managers is the payer’s ability to unilaterally modify the contract without provider approval. Sometimes, providers get a 30-day notice to object in writing, but this period doesn’t give the provider sufficient time. If the provider misses the deadline, the amendments are implemented automatically. In worse cases, payers add clauses allowing them to amend the contract without any provider consent at all. All relevant contract terms are detailed in a previous contract negotiation article.

Step 2: Define your group’s value and differentiate it from competitors

A contract is an exchange of value. Once you use the above steps to determine the payer’s value to your organization, you, too, must define and prove yours to them. In addition to what you bring to the payer, you must emphasize how these are aspects no one else in your location offers (your differentiator). 

Sometimes contract managers are so close to the practice, they struggle to determine what that value and differentiator would be. These examples and suggestions will help: 

Cleveland Clinic

Where every healthcare organization may claim to offer patient-centered care, few can t boast that they are nationally recognized. The Cleveland clinic also chooses to call out the collaboration between partners, clearly a feature they believe ascribes them additional value. Finally, while a portion of healthcare systems are involved in research, it’s worth noting that Cleveland Clinic prioritizes this. 

MD Anderson Cancer Center

Their lead paragraph states: 

“Every day, people like you choose MD Anderson for cancer treatment. But it’s more than our decades of experience, top national rankings and leadership in cancer prevention that set us apart. It goes beyond our groundbreaking research and innovative clinical care that provide new therapies years before they become standard in the community. It’s because we put all of our focus on you.”

MD Anderson collapses its value pillars into one paragraph listing decades of experience, top national rankings, groundbreaking research, innovative clinical care, and new therapies not only as what defines them, but what helps them stand out from peers. 

‍

UCSF Health

UCSF runs their value pillars vertically down the page, making it difficult to display here. After this displayed above, their headlines are: 

‍

We have expertise in your condition.

Our teams welcome the toughest cases.

We’re known [recognized] for outstanding care. 

We’re breaking new ground. 

‍

All three healthcare organizations list their value and differentiators on their homepage. 

If you are stuck on what your “value pillars” could be, know that you don’t have to tackle this project alone. Go to your front desk staff and revenue cycle people and ask them what makes your organization stand out. What have they heard from patients about why they like your system better than others? You can also go to your own reviews to see what patients agree on about the benefits of patronizing your practice. 

Other unique differentiators you can include are:

• A specialty not offered by other organizations in the community
• A patient population the payer has a particular interest in (seniors, executives, chronic conditions, etc.)
• Extended evening or weekend hours
• Robust cost-containment strategies
• A modern, automated revenue cycle
• Patient education: regular informational updates, webinars, newsletters, etc.
• Patient convenience: digital tools such as text messaging, secure patient portals, and telehealth options for patient convenience
• Transparent cost information via good faith estimates provided before treatment
• Flexible payment options, including online and mobile payments
• Digital access - portals, telehealth, records, and communications
• Clinical expertise - anyone an author or expert featured in the media
• High ratings from ZocDoc, HealthGrades, RateMDs, and Vitals
• Concierge medicine

With your advantages and differentiators listed, craft them into a paragraph that conveys your value. Also, consider the payer’s goals, some of which are delineated in this article from Becker’s.  Here are some formats you can consider for your value paragraph: 

• ABC Health’s ( advantage #1), ( advantage #2), and ( advantage #3) helps (payer) (grow, promote, stabilize, establish,) its (payer goal.)

• By offering (advantage #1) that no one else can, ABC Health ensures (payer) contains costs/grows membership/improves reputation/diversifies specialties. 

• ABC Health’s focus on ( advantage #1), ( advantage #2), and ( advantage #3) helps (payer) fulfill its promise of (trend: value-based senior care, AI-driven healthcare, vertically-integrated healthcare, improve post-pandemic, leverage big data, improve health equity, deliver affordable community health.) 

Practice this “elevator speech” not only to quickly convey your value, but also so your rep can easily repeat it to decision-makers. Give your rep the ammunition to get you the contract changes you want. 

Step 3: Determine contract priorities

With your groundwork done, now you have your current contracts in front of you. A clear idea of exactly what you’re bartering with and the value the payer provides empowers you. 

Consider starting with the contract in dire need of fee increases and term changes. Compare its rates to the contract providing the highest fees, information you should have gathered in step one. Aim for a 3 to 5 percent increase in every procedure every three years.

As contracting expert Doral Jacobsen (mentioned above) emphasizes, you can also  propose a rate 10 percent higher than your best payer’s rate for the same service. If none of your contracts has the terms or fees you want, research what amounts and language others in your area enjoy. You always have Medicare rates to benchmark all of your payers against. 

Determine the lowest rates you’ll accept for each CPT code

Another way to get an idea of the lowest rates you’ll accept for each CPT code is to add up your revenue for the past 12 months. Divide that number by the number of patients your organization negotiated. If your practice remained profitable and your 12 physicians brought in 2.4 million dollars, each office visit brought in $200. A contract management software system can provide the data to help you with these calculations. 

Take a quick, self-guided tour through a powerful contract management and underpayments recovery tool:

List out all of your changes. Then categorize them into three categories: “must-haves,” “like-to-haves,” and “ideal.” Which “must-haves'' that you don’t win will prompt you to walk out on the contract and the payer. Contract negotiators remind us that the payer’s first answer is always, “no.”  As the expiration date approaches, you will most likely need to file an extension. Brace yourself for this contract negotiation to extend for months and you file extension after extension. We discuss below how to leverage these dates along with extensions to get payers to act. 

With each interaction, restate your determination to change contract fees or terms. Marshal your data and try to avoid getting emotional. Hit them with your other payer’s rates and terms. Emphasize that only with these reimbursements can you provide excellent care to their members. 

Step 4: Negotiation - Showtime

Payers are notorious for taking forever to return emails and phone calls. But if you have assembled contract renewal dates, extension terms and termination dates, along with the consequences that arise for missing any of these, they will be forced to act. Every human has a squeaky wheel orientation, and your dates will prioritize your contracts.  

Find your negotiation window in the terms section of your contract. Most contracts allow negotiations within 60 to 90 days of contract renewal and even name it as “the negotiation window”.  Know, too, when you can legally EXIT the agreement all together.

When you plan to contest fees and terms, your first step is to send a letter notifying them of these key dates. Start with this sample and modify per your needs:

[Healthcare Practice Letterhead]

[Date]

[Insurer's Name]  

[Insurer's Address]  

[City, State, ZIP Code]

‍

Dear [Insurer's Name],

I hope this letter finds you well. I am writing on behalf of [Healthcare Practice Name], a dedicated provider committed to delivering high-quality care to our patients. As healthcare continues to evolve, so too do the needs and challenges faced by our practice. In light of these changes, we would like to request the initiation of renegotiations for the contract between [Healthcare Practice Name] and [Insurer's Name]. Per our contract, our negotiation period runs between [Date 1 - Date 2] and our contract expires on [Date 3]. 

Over the past few years, we have witnessed significant increases in supplies and labor costs.  In addition, advancements in medical technology, changes in regulatory requirements, and evolving patient expectations, among other factors have created financial pressure. These factors have a direct impact on the cost and delivery of care, and only a review and update of our current agreement will ensure it remains fair and sustainable for both parties.

Key areas we propose to discuss include:

1. Reimbursement Rates: Given the rising costs associated with delivering high-quality healthcare services, we seek to adjust our reimbursement rates to better reflect current market conditions and the value of the care we provide.

2. Value-Based Care Initiatives: As we continue to adopt value-based care models, we propose to incorporate metrics and incentives that align with improved patient outcomes and cost-efficiency. This will help both our practice and [Insurer's Name] achieve shared goals of enhancing care quality while managing costs.

3. Administrative Simplification: Streamlining administrative processes is critical to reducing the burden on our staff and improving efficiency. We would like to explore opportunities to simplify claims processing, prior authorizations, and other administrative tasks to benefit both our practice and [Insurer's Name].

4. Coverage and Network Adjustments: As our practice expands and adapts to meet patient needs, we may need to reassess network coverage and ensure that our services are accessible to the broadest possible patient base. This includes discussing any necessary updates to the list of covered services and provider network agreements.

We believe that renegotiating our contract will not only strengthen our partnership but also enhance the overall patient experience and outcomes.  

We are eager to begin this dialogue and are happy to schedule a video or in-person meeting. As our contract renewal date is [Date 3], 45 days from now, we would like to start discussions by [Specific date.] I will call or email you on [date 4 - a week or so later] to arrange a suitable time for discussions.

Thank you for your attention to this matter. We look forward to your positive response and to working together to achieve mutually beneficial outcomes.

Sincerely,

[Your Name]  

[Your Title]  

[Healthcare Practice Name]  

[Phone Number]  

[Email Address]

---

There: you’ve delivered the first shot across their bow. If they do not respond within the timeframe stated, explain that you will not renew unless they do. Contract negotiation specialists assure us that persistence and tenacity eventually trigger them to respond. 

How to ask for higher reimbursement 

Asking for more money makes some uncomfortable, but remember that you are not advocating to buy a Ferrari, you’re determined to deliver life-saving care to your patients. 

Adopt an entitled mindset

Keep in mind that most insurers are making profits in the billions or hundreds of millions. Insurers profit margins consistently range between 3.3 and 3.4 percent where hospitals’ operating margins reached an average of 2.3 percent just in the last year, according to Kaufman hall. 

Average hospital operating margins have see-sawed over the last 12 months, from a -1.2% low in February 2023 to 5.5% highs in June and December.

As more than 77 percent of physicians are employed by hospitals, most providers should be interested in how their employers are faring. 

Going beyond hospitals to healthcare systems, Becker’s list of 43 top U.S. health systems reveals 26 are operating in the black, one dead even with revenues meeting expenses, and 16 operating at a loss. The Cleveland Clinic has an operating margin of just .4 percent, Mayo Clinic’s is 4 percent, and HCA Healthcare’s is 11.8 percent. Alina comes in last of the 43 with a loss of 6.8 percent

And when insurers profit, they profit big.  UnitedHealth Group’s 2023 profits were 5.5 billion on $22 billion in revenue. Blue Cross / Blue Shield revenues hit $9.3 billion with a  net margin of 1.6 percent or 1.48 billion. 

Providers have every right to fight for fair revenue. 

Communicate clearly and with respect

Despite the frustrations insurers cause you, we challenge you to reframe your view of your insurer rep as an ally rather than an adversary. The rep needs to take your case to their superiors for authorization. The better case you give them, the easier their job is, and they have a tough job, too, dealing all day with people who are unhappy with them. Keep in mind that, if you’re rude or short, you may be establishing a “hassle factor of your own.” We are all humans, and humans respond better to those with whom they have easier relationships. Always start your communications with alliance-building small talk. Watch the headlines for news about the insurer and share any good news you’ve noticed. The weather, holidays, funny news headlines are always good conversation starters as well. 

With a date on the calendar and your notes about each fee or term you want changed organized, get ready for what most likely will be a phone or in-person conversation. More payers are traveling now to negotiate face-to-face with providers they value. Before this phone or in-person meeting, practice your value proposition so you and your team have it down cold. Always take notes when you’re in a phone conversation. Once the conversation is over, send a list of points of what you’ll do next and what you expect them to do. Of course, include all dates: expiration, extension, and exit as these are hard stops with concrete consequences. 

A week before the meeting, prepare a written agenda and send it via email. A common agenda outline is: 

• Intros
• What’s new at insurer (small talk) 
• Delivery of your value proposition
• Collaboration
• Next Steps

At the end of the meeting, state what you’ll be doing, what they’ll be doing and include the dates. Add, “did I miss anything?” to demonstrate that you want to listen and solve their problems as well. 

Evaluate their counter-proposals and counter back

 Review the payer’s response but always work those extensions and terminations. Keep in mind that a contract renegotiation can take a year, with extension after extension rolling out. If your team begins to tire, consider bringing an outside contract expert or contract management software. A fresh start and a new perspective can get negotiations moving again. 

Get the data and support that empowers your contract negotiations 

Effective contract management in the revenue cycle takes dedicated effort. It’s new to many physician groups, MSOs and practices, and it takes the firepower of data and insights to make and win your case.

MD Clarity's RevFind automates contract management so that practices, physician groups and MSOs can discover their best and worst payers, identify payment trends, and uncover payer underpayments. It digitizes and centralizes all agreements in a single location and automates alerts about contract expiration, renewal and exit dates, so no deadlines are missed. You can even configure it to notify you 90 days ahead of these important dates in order to start negotiation processes early. It automatically populates reports comparing reimbursements by CPT code and provider location. Further, by including benchmarks set by Medicare, RevFind delivers another dimension for comparing payer contract performance and reimbursements with each other.

This system also scrutinizes each payment received against the contract’s stated terms. Once staff are alerted to discrepancies, they can reach out to payers and rectify the improper reimbursement. By identifying systemic root causes as well, you can  avert future underpayments. 

Schedule a demo to see how RevFind provides the insights about payer contract performance and the contract improvements that help you boost net revenue. 

‍