Effectively managing and modeling payer contracts is crucial for hospitals and health systems, as the terms of these contracts have a significant impact on a healthcare organization's financial performance.
Payer "contracts are the lifeblood of an organization," says Tim Comp, regional manager of enterprise solutions at health IT company ZirMed. These agreements dictate how a healthcare organization is reimbursed, which makes it vital for hospital and health system leadership to negotiate strong contracts. Mr. Comp says organizations that fail to pay close attention to the contracting landscape and negotiate poor contracts are "going to hurt in the long run," as they're not going to be paid well for their services.
Mr. Comp and Steve Gilb, data and analytics manager at ZirMed, recently spoke with Becker's Hospital Review about how hospitals can successfully manage and model payer contracts and ensure accurate payment.
Note: Responses have been edited for length and clarity.
Question: How can hospitals successfully manage payer contracts?
Tim Comp: Managing contracts successfully starts with clearly understanding all aspects of your contracting landscape. That can be allowing others in the organization to leverage the contracting material to perform their functions better. Managed care is not the only team affected by these agreements. Revenue cycle, patient financial services, finance, among other teams, all need to understand and utilize this information. These teams will be fighting denials, working variances and updating pricing, among various other tasks that are directly tied to reimbursement. Everyone who is involved with reimbursement across the organization needs to be able to understand this material in an easily digestible format, have the appropriate material at their fingertips, and then best be able to act on their respective responsibilities. Ensuring contracts are managed well allows an organization to better understand how it is performing overall, as well as improve the job functionalities of all the teams involved.
Also, the idea of knowing how your services are being reimbursed regardless of what contract or payer is absolutely critical. This is particularly true for services that you perform frequently or are a specialty. It's getting into this level of detail. You need to know how you're reimbursed for procedures, drugs, supplies, etc. to collectively have a clear picture of your organization's health. This also helps in identifying different types of reimbursement opportunities. Comprehending all the details that are written into your contractual agreements gives you the ability to constantly work toward better goals and improvements.
Steve Gilb: In addition to understanding how various components reimburse and the in-depth structure of your contracting landscape, you need to have a comprehensive view of your business and your patient population. So that means taking it a level higher than the code by code, line by line level and really anticipating the impacts of factors such as an aging population, an emphasis on encouraging outpatient and preventative care utilization, and organizational investments in expanding or contracting service lines. All of these will directly impact revenue and margins, so understanding the role of your contracts and how these changes will enhance or hurt the performance of those agreements at a macro level is critical to ensuring the healthiest top line for your entire organization.
Q: How can hospitals successfully model payer contracts?
TC: From a modeling standpoint, to be successful starts with an appropriate plan, regardless of if you're entering a negotiation with ideas to propose to a payer, if a payer has a proposal out to you, or if you are just performing some sort of financial analysis around reimbursement. You need an accurate, fast and streamlined process that is focused around not just big picture, but digging deep into the details.
Providers can get hung up at the high level, focusing on a dollar improvement across the board. That's a great place to start, but that should not be where the analysis ends. You need to drill down into the actual details of the model itself. There could be pockets of underperforming language that will only hurt an organization in the long run. You could be putting too much faith into certain contractual terms that may change as new patients come to your system. Be analytical. Be efficient. Have a process in place that allows for you to be iterative and that can change as your environment evolves. Couple this with best management practices that lead to identifying enterprise level opportunities to succeed with modeling and negotiating contracts.
SG: When you are modeling the impacts of a new proposal or going through the iterative process of building a counterproposal, another best practice is to leverage Medicare as a baseline in addition to your existing agreement with that payer. You should not take on agreements in which you will be paid less than Medicare for any services, but too often proposals are only weighed against their predecessors, and pockets of lost opportunity can emerge without having this Medicare comparison as a guardrail. If a model shows your revenue in a given area is eroding as compared to a percent of Medicare, that should be an indicator the agreement carries downside that you may want to negotiate around or make up for on other service lines.
Q: How can hospitals successfully manage and model payer contracts while ensuring accurate payment?
SG: Ensuring accurate payment is a difficult battle, but it's definitely a battle you need to be fighting as an organization and staying on top of. It is not necessarily the case that payers are specifically trying to underpay, but as you get into these complex agreements you do see an increased margin for error and room for interpretation that can lead to dispute. Recouping these variances individually is important, but having technology and processes in place that allow you to verify trends and their root causes is critical for appeals and essential information for correcting these trends with future agreements. So if you see services consistently being underpaid, you may want to focus your initial recovery efforts there and also identify if the contract itself could be modified to reduce these discrepancies. Having this level of insight can help prioritize the highest areas of opportunity for your staff, surface chronic issues to the payer and improve the overall quality of your contracts.
TC: Another piece to aid in ensuring accurate payment is surrounded by developing great relationships with payers. Organizations spend a lot of time working with these payers, whether it be in the negotiation phase or in fighting variances. The better the relationship you have with the payer, the better your collective work can be. From a variance aspect, you need to make sure you are quickly and accurately identifying true variances. You need to be eliminating false positives as much possible. You need to have all the appropriate material with you while working with the payer. This will aid in eliminating wasted time on both your side, as well as the payer's. Develop a great relationship, eliminate wasted time, and do not take any aspect of contractual reimbursement lightly. Your organization depends on its success.