Contracting: Consider three key questions

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Wednesday, May 13, 2020

Q. What should I consider before renegotiating payer contracts?

A. Renegotiations don’t need to feel like you’re facing Goliath—you’ve got more than a slingshot and it's not one-on-one combat. We’ve outlined three critical questions that need to be considered for the right contracts to be prioritized.

What are your organization’s goals and how can you negotiate to support them?

More money is a core goal, but it’s not the whole story. You should identify how each potential payer negotiation could support your organization’s broader goals. These goals can differ by payer, offering and service area. While there are many ways to categorize your goals, they are commonly sorted into financial, operational and strategic goals.

How do your current contracts compare to each other?

Begin by gathering historical claims data for each payer in your portfolio. You can gather 12-36 months of data but allow for a 60-90 day run-out period for claims to settle. Undoubtedly, you will need to consider any adjustments to the data for notable issues (e.g. claims projects).

Structurally, you should understand the effective date of each agreement, the renewal structure (e.g. multi-year, hard term vs. evergreen), inflators, termination rights and the last increase you received. Contractually, there are terms that you should understand, as well (e.g. timely filing windows, favored nation language, etc.).  For reimbursement, ensure you understand your allowed amount relative to your charges and your paid amount relative to your allowed amounts (i.e. yield).

What portion of your revenue does each payer represent for different segments?

When evaluating your payers and understanding their impact on your business, you can’t overlook what portion of revenue each represents. You should understand the effects of terminating any of your agreements, offering steep discounts or obtaining significant increases.

Armando Cardoso is CEO of Healthcents.com. Reach him at acardoso@healthcents.com.