Introduction

Because payor contracts constitute a major source of revenue, good and bad contracts strongly influence a provider’s relative financial success. Identifying appropriate payors and negotiating and operationalizing successful payor contracts requires careful and comprehensive planning. This blog post provides practice pointers to achieve those aims.

Strategy

Developing a payor strategy typically involves two phases of activity. First, assess the provider’s mission and goals and translate these into a plan to highlight relative strengths. Second, assess negotiation leverage by comparing objectives to those of payors and analyzing market share and reputations. After completing these tasks, begin to prepare the strategy for achieving your goals. Detail both short and long term goals for the payor relationship as these provide guideposts for contract negotiations. To this end, it is important to ensure effective preliminary communication with, and meaningful input from, clinical, financial, administrative and information technology stakeholders to obtain comprehensive input regarding desired priorities.

Payor Assessment

In evaluating a payor, providers should consider the payor’s organizers, ownership (for‑profit/non‑profit) and board composition. If practicable, review the payor’s marketing plan, including target facilities and strategy, and evaluate its reputation. Consider whether a contract with this payor will be beneficial to your image and whether you want to become involved in the payor’s advertising efforts, if asked to do so. Evaluate incentives for quality outcomes, coordination of benefits, relative financial performance, and whether plan premiums are competitive. Finally, assess the payor’s management team, historic administrative costs, historic capability in processing payments (if practicable), and relative information systems compatibility.

Negotiation Checklist

To facilitate comprehensive and organized contract review efforts, prepare a negotiation checklist. Include detailed payor contact information, including that of third‑party administrator(s), if applicable. Include detail in the checklist pertaining to the contract term, including effective, renewal and ending dates, as well as termination notice. Note information regarding which services are expressly included and which are excluded. Detail rate information by type and note applicable triggers for rate changes, as well as financial incentives and billing and claims processing language. Add utilization review and applicable audit related detail.

Rate Negotiation

Attempt to negotiate better rates based on relative strengths such as demonstrable quality outcomes, technological advantages and your significance to payor’s network. Consider whether any proffered rates are competitive for the given market. Assess proffered rates by allocation of such amounts between fixed and variable costs.

Insurance

The contract should clearly note the required coverages of each party and provide for notice of changes in coverage. Tail coverage should be addressed, as appropriate, as well as detail regarding cooperation in defense of claims.

Term/Termination

Due to market place volatility and the financial status of many payors, the term should generally be short, unless the payor has a strong market history and provides favorable rates with appropriate inflators. Ensure that contract tracking software systems are used so that key contract dates are not missed. This is especially important with respect to any automatic renewal provisions.

Contract Review Process

To facilitate a comprehensive review, circulate the draft contract to your team, including administration, finance, legal and clinical stakeholders. Negotiate as needed with the appropriate payor contact to attempt to meet short and long term objectives. Carefully review contract provisions and suggest revisions and additions to payor, where necessary, to ensure that terms and concepts are clearer and to avoid disputes due to ambiguities. Complete a comprehensive final review of the draft to confirm that all agreed upon revised or added terms are reflected in the contract.

Contract Administration

Once a contract is executed, remain vigilant regarding the payor’s fulfillment of its duties and responsibilities. Effectively communicate and coordinate regarding contract issues with administration, legal, finance and clinical stakeholders. Ensure that all have a working knowledge of the payor’s contractual duties. Good internal communication and coordination will provide the opportunity to quickly address any developing legal or administrative issues. Finally, ensure preparation and distribution of timely contract performance reports to appropriate functional departments and solicit feedback on contract operational issues. These actions will serve to improve communication and understanding of relative performance under specific payor contracts.