Article Summary
Reimbursements are a significant source of revenue for health systems. Yet, many organizations don’t receive the full reimbursement for a service rendered, even when the payer and provider have agreed on a rate. Unfortunately, keeping up with payer policy changes is difficult and most healthcare organizations don’t have a payer expert who regularly analyzes payer contracts. To protect themselves from surprise policy changes that lead to lost revenue, organizations should include three key phrases in their current and existing payer contracts:
1. “We’re not bound by payer policies unless agreed to in writing by both parties.”
2. “Once authorization is approved for a service, it cannot be subsequently denied.”
3. “Any code not in this contract will be reimbursed at a percent of charge.”
As providers work to maximize all sources of the healthcare revenue stream, they should closely examine their contracts with payers. Earning the full amount from payers for services rendered isn’t guaranteed. After a medical procedure, health systems submit a claim to the payer (e.g., commercial health insurance plans and government programs like Medicare) and wait for the payer to process the claim, then the payer either pays or denies the claim.
While health systems can’t control payers or the cumbersome payment process, they can control the contracts they negotiate with payers. Contracts between health systems and payers include guidelines both parties agree to regarding payment, timing, and policy changes, to name a few. Organizations can take a strategic approach to these contract negotiations by including specific language in the payer contracts that protect health systems from unforeseen policy changes, prevent denied claims, and reduce lost reimbursement from payers.
Three Critical Phrases to Include in Payer Contracts
Health systems are constantly negotiating first-time contracts or renewing contracts with payers. These complex processes can sometimes catch health systems unaware if they don’t have a specialized expert scrupulously reviewing contracts on a regular basis for modifications, including updates to the payment process and changes to the list of covered procedures.
To effectively negotiate the most beneficial payer contracts and avoid negative financial consequences, including denied claims with downstream healthcare revenue implications, organizations should include three key phrases in their next payer contracts:
#1: “We’re not bound by payer policies unless agreed to in writing by both parties.”
Payers may change their policies without discussing the modifications with the health system or notifying the health system about the change. As a result, when it’s time to submit a claim for reimbursement, the health system can run into surprise policy changes that can have significant—and often negative—revenue repercussions.
To avoid these hidden policy changes, health systems should include specific language in their contracts that require the payer to notify and discuss the alteration with the health system before the contract is updated. For example, organizations may state, “We’re not bound by payer policies unless agreed to in writing by both parties.”
In a worst-case scenario, payers will not agree to a contract that includes the phrase above. In such cases, organizations should negotiate that the payer must notify the health system about policy updates and the method of communication. Even a basic notification, such as an email, allows the organization to stay informed and make changes that align with new policies.
#2: “Once authorization is approved for a service, it cannot be subsequently denied.”
To ensure payment and avoid a denied claim, a health system will reach out to a payer before a procedure to verify that the payer will cover and authorize the procedure. However, payers will sometimes still deny a claim even after they have authorized the procedure.
For example, a patient has chest pain, and the cardiologist recommends a bypass. Before the bypass, the health system reaches out to the payer and receives authorization. After the bypass procedure, the health system submits the claim, but the payer denies the claim even though it authorized the procedure.
The health system inevitably feels exasperated because there was nothing it could have done to avoid the denied claim. To circumvent these frustrating scenarios that result in lost revenue, organizations should include language in the payer contract stating that payers and their agents cannot initially or subsequently deny authorized services, such as “Once authorization is approved for a service, it cannot be subsequently denied.” Contracts that include this language allow payers to change their reimbursement policies as needed, but it doesn’t let them renege on procedures they have already authorized. Once the health system has received prior authorization, it can rest assured it will receive full payment.
#3: “Any code not in this contract will be reimbursed at a percent of charge.”
Adding new codes, expanding service lines, or looking to form joint ventures with new partners are very common activities for health systems. As organizations do their due diligence before engaging in any of these initiatives, they should determine how payers will reimburse them for the new changes to accurately calculate any ROI. For example, if a health system is looking to form a partnership with a cancer center but does not have any way to recoup the high cost of the chemotherapy drugs in its contract, it would only receive minimal reimbursement likely related to the laboratory codes for appropriate blood draws. This could be especially true in situations that have hierarchical case rates with “Default Rate/Other Rate” in the contract as a catch-all bucket.
Including language around new codes, such as, “Any code not listed in this contract will be reimbursed at a percent of charge or the case rate of similar services,” protects health systems from performing new services without receiving appropriate reimbursement. This protection also helps organizations confidently expand their service lines without fearing denied claims.
Effectively Negotiate Payer Contracts with Specific Phrasing
As organizations continue looking after their healthcare revenue streams, they should consider re-examining their current and new contracts with payers. Payer contracts have significant implications for health systems’ financial standing, as they guide a major source of income for health systems: reimbursements for services rendered.
Healthcare organizations can approach the payer negotiating table with confidence by applying the three key phrases listed above. Adding specific language to payer contracts about policy changes, prior authorization, and coding updates allows health systems to deliver care with the peace of mind that they will receive full payment.
Additional Reading
Would you like to learn more about this topic? Here are some articles we suggest:
- Accelerate Charge Capture Improvement with Health Catalyst VitalIntegrity™
- A Five-Step Audit for Peak Charge Capture Performance
- Healthcare Revenue Cycle: Five Keys to Financial Sustainability
- Predicting Denials to Improve the Healthcare Revenue Cycle and Maximize Operating Margins
- Three Cost-Saving Strategies to Reduce Healthcare Spending
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