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Health Payer Tips for Negotiating Managed Care Contracts

While both providers and payers must consider the financial implications of managed care contracts, reimbursement for services and total revenue should not be the only goal of an organization.

By Vera Gruessner

- With the medical industry focused on population health and the need to stabilize rising costs, it is no wonder that more healthcare providers and payers are negotiating managed care contracts. When these managed care contracts are negotiated effectively, a larger revenue stream could result on the payer side due to new insurance products, according to the Healthcare Financial Management Association.

Managed Care Contracts

Additionally, managed care contracts can lead to better patient satisfaction and engagement due to more coordinated and superior care among provider networks. The world of managed care focuses on quality improvement strategies, preventive medicine, and financial incentives that bring members to improve their health and partake in recommended screenings.

Paula Dillon, director of managed care for Rockford Health System, offered a number of tips for providers and payers when negotiating managed care contracts. It’s important to first set up goals for the type of provider-payer relationship each party is seeking.

Payer-provider relationship

For example, it is vital to understand whether the payers and providers want to take part in a long-term relationship benefiting both sides or a shorter, temporary arrangement. This will influence whether choosing risk-based contracts like the bundled payment system, accountable care arrangements, or a managed care program.

READ MORE: Healthcare Cost Variation Differs Twofold between States

“Is this a one-time negotiation or the beginning of a long-term partnership?” Dillon asked. “When trying to establish or foster a partnership, your focus will be different than with a short-term agreement. For example, you may be more interested in new products, payer-employer affiliations, or risk-sharing models.”

“Approximately 30 percent of our revenue comes from managed care, so it is very important we establish positive working relationships with our managed care payers,” she concludes.

Moving beyond the revenue cycle

While both providers and payers must consider the financial implications of managed care contracts, reimbursement for services and total revenue should not be the only goal of an organization, Dillon explained.

Providers should also consider how responsive the payer is to any and all claims problems and how the provider-payer relationship affects overall workflow including the inclusion of new policies. Also, providers would benefit from analyzing the depth of the products offered by the payer such as Medicaid and Medicare coverage, tiered networks, and value-based care payment opportunities, Dillon stated.

READ MORE: Payers, Providers Use Population Health Management to Cut Costs

“Getting a good rate is important but there are other things to consider,” Dillon told the news source. “For example, we look at the impact the payer will have on our workflow—items such as how responsive the payer is to problems with claims, implementation of new policies and procedures, and whether the payer allows delegated credentialing—where it turns over the responsibility for credentialing to us, provided we follow its guidelines for verifying competency. Delegated credentialing streamlines patient access to new physicians by getting physicians up and practicing faster.”

The importance of a payer profile

It would benefit healthcare facilities to create a payer profile when negotiating contracts with insurers. This will help prepare the provider for successfully discussing and assessing managed care contracts.

The first step to creating a comprehensive payer profile is to speak with a representative from the insurance entity. Specifically, learn about the payer’s goals in the contract negotiations as well as which products are on the table. Additionally, it is beneficial to find out which services are being outsourced, as an excess of outsourcing could lead to ineffective communication and subpar decision-making.

A very important part of negotiating managed care contracts is to ensure that the agreement covers more than merely the hospital setting but the entire continuum of care from primary physician offices and specialists to hospitals, emergency rooms, and rehabilitation centers. Different rates may even be set in the various healthcare settings that a managed care contract covers.

READ MORE: How One Health Payer Partnership Reduced Hospitalizations

“Investigate how much revenue the payer brings to your organization and how that breaks down by inpatient care, outpatient care, and various service lines, including the NICU, surgery, maternity, and diagnostic imaging,” she mentioned. “If a payer represents 30 percent of reimbursement dollars for the NICU, for example, that is an important piece of information to know because negotiations could impact that service line dramatically.”

Managed care in Iowa

One example of finalized managed care contracts comes from the state of Iowa where 747 pharmacies have contracted with Medicaid managed care organizations, according to the Sioux City Journal.

In order for the managed care organizations to gain more of the state Medicaid market, the entities will need to prove they have sufficient provider networks to handle the expected patient load.

Last month, the Legislative Oversight Committee met in Des Moines, Iowa with state legislators and listened to four individual managed care presentations. Before the state of Iowa can move forward with its plans to transition their Medicaid program toward managed care, officials from the Centers for Medicare & Medicaid Services (CMS) need to fully approve the move.

As the country moves forward with value-based care and adopts managed care contracts or bundled payment models, payers and providers will need to continue working toward strengthening their relationships and ensuring both sides fare well in contract negotiations.

When asked Dan Mowery, MTS, Executive Director of Industry Relations and Market Intelligence at McKesson Technology Solutions, about risk-based contracts, he replied, “It’s about understanding what your true cost to deliver specific services is. Before you can go into a risk-based contract and ideally negotiate and sign a risk-based contract, you need to know what it’s going to cost you traditionally and what levers you can turn to manage that.”

“You’ve got to reduce your variabilities and understand what your variability is in regard to the position partners you have in the community to provide those services. You’ve also got to look at creating alignment with other providers in the community that will be participating in your ability to deliver those risk-based contracts.”


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