At the Margins

3 trends in contract management—and how to solve them

by Braden Decker, Senior Director, Partner Services

Over the past 15 years, I've seen managed care leaders face new and constantly evolving challenges. But one theme stays constant: They must find ways to negotiate better contracts and receive the associated reimbursement. Recently, I've been struck by three trends in the managed care space that providers must address to remain successful in today's margin-constrained environment. With the right contract management technology in place, organizations will successfully navigate these new complexities.

1. The shift to more complex reimbursement structures

The first trend is a desire for payers to move smaller, regionally based hospitals to more complex contract reimbursement structures.

Traditionally, contracts at these types of organizations pay at a percent of billed charges. Since July, I have talked to a number of providers whose major payers have submitted contract proposals to move from a percent of charges reimbursement to new structures, including DRG-based case rates, outpatient surgery grouper rates, APC rates, fee schedules, and other outpatient case rates. While I have seen iterations of these models for over 25 years, I have not seen them frequently in smaller markets. The result is the providers in these markets must rapidly understand the impact of accepting these changes and counter propose rates that will allow them to maintain or grow revenue with their major payers. As I've noted before, missing the mark can have serious consequences for an organization.

2. The shift to eAPGS

The second trend is the shift to Enhanced Ambulatory Patient Grouping System (eAPGS) for outpatient reimbursement for Medicaid across many states. It started in 2008 in New York and has since migrated to Massachusetts, Wisconsin, Virginia, Washington, the District of Columbia, Colorado and Illinois. Over this past summer, managed Medicaid plans in Ohio have delayed implementation of eAPGS due to problems with the grouper. And Florida announced the move to eAPGS along with the guidance that the reimbursement will not increase or decrease by more than five percent from the prior reimbursement structure. Advisory Board analysis has shown the Florida shift could reduce reimbursement by 20% to 30%.

Providers should prepare well in advance if their state is making this change to fully understand the potential impact to revenue and determine expected reimbursement after eAPGS go live.

3. The shift to the patient as payer

The final trend is the rapid shift of responsibility for payment from the payer to the patient, particularly through the expansion of high deductible health plans. Since 2009, the percentage of covered employees with a deductible greater than $2,000 for single coverage has steadily grown from 7% to 22%. Therefore, it is no longer adequate to simply model out expected reimbursement as part of a contract negotiation. Providers must now also consider:

  1. How much of the responsibility will be shifted to the patient and what is your success rate in collecting from the patient?
  2. How prepared they are to educate patients on how much they will owe prior to services being provided?
  3. What will be the impact to patient satisfaction if they are surprised by how much they owe?
  4. How easy is it for patients to pay their portions and, if needed, to set up payment plans?

Successfully addressing each of these trends in managed care requires investment in people, process, and most notably, technology. Now is the time for revenue cycle and managed care leaders to diagnose the gaps in each that are standing in the way of addressing the challenges of more complex reimbursement structures, the shift to eAPGS, and increases in patient obligation.

The right contract management system can help organizations weathering the shift to more complex contracts or reimbursement methodologies. Similarly, contract management technology can help organizations more realistically anticipate the impact of growing patient obligations on the bottom line. Managed care leaders seeking a new contract management technology solution or evaluating their current solution to combat these emerging market forces should consider whether it has the following capabilities:

  • Accurate claims-based calculation of expected reimbursement for all commercial and government
  • payers including Medicare, Medicaid and TRICARE
  • Automatic identification of variance trends
  • Precise integration of technical and professional claims
  • Fast model contract proposals
  • Ability to maximize changes to the chargemaster as part of modeling proposals
  • Rapid bulk appeal of large numbers of variances

Without the right contract management system, negotiating better contract terms and receiving the right reimbursement may become even more elusive for many organizations amidst this unprecedented complexity.



Next, learn how Lakeland Regional increased revenue capture

Join us for a webconference on Jan. 24 at 1 p.m. ET to learn how Lakeland Regional Medical Center was able to successfully negotiate increased revenue capture into their payer contracts with the help of Payment Integrity Compass. You’ll hear from Gladys Baxley, Director of Managed Care, and Natalie Billo, Managed Care Senior Contract Manager who will discuss how Payment Integrity Compass provided the support they needed in negotiations and share details into their continued success.

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