Payor Contracting

Managed Care Contract Terms for Providers

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For providers navigating a contract negotiation or preparing for one on the horizon, gaining a comprehensive understanding of managed care contract terms, and their potential impact on your operations, is essential. The terms found in managed care contracts are used to define not only the relationship between the managed care organization (MCO) and provider, but also the provider and patient. They also define the obligations of the parties to the contract, how and when reimbursement occurs, how long the contract lasts, and much more. If you need a review on “what is a managed care contract?” or “what is a managed care organization?”, follow the links provided for a helpful rundown!

Achieving a deeper understanding of managed care contract terms is necessary preparation for negotiating managed care contracts successfully. A successful negotiation between an MCO and provider occurs where both parties find common ground with acceptable terms. Getting there can be challenging, which is why you should begin the process with a firm base of knowledge for what’s likely to be in your contract, what’s acceptable, and what’s not.

Key Terms

The Key Terms section is where terms used throughout the document are defined. Terms such as “payor” or “Medical Necessity” may have slight variations between contracts. While slight differences in the definition may seem fairly innocuous, it can have fairly large implications during later stages of contract execution.

As a provider or primary care physician, it’s advantageous to have neutrally defined terms, with meaning that is consistent across contracts. Let’s take some time to look at a few common key terms found in managed care contracts.


Your contracts should include a definition of who the “payor” is in the contract. This is commonly understood to be the entity responsible for reimbursing Covered Services for individuals under the terms of the contract. Be mindful that the payor isn’t necessarily the entity you’re entering a contract with, which is why it’s essential to pay attention to how narrowly or widely this term is defined.

Covered Services

These are the services a provider is capable of providing that will be reimbursed by the health plan. This definition can vary in scope, resulting in changes to what is considered a covered service between different plans. Definitions that favor the MCO tend to be written more narrowly, while definitions that favor the provider tend to be inclusive of all services a provider can render. Providers must understand exactly what constitutes a covered service under the terms of their provider contract, as non-covered services will not be reimbursed.

Medical Necessity

Every provider should understand how medical necessity is defined in their contracts, as this determines which services will be reimbursed. Medical necessity is generally typically defined as a service that is appropriate for the diagnosis and consistent with treatment standards, sufficient but not excessive in scope, and is conducted in a setting appropriate to the condition.

In an ideal world, providers would be able to count on one single definition for what is or isn’t medically necessary across all of their managed care contracts, but unfortunately, the language can vary. Since the scope of this terminology has a direct impact on what services may or may not be reimbursed, every provider should clearly understand how it is defined in their contracts.

Term and Termination

Each managed care contract will have a termination clause that allows one or more parties to terminate the agreement if certain conditions are met. The terms for terminating the provider contract differ depending on if it’s for cause or convenience.

Be wary of any termination clause that allows the other party to exit the contract at any time unilaterally. If your contract does contain a unilateral right to terminate for the other party, be sure to develop a clear understanding of the conditions of that clause.

The term of the contract should also be clearly defined. The term is the length of time that the contract is binding. This is important because you’ll want to start your contract renegotiation around 3-6 months prior to the end of your contract. This will give you the greatest flexibility to negotiate favorable contract terms.


The compensation terms contained in your managed care contract will help determine how you get paid, how long it takes to get reimbursed, and what occurs when an overpayment or underpayment occurs.

Compensation terms should be clearly written and understandable. It should be clear how the provider is paid, when they will be paid, and what requirements must be met in order for payment to occur.

Be sure to have a clear understanding of the compensation terms and requirements prior to signing any managed care contract. If you aren’t sure whether a contract term is favorable, seek outside guidance to gain a better understanding.  

Let’s take a closer look at two terms tied to compensation that you’ll want to pay close attention to.

“Lesser of” Provisions

One of the more difficult contracting terms to understand is the lesser of provisions language found in the fee reimbursement section. Sometimes referred to as the “lesser of billed charges”, this term dictates how the payor will reimburse when a service has a different billed rate than a usual and customary rate. The lesser of provisions give the payor the ability to pay the lower amount of the two. If you haven’t revised your fee schedule accordingly, you may be seeing reimbursements that are lower than you’re expecting.

Clean Claim

A claim is submitted to the MCO once services are rendered to a covered person. Clean claims are simply claims that do not require any additional information before they are reimbursed. In an ideal world, all of the claims you submit as a provider would be clean, but that is rarely the case. However, it is to your advantage to understand exactly what it takes to submit a clean claim under your contract terms, so that you may increase the number of clean claims you are submitting. The more clean claims you submit, the less contested claims and delayed reimbursement you’ll run into.

Generally, this MCO contract term will include the timeframe required to submit a clean claim, what information is required for a claim to be considered clean, and how a claim should be formatted. Be sure to incorporate any of these requirements into your claims processing workflow to maximize your managed care contract’s benefit.

Provider Responsibilities

The Provider Responsibilities section will outline the specific requirements healthcare providers are expected to meet as part of the contract. The responsibilities outlined may include language that sets limits on the patients a provider can treat, what insurance they are required to carry, as well as record keeping and organizational requirements.

This section may also include language requiring healthcare providers to maintain any licenses or certifications required to provide the services outlined in the contract. Providers will also be required to maintain compliance with any regulatory structures required to render those services, such as HIPAA or HITECH.

MCO Obligations

For providers, the MCO obligations section outlines the specific duties and responsibilities that the MCO must adhere to. A notable and important provision in this section is the notification requirement. From an operational and strategic perspective, a longer notification window before amendments or changes are implemented is more ideal than a short window between notification and implementation.

Additionally, you’ll want to request any documentation for the MCOs bylaws, regulations, and policies while reviewing the MCOs obligations. After acquiring the contract, you’ll need to ensure that your processes and procedures align with the MCOs.

Maximizing Your Managed Care Contracting

In order to maximize the benefit you realize from your managed care contracting, it is advisable to develop a comprehensive negotiation strategy. Part of that strategy development will require your team to spend time understanding the terms in your current contract, if you hold one, and what terms you’d like to see in your future contracting.

Negotiating managed care contracts is widely-recognized as a challenging endeavor, but it can be made less difficult with preparation. Part of that preparation is gaining a clear understanding of your contract terms, and connecting those terms to their real impacts across your organization.

Sometimes this can be difficult, particularly if contracts are written in confusing or obscure legal language. Rest assured that the time you spend preparing for your contract negotiations is well-spent. If you are having difficulty developing a clear, cohesive contract negotiation strategy, consider working with our team at PayrHealth. We use our decades of experience helping providers negotiate fair and beneficial contracts to help you develop a winning contract negotiation strategy.

Closing Thoughts

Managed care contracting is incredibly complex. The terms contained in managed care contracts determine how providers render services, which services they can provide, and how they are reimbursed for services. As such, they are worth understanding in full. Small differences in terms can have a significant impact over time, which is why it is crucial to develop a comprehensive negotiation strategy that includes desired and acceptable contract terms.

If you are running into challenges with your managed care contracting, reach out to our team of specialized managed care consultants at PayrHealth. We have decades of experience working with providers such as yourself to help them understand the terms of their managed care contracts, and how to negotiate more favorable ones down the road. We’d love to share these insights with your team! To learn more, contact us today.


“A Matter of Law: Managing Your Managed Care Contracts”

“American Academy of Allergy, Asthma, and Immunology: Sample Managed Care Contract”

“Contracting: Set your chargemaster”

“Contracting: Understand contract terms”

“Checklist of Key Issues for Managed Care Provider Agreement”

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