Payor Contracting

Tips for Negotiating Managed Care Contracts

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Negotiating Managed Care Contracts

Managed care contracts (MCCs) represent the basis of the relationship between healthcare providers, the general public, and insurance companies within the American healthcare system. And healthcare providers must remain astutely aware of negotiating these contracts to ensure that they are getting the best deal possible for their practice.

When considering the dynamics of these contracts, there are two key factors worth noting:

  1. What is a managed care contract? Managed care contracts govern both the cost and quality of healthcare services between providers and patients through an intermediary: Managed Care Organizations (MCOs) or payors—mainly insurance companies.
  2. MCOs and payors work out these contracts with the healthcare providers to determine the costs and services available to their members (the general public).

Unfortunately, what seems like a simple transaction of services turns into a nightmarishly complex agreement. This leads to confusion among healthcare providers and poorly argued payor contracting for their practice.

Thus, below are the most important tips for effectively negotiating contracts for providers.


To understand how negotiations fit into the MCC landscape, let’s take a look at MCOs under the managed care system.

MCOs surfaced as a result of needless procedures and price hikes in the healthcare industry driving the rate of healthcare to be unaffordable. In exchange for lower prices, MCOs offered doctors, hospitals, and other healthcare facilities a guaranteed level of patients by providing the insured access to a network of providers.

The major mechanisms of MCOs in this emerging system?

  • Negotiating low costs for healthcare services
  • Standardizing treatment protocols across services
  • Encouraging the use of generics and other less expensive medications to treat health problems
  • Discouraging referrals to specialists and other more expensive treatments unless necessary
  • Decreasing the amount of diagnostic tests employed by doctors
  • Eliminating unnecessary care

The result of these processes are contracts between MCOs and individual healthcare providers.

The problem? MCOs want to extract as much value out of providers as possible, making it necessary to employ a managed care contracting strategy.


The main role of MCOs in the managed care system is contract negotiations, while healthcare providers focus on providing care for patients. Because of this, MCOs are typically more astute negotiators and tend to get better deals.

Providers need to educate themselves regarding negotiating processes to enhance their ability to get fair terms for their services to patients insured by MCOs.

Tips For Negotiating Managed Care Contracts

Because MCCs dictate the types of services a healthcare provider can offer a given patient, they have a major effect on the day-to-day decision-making processes of healthcare providers. The importance of negotiations transcends simple payor-provider relationships, having an effect on which services are offered, to whom, and for how much.

Consider the following 5 tips to get the best deals possible from MCOs.

Tip 1: Don’t Limit Your Focus to Rates

Because MCCs govern such a wide range of activities for providers, it is essential that healthcare facilities do not limit their purview to just rates. When negotiating with a payor, it is always tempting to extract the most amount of money for each service, but there are other considerations that are just as important.

  1. How does the relationship affect day-to-day workflow?
  2. What are reimbursement schedules like?
  3. What is the reputation of the payor (MCO) in regard to responding to queries and processing payments?
  4. Does the payor have specific credentialing criteria that puts the provider at a potential disadvantage?
  5. How diverse is the requested service offering under the contract?

By widening the contract negotiating process to include other considerations, providers can extract enhanced value out of the process even if a rate might be lower. The key here is to negotiate each part of the contract and not get too focused on just rates—the MCO will be doing this, so the provider should too.  

In these cases, it is necessary to consider the overall intrinsic value of the contract, while pricing in additional factors related to service and reputation of the payor.

Tip 2: Create a Profile for Each MCC Prior to Negotiating

Preparation is one of the most important aspects of contract management strategies. Before beginning negotiations or renegotiations with a given MCO, providers should prepare an MCO profile for each negotiation process.

The aim of these profiles is to determine what the MCO wants out of the negotiation process as a way of anticipating potential drawbacks for the provider.

  1. Determine what products and services the payor plans to endorse during the negotiation process.
  2. Perform a historical investigation into your relationship with the payor: revenue levels, inpatient vs. outpatient care, the different services offered.
  3. Try to pick out any negatives from the historical investigation and determine what needs work.
  4. Ask for feedback from your staff on working with the payor and ask for advice on improving the relationship.
  5. Merge all of this information into a coherent profile for the MCO.

The final product of this process will be a strategy for negotiations that serves to improve the contract and, in effect, revenue levels for providers.

Tip 3: Apply as Much Leverage as Possible

During any negotiating process, each party will have certain leverage delivering the force behind their negotiating tactics. Providers should do their best to identify points of leverage and use them effectively to get a better deal.

Many healthcare providers are unaware of the many important leverage points that they may possess:

  1. The inherent need for an MCC to retain a certain level of doctors – Without healthcare providers, MCO networks offer nothing to patients. This is an important concept to remember during negotiations. If MCOs think that it is possible that a provider will walk away from negotiations due to specific issues, they will be much more willing to make concessions. Healthcare providers with a large number of doctors to offer will have even more leverage here.
  2. The quality of service offered by the healthcare provider – Any provider that is known for their high-quality service retains enhanced leverage during negotiations. MCOs inherently want to keep better providers in their networks to offer more value to their members, so this can easily be used as a negotiating tactic by providers that are known for great quality of care.
  3. The location of a healthcare provider can be just as important – MCOs must offer patients access to providers in their immediate area if they want to remain competitive. Providers should take note of how their location offers them leverage during negotiations. If you know that the payor offers its members a limited network in your area, use that as leverage for better terms.
  4. Apply the same thought process to your service offering – Location and service offering can be applied in the same light. Leverage the additional services you offer that cannot be found in the immediate area. You will surely be able to get better rates for rare services, so it is critical that you apply that during negotiations.
  5. Patient volume can swing negotiations to either side – A provider that services a large number of patients that are members of a given MCC has an obvious level of leverage. Is the MCO willing to let such a large number of patients lose access to their doctor? Probably not.

By performing an assessment of your practice’s leverage points, you can identify specific strategies for the negotiating process and effectively get a better deal in the process.

Tip 4: Be Ready to Compromise

Even with proper preparation and payor profiling, compromise is a huge part of MCC negotiations. Every healthcare provider should be prepared to give a little when entering negotiations with an MCO.

  • To ensure that you aren’t giving up too much in the process, make a list of goals for the negotiations
  • Prioritize each goal in a list
  • When issues come up during the negotiation process, reference your goals and offer concessions starting with your least important requirements

While this might seem like a straightforward concept, prioritizing goals can go a long way in ensuring you get the most out of any negotiation. This is where payor profiling becomes even more useful.

When you combine the knowledge derived from the MCO profiling process with your strategic expectations from the negotiating process, you can output a relevant give-and-take strategy that will guide you through negotiations and result in limited concessions.

Still, compromises will be a necessity, so thoughtfully preparing a list of what you are willing to give up will go a long way in ensuring a beneficial deal.  

Tip 5: Partner with PayrHealth to Improve Your Managed Care Negotiating Process

Because healthcare providers tend to be at a disadvantage in negotiating managed care contracts—due to the size and scope of their MCO counterparts—they need to think outside the box. A strategic partnership can give them a leg up in the negotiating process.

That’s where PayrHealth comes in.

PayrHealth helps providers access the tools necessary to negotiate beneficial contracts. We identify the best contract opportunities that meet the specific needs of every provider we work with, regardless of size. Our far-reaching network and MCO relationships will get you the best contracts and ensure a flowing base of patients.

Plus, we can perform all the necessary tasks to get the best deal possible, including:

  • Creating payor profiles for negotiations
  • Uncovering the provider’s key leverage points
  • Forming the best compromise options (if necessary)

Working with PayrHealth lets you take all the hassle out of negotiating managed care contracts with payors. If you want to make the most out of your contracts, while getting the best reimbursement rates possible, get in touch now.

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