Payor Contracting

Understanding the Contract Negotiation Process

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Contract negotiation with payors is one of the most important, yet challenging processes a provider must regularly perform. It can have significant ramifications for a healthcare organization regarding payments, practices, procedures, record keeping, and decision-making.  

Because this process can be contentious, it’s important that you approach the negotiating table fully armed and prepared. Doing so will help you reach a favorable outcome and establish a profitable contract—one that maximizes reimbursements.

But what does that process look like? And what are key factors to consider to negotiate the best contract possible? Let’s discuss.  

Understanding the Contract Negotiation Process

The vast majority of health plan contracts are evergreen, meaning they’ll automatically renew at the end of the time period; that is, unless one party decides to modify the contract. According to Healthcare Finance, contract negotiation typically hinges on three factors:

  1. The financial terms including reimbursement rates.
  2. The operational components of working together around aspects like case management and accounts receivable.
  3. Strategic initiatives like value-based agreements.

If you already have a contract on the books, be sure to analyze and see whether modifications are necessary in payor contracting.


It’s wise to open the door for negotiations at least four months before the contract term expires. This will give both parties plenty of time to adequately prepare for what’s to come.

Ideally, all communication between your organization and payor representatives should be channeled through a single person. That will help streamline processes, keep messaging consistent, and ensure that the negotiations are taking place between people who’ve already established a rapport.

Speaking of relationships, they often rest at the heart of the contract negotiation process. Kevin W. Barron, executive director of managed care contracting and payor relations at University Health System, recommends that you:

“Get to know the other party through online research and casual conversations with him/her ahead of time, if possible. By doing so, you will build a genuine rapport and better understand and interpret statements made during the actual negotiation. Misinterpretations can kill a negotiation more quickly than just about anything else.”

Both negotiating parties have a job to do; your side wants to receive more money, theirs to pay less of it. But if the two groups are able to establish common ground, it will diffuse much of the inherent hostility of the negotiation process.


If you want to have the strongest bargaining position possible, it’s vital that you understand your strengths. You must also gauge your standing within that competitive space. For instance, if you have cornered a market share in your local area or are a specialist, you can leverage that to your advantage.  

To begin, perform a strengths, weakness, opportunities, and threats (SWOT) analysis. Information that will be gathered includes:

  • Data on revenue, utilization, and expenses
  • Quality measurements patient surveys, national quality assessment programs
  • Rankings of referring physicians including frequency and referral types

Establishing a reputation for quality care and patient satisfaction can help persuade the payor representatives to agree to your reimbursement increase request.  


Similarly, before you ever reach the table, it’s important that you analyze your overall fee schedule and weighted averages of all healthcare plans. This will help you establish a break-even point in your healthcare contract management. That will function as your minimum contract baseline stipulations.

After, it’s vital to set a bargaining range, including:

  • Optimum – The initial starting point of the negotiation and the ideal terms.
  • Minimum – The baseline criteria that must be met or else you walk away.
  • Target goal – The place where you hope to reach once negotiations have been concluded.

Don’t allow yourself to be strong-armed into accepting poor contract terms. If you can’t reach a favorable agreement, walk away, especially if you have leverage in the market. By demonstrating that you won’t bend, payor representatives will often return to parley at a later point. When that happens, they’ll be more amenable to your terms.


Once you’ve done all of your prepwork, it’s time to actually hammer out a deal with the payment representative. Along the way, there will likely be places of contention, but by performing your due diligence ahead of time, your negotiator will be adequately prepared for what’s to come.  


Rarely is contract negotiation a straightforward, amicable process. For many it’s more of a battle than a discussion. Knowing this, if you want to walk away with the most profitable deal possible, you may need to enlist the help of experts to utilize the best contract negotiation strategies.

Enter PayrHealth—the managed care contracting solution.

With us on your team, you’ll receive support for all aspects of the contract negotiation process, including credentialing, analysis, contacting, and renegotiation. We seek to become an extension of your team; a more affordable, effective alternative to a full time contract negotiation specialist.  

Do you want to sign better contracts, negotiate higher rates, and expand your team? PayrHealth can help.


Healthcare Finance. payor contract negotiations are often ugly, but they don’t have to be.

Becker’s Healthcare. Tips for getting the most out of payor negotiations.

Journal of Oncology Practice. How to Negotiate with Health Care Plans.

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