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What Are Insurance Contracts? | PayrHealth

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The insurance agreement, or contract, occupies a critical role in our modern healthcare system. Though many outside of the healthcare industry regard the concept of a contract as fairly benign, insurance contracts within the context of managed care organizations (MCO's) have fundamentally defined our modern healthcare landscape. Understanding what insurance contracts and insurance requirements are and why their importance is crucial for a modern provider or contractor. It can be considered a professional liability if you don't. Gaining a better understanding of insurance contracts and different types of insurance contracts can help providers make important decisions that guide their negotiating strategy to ensure they achieve their organizational goals. This guide will help you better your understanding of insurance contracts along with healthcare contract management so they are not overwhelming topics or tasks to take on.

What are Insurance Contracts?

If you've ever wondered, "what are insurance contracts?", the simple answer is a contract between a managed care organization (MCO) and a physician or health care professional. The legal purpose of negotiating insurance contracts is to determine the health insurance coverage that can be provided to patients. The insuring agreement between the two defines the relationship between the two entities and includes things such as:

  • The amount of money a provider is reimbursed for services rendered by their insurer.
  • Which services may be rendered and how they are delivered.
  • The scope of the contractor's patient base.
  • What is and isn't a medical necessity.
  • How offices are organized and managed.
  • How reimbursement occurs.

As the list of what types of insurance provisions that may be contained in one of these types of contract illustrates, these documents are incredibly complex. An insurance contract distributed creates the framework for the insurance policy within which the provider renders services to the patient. Because of this, it is critical for providers to understand in detail the terms of their contract and insurance coverage.

Why do Insurance Contracts Exist?

The emergence of managed care was borne out of a need to drive down rising costs in the healthcare industry. Under the previous regime, referred to as fee-for-service, the provider or insurance company typically billed the policyholder for specific treatments. The fee-for-service model is widely criticized for incentivizing healthcare providers to perform expensive treatments and procedures to generate additional income. Under a managed care model, an MCO negotiates contracts with a range of providers and sets the boundaries of the treatment they can provide in efforts to decrease the professional liability regarding unneeded tests being performed. In exchange, providers get access to a steady stream of patients. The managed care model is a success at lowering health insurance costs, but the model relies on MCOs negotiating aggressively lean contracts with providers to reduce costs.

Providers Often Have Many Contracts

It is a mistake to think of an insurance contract as a monolithic entity. In fact, many providers have a variety of contracts with both payors, vendors, and service providers. Some of these contracts will have a more considerable impact on the provider's operations and their ongoing profitability.As a provider, don't miss the opportunity to get the most out of your most important contracts. Prioritizing contract negotiations with specific, high-value contracts should be a part of your strategic decision-making.

Provider credentialing

How are Contracts Negotiated?

Insurance contracting negotiations between payors and providers have an unfortunate history of being contentious and difficult. Known to have a tendency to have disproportionate contractual liability, many providers feel that payors don't understand their practice's value to the payor's network. At the same time, many providers feel that the power dynamic in the negotiations is disproportionately in favor of the payor. Though it is true that payors have significant leverage and the utmost good faith in insurance contract negotiations, there are key factors that influence negotiations. These include:

  • The value you bring to the payor's network as a provider. What do you provide that's unique?
  • The geographic area that you are operating in. What's the market like in your area? Who is your competition?
  • How closely does your practice align with a payor's organization?
  • Who is your patient base? Is it growing or declining?

Insurance contract arbitration may seem one-sided to many providers, but there is room for movement and flexibility. If you operate in a saturated market with many competitors, it may be more challenging to negotiate the perfect contract, but this context provides important information for contract negotiating strategy.

Get the Most out of Your Contracts

Many providers struggle with negotiating contracts they feel are fair under the managed care model. Here are a few strategies providers can tap into to make the most out of their insurance contracts:

  • Develop comprehensive payor profiles for your top contracts.
  • Begin the contract negotiation or arbitration process early.
  • Understand what you want out of your contract and define clear goals.
  • Create a strategy that will guide your organization through the negotiation process.
  • Submit insurance contracts to the appropriate party in the payor's organization.
  • Work with a managed care contracting solution to help you navigate the negotiation process.

Closing Thoughts

Insurance contracts are the cornerstone of the modern managed care delivery model for our healthcare system. The advantages of the managed care model are lower overall healthcare costs and a higher quality of care. Although, for many providers, the contract negotiation process disproportionately favors the MCO. For modern providers, maximizing the value of their top insurance contracts isn't just a high priority, but an existential requirement. If you are considering beginning negotiations and need more information about the process, PayrHealth can help. Our team has decades of experience assisting providers to negotiate fair contracts with MCOs. Whether you are struggling to get a positive response from payors, or need insights into how to communicate your value proposition during negotiations effectively, PayrHealth has the tools and experience to help you. To learn how we can help, contact us today!


"Managed Care Contracts - Key Provisions for Providers"

Amelung, Volker Eric. "Healthcare Management: Managed Care Organisations and Instruments." Healthcare Management, 2nd ed. 2019, Springer Berlin / Heidelberg, 2019, doi:10.1007/978-3-662-59568-8."payor contract negotiations are often ugly, but they don't have to be"

"Successfully Negotiating Managed Care Contracts"

"Maximizing Provider Revenue With Payor Contract Management"

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