What Is Payer Contracting?

Payer contracting is a critical component in the healthcare industry, serving as the foundation for determining the services that healthcare organizations can offer and how they will be reimbursed for these services. In today's rapidly evolving healthcare environment, where value-based care models are gaining traction and technological advancements are reshaping care delivery, getting payer contracting right is essential for healthcare organizations. Properly managed payer contracts can future-proof an organization's operations, enhance financial sustainability, and improve patient outcomes.

What is Payer Contracting?

At its core, payer contracting involves the agreements between healthcare organizations and payer entities that outline the terms of medical service coverage and reimbursement. These contract negotiations ensure that patients receive necessary medical care while providing financial support to healthcare organizations. Payer contracts are essential for expanding an organization's network, increasing its patient base, and generating significant revenue.

Challenges and Benefits of the Payer Contracting Process

Challenges

1. Navigating the Regulatory Landscape: The complex regulatory environment in healthcare presents significant challenges in payor contracting. Healthcare organizations must ensure compliance with both state and federal regulations. A survey by the Healthcare Financial Management Association (HFMA) revealed that 67% of health system leaders identified regulatory and reimbursement policies as key challenges in implementing digital health technology.
2. Outdated Technology and Infrastructure: Many healthcare organizations struggle with outdated technology and infrastructure, which hinder innovation. A study by the Healthcare Information and Management Systems Society (HIMSS) found that 50% of health plans cited legacy technology and infrastructure as barriers to innovation.
3. Resistance to Change: Some providers are resistant to abandoning traditional approaches, making it difficult to adopt new methods in payor contracting. This reluctance can slow the implementation of value-based care models and other innovations.

Benefits

1. Revenue Growth: Effective payor contract management can lead to a revenue increase of 1% to 3% for healthcare providers, according to a report by McKinsey and Company.
2. Cost Savings and Quality Improvement: Efficient payor contracting can result in cost savings and improved quality of care. For example, more than 40% of healthcare payments were tied to value-based care models in 2019, up from 23% in 2015, according to a report by the Health Care Payment Learning & Action Network (LAN).
3. Better Reimbursement Rates: Healthcare organizations can leverage their bargaining power to secure favorable reimbursement rates through payor contracting.
4. Implementation of Value-Based Care Models: Payor contracting enables healthcare organizations to implement value-based care models, which incentivize innovation and lead to better patient outcomes.

A Step-by-Step Process for Successful Payor Contracting

1. Identify and Assess the Organization's Current Payor Mix: Begin by analyzing your organization's current payor mix to determine which payors are most important. This assessment helps prioritize contracting efforts.
2. Conduct Thorough Research: Stay informed about payor contracting best practices and industry trends. This research ensures that your healthcare organization remains up-to-date on current market conditions and negotiation strategies.
3. Establish Clear Goals and Objectives: Before entering negotiations, establish clear goals and objectives for the contracting process. These may include increasing revenue, reducing costs, or improving patient outcomes.
4. Develop a Negotiation Strategy: Based on the research and established goals, create a negotiation strategy that highlights your organization's unique strengths and competitive advantages. Consider potential challenges and market conditions that may impact the negotiation process.
5. Negotiate the Contract: With a well-thought-out strategy, begin negotiations with payors. Emphasize your organization's unique value proposition, focus on quality and outcomes, and propose innovative solutions.
6. Monitor and Analyze Contract Performance: Once a contract is in place, regularly monitor and analyze its performance. This analysis helps identify areas for improvement and opportunities for optimization.

Should You Outsource Payor Contracting?

Payor contracting is a complex and time-consuming process that requires a high level of expertise and specialized knowledge. Health systems face a decision: manage the process in-house or partner with an external organization.

In-House Management

Managing payor contracts in-house allows organizations to maintain control over the process. However, it can be resource-intensive and time-consuming.

Outsourcing

Working with a third-party organization can offer several advantages, including specialized expertise, familiarity with a broader range of payors, and streamlined processes. Outsourcing can free up internal resources, allowing your organization to focus on delivering quality patient care.

To determine whether outsourcing is the right choice, consider the following questions:

• Does your organization have the necessary resources and expertise in-house to manage payor contracting effectively?
• Does your organization understand payor contract terms and know what language to watch out for?
• Are you struggling to navigate the complex regulatory environment related to payor contracting?
• Can you commit the necessary time and resources to manage payor contracts, or are you stretched thin by other priorities?
• Can you negotiate effectively with payors to secure the best possible rates and reimbursement terms?
• Have you been successful in optimizing your revenue cycle management and payor relationships?
• Have you identified problems or inefficiencies in your payor contracting process that outsourcing could address?
• Are you looking to expand your business and need a partner to help navigate new markets and payor relationships?

By answering these questions, you can assess whether partnering with payor contracting experts might be the best course of action for your organization.

Making the Best Decision for Your Organization

Outsourcing payor contracting to an external organization allows your healthcare entity to focus on what it does best—delivering quality patient care—while leaving the contracting work to experts. This approach can lead to improved efficiencies, cost savings, and stronger payor relationships. Ultimately, the decision to work with a third-party organization depends on your specific needs and goals. For instance, Emblem's technology platform and team of payor contracting experts streamline the contracting process, align your business objectives, secure the best terms and rates, identify areas for improvement, and keep you updated on the latest industry trends.

Payer Contracting with PayrHealth

Payer contracting plays a pivotal role in defining the operational and financial dynamics of medical practices. Navigating this complex process requires strategic planning, negotiation skills, and an understanding of the evolving healthcare landscape. Whether managed in-house or outsourced, the goal remains to secure more favorable contracts that align with your organization's goals. Successful payor contracting can lead to enhanced revenue cycles, improved patient care, and organizational growth. Each healthcare entity must evaluate its capabilities and resources to determine the best approach, recognizing that the right contracting strategy can significantly impact its success in a competitive market.

Contact PayrHealth today to learn more.