Types of Payor Contracts Every Provider Should Know
Payor contracts come in many shapes and sizes. As a provider, it may be confusing trying to get a grasp on payor management and navigating all navigate all the different ways you and payors can come to an agreement. Depending on your preferred payment terms, budget, and the abilities of your service provider, some payor contracts may be more suited to your practice than others.
If you’re feeling lost in the world of negotiating payor contracts, don’t worry. This list has everything providers should know about the most common types of payor contracts.
Types of payor contracts can be broken up into a few different categories. While some of these categories may overlap, it’s vital to understand the benefits and details of each individual type of contract.
The first category that payor contracts can be broken into is time-based. A time-sensitive contract is a contract type that has an unique renewal period and contract length that changes depending on the particular payor agreement. This type of contract may require more of a contract negotiation process, which can be intimidating for some.
An Evergreen payor contract is a legal document that automatically renews at the end of each term period. The only way to avoid a renewal is if one party actively seeks out modifications or termination.
Benefits of an Evergreen contract include:
- A strong bond between provider and payor
- Require less maintenance
- Reduce worry over contract negotiation renewals
On the other hand, evergreen contracts have some red flags in the eyes of many providers. Characteristics that may deter you from an evergreen contract include:
- They’re binding (this is bad if you’re not happy with your payor)
- Making revisions to the business contract can be difficult
- They require a long period of notice before termination
The bottom line? If you have a positive payor relationship, an evergreen contract may be great for your practice. If your desire is to browse a bit, and you don’t want to be tied down to one contract for an extended period of time, then a fixed-term contract may be the way to go.
What is a fixed-term contract?
The opposite of an evergreen contract is a fixed-term contract. While there may be variation among the individual contracts within this category, the general idea is that a fixed-term contract is less permanent.
A fixed-term contract exists for a limited period of time once it’s signed. Both parties agree upon a contract term period, and once that period is up, there are no obligations to renew. A few examples of benefits from this type of contract are:
- Less commitment
- More room for negotiations
- Opportunities for changes to the original contract
Basically, fixed-term contracts have the opposite pros and cons that come with evergreen contracts. While this type of contract may not build as strong of a relationship between provider and payor, it’s a potentially safer option for practices that don’t want to be locked into anything long term.
Another way to categorize payor contracts is through payment systems. The frequency, amount, and method by which you pay your multiple payors all determine what type of contract you’re entering.
Similar to how fixed-term contracts are based on time, fixed-price contracts are based on a set amount of money. As a provider, a fixed-price contract would require you to pay your payor a lump sum cost upon signing. This cost, or fixed fee, will cover the entirety of the existing contract term period and all the services that are provided during that time.
Some benefits of a fixed-price contract are:
- Easy to understand
- No hidden fees
- Less stress about missing payments
While this type of payor contract can be appealing due to its simplicity, there are some reasons why it may not be the best choice for every provider. The fixed price will most likely be on the pricier side, in order to cover unknown variables not outlined in the contract. Because these types of contracts are often oversimplified, they may lack important details and clauses that protect your practice.
On the other side of the spectrum, you have fee-for-service contracts, which differ significantly from a fixed-price contract. These documents state contracts, in the fee-for-service category, are able to pay varying amounts of fees based on what they need, instead of paying a lump sum for every service a payor offers.
This is a viable option for providers who want to save money by only purchasing specific services and looking to get a more personalized experience for their needs. This type of contract gives the provider more control within the relationship. It also allows providers to perform a broader range of services in return for specialized coverage.
PayrHealth is Here for Healthcare Providers
With a full-time staff of experts, PayrHealth assists in managing and negotiating contracts with your payor. We understand what small practices and healthcare facilities need out of their contracts and we can provide you with an experienced contractor to obtain those specific terms. Our team of specialists can help with anything from developing competitive contract negotiation strategies to data analysis.
Contract management can be challenging, but you don’t have to do it alone.
As a contract manager, you should know the basics and understand what you want, but don’t be afraid to enlist help from those who know contracts best.
Parcel Industry. What Are Evergreen Contracts and Why are they Important to Shippers. https://parcelindustry.com/article-4808-What-Are-Evergreen-Contracts-and-Why-Are-They-Important-to-Shippers.html
UpCounsel. Fee for Service Agreement: Everything You Need to Know https://www.upcounsel.com/fee-for-service-agreement
PMI. Contracts From the Vendor and the Buyer Point of Views. https://www.pmi.org/learning/library/project-contracts-vendor-buyer-views-7254