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What is payer contracting?

Explore the basics of payer contracting in today's ever-changing healthcare landscape, the challenges and benefits and a step-by-step process to reach your goals.

The world of healthcare can seem like a labyrinth at times, with an intricate web of players, regulations and processes that can make it difficult to understand. 

But if there's one critical piece of the puzzle, it's payer contracting.

Without this crucial element, healthcare organizations and their providers would be left in the dark about what services they can offer and how they'll be reimbursed for their work. 

In today's ever-changing healthcare landscape, payer contracting has become a critical component in provider operations for organizations to get right. 

As value-based care models continue to gain traction and technology transforms the way healthcare is delivered, ensuring payer contracts align with business goals is essential. 

Getting it right can future-proof a healthcare organization's operations, improving financial sustainability and patient outcomes. But what exactly is payer contracting, and if you're getting started, how do you set yourself up for success? 

Let's explore the basics of payer contracting, the challenges and benefits, and a step-by-step process for success.

Payer contracting explained

At its core, payer contracting refers to the agreements between healthcare organizations and payer organizations that dictate the terms and conditions for medical services, coverage, and payment.

These contracts help ensure that patients receive necessary medical care while providing financial support for healthcare organizations.

Modern challenges and benefits of payer contracting

Navigating the complex regulatory environment and ensuring compliance with state and federal regulations is just one of the challenges of payer contracting. 

According to a Healthcare Financial Management Association survey, 67% of health system executives identified regulatory and reimbursement policies as the primary challenges to implementing digital health technology. 

Outdated technology and infrastructure also pose significant barriers to innovation. A Healthcare Information and Management Systems Society study found that 50% of health plans cite legacy technology and infrastructure as a barrier to innovation.

Another obstacle is provider resistance to change, with many hesitant to abandon traditional approaches.

Despite these challenges, the benefits of effective payer contracting cannot be overstated. 

Payer contracting allows healthcare organizations to expand their network and increase their patient base, generating more significant revenue and profit margins. 

According to a report by McKinsey & Company, effective payer contract management can result in a revenue uplift of 1 to 3 percent for healthcare providers. 

Additionally, efficient payer contracting can lead to cost savings and improved quality of care, demonstrating the importance of payer contracting and its potential financial impact on healthcare organizations.

It also facilitates negotiating better reimbursement rates, as healthcare organizations can leverage their bargaining power to secure favorable contracts. 

Furthermore, payer contracting allows healthcare organizations to implement value-based care models that incentivize innovation and improve patient outcomes.

A Health Care Payment Learning & Action Network report found that over 40% of healthcare payments were tied to value-based care models in 2019, up from 23% in 2015.

Healthcare organizations can take several steps to overcome these challenges and maximize the benefits of payer contracting. 

  1. The first is establishing clear goals and objectives for the contracting process, including a detailed understanding of the organization's financial and operational needs. 
  2. It is also critical to develop a robust network of providers that meet the organization's standards for quality of care and cost-effectiveness. 
  3. Another critical step is to communicate regularly and negotiate with payers, leveraging data-driven insights to support contract negotiations and ensure that reimbursement rates are commensurate with the quality of care provided.

Getting started with payer contracting

Here is a step-by-step process for healthcare organizations to set themselves up for success in payer contracting:

  • Identify and assess the organization's current payer mix: Determine the current payer mix and identify which payers are most important to your organization. Analyzing your organization’s payer mix can help determine which payers should be prioritized in contracting efforts.
  • Conduct thorough research: Conducting thorough research on payer contracting best practices and industry trends can help your healthcare organization stay updated on current market conditions and contract negotiation strategies.
  • Establish clear goals and objectives: Before entering into negotiations with payers, it is essential to establish clear goals and objectives for the contracting process. These goals include increasing revenue, reducing costs, or improving patient outcomes.
  • Develop a negotiation strategy: Based on the research conducted and goals established, develop a negotiation strategy that emphasizes the organization's unique strengths and competitive advantages. This strategy should also account for potential challenges and market conditions that may impact the negotiation process.
  • Negotiate the contract: With a solid strategy, it's time to negotiate with payers. Negotiation tactics include leveraging the organization's unique value proposition, emphasizing quality and outcomes, and offering innovative solutions.
  • Monitor and analyze contract performance: Once a contract is in place, it's essential to monitor and analyze its performance regularly. This analysis can help healthcare organizations identify areas for improvement and opportunities for optimization.

Should you outsource payer contracting?

Payer contracting is without a doubt a very complex and time-consuming process that requires a high degree of expertise and specialized knowledge. Every healthcare organization is different but it boils down to two options: you can handle the process in-house or work with a third-party company.

While managing payer contracts internally may seem like it gives your organization more control over the process, it will be time-consuming and resource-intensive.

On the other hand, working with a third-party organization can provide several benefits, including specialized expertise, experience with a broader set of payers and streamlined processes – all of which ultimately give you greater control over your negotiation process.

Knowing if it’s the right move for your healthcare organization depends on your situation. You can ask the following questions when evaluating whether outsourcing payer contracting is the right decision for your organization:

  1. Does our organization have the necessary resources and expertise in-house to effectively manage payer contracting?
  2. Does our organization understand payer contract terms and what language to be on the lookout for?
  3. Are we experiencing challenges navigating the complex regulatory environment associated with payer contracting?
  4. Are we able to dedicate the necessary time and resources to managing payer contracts, or are we stretched thin by other priorities?
  5. Can we negotiate effectively with payers to ensure we get the best possible rates and reimbursement terms?
  6. Have we been successful in optimizing our revenue cycle management and payer relationships?
  7. Have we identified any specific pain points or inefficiencies in our payer contracting process that outsourcing could address?
  8. Are we looking to expand our business and need a partner to help us navigate new markets and payer relationships?

By considering these questions, you can evaluate whether partnering with payer contracting experts may be the right choice.

Making the right decision for your organization

Remember, by leveraging an outside organization, you are free to focus on what you do best – delivering quality patient care – while leaving the contracting work to the experts. This can lead to improved efficiencies, cost savings and better relationships with payers. 

Ultimately, the decision to use a third-party organization will depend on your specific needs and goals.

For example, Medallion's technology, platform and team of payer contracting experts streamlines the contracting process, aligns to your business goals to get you the best terms and rates possible, identifies areas for optimization and stays up to date on the latest industry trends.

Get in touch with our team if you’d like to see how we can help you evaluate your processes and work with you to determine if a partnership with Medallion is a good fit.

Learn more about Medallion’s payer contracting solutions here.