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Industry Insights

The Four Key Components of Contracting

Part One - Know your Contract Composition


Next: Two - Benchmark Contract Performance


Transcribed Video Content Below

For the contract composition, a good starting point is to look at your options for initiating the negotiation. First and foremost, it's important to know that with any payer relationship, you can initiate a negotiation regardless of what the contract says. Those two parties can choose to change that contract when they mutually agree. So I would not hesitate to set that aside as a reference but not a rule.

If you're going through a regular type of negotiation for a renewal of rates and not looking for dramatic changes, you may stay on a regular contract cycle and in your contract there may be notices required from one part to the other that they wish to alter something before the contract ends or before it auto-renews.

Again, if there is a good relationship between those two parties and there in active communication, it shouldn't matter if you've missed that window, but it will matter if there's friction; It's always something that the party can hold up to say, "You shouldn't be asking us, it's too late for the next cycle." Just something for you to think that through and to keep in mind.

Second, all the terms of the contract, both the base agreement regardless of how old it is, it may be ancient I realize that, and all of its amendments need to be assessed. Things that are in that contract year after year, generic language, changes that prior negotiations may have made don't necessarily have to dictate what's in your future contract. That future contract is what you're designing, so see this as a way to look at a starting point but not the only direction you can go.

Before you did the negotiation preparation, you probably were talking internally in your organization on what's really important and where you see a burden by payers. I don't think a day goes by that I don't hear somebody talk about those payers if it's us or them. It's really important in the negotiation process to think about what's in your contract that causes that feeling of burden. What's non-standard? Do you have a contract that has a one-off method that just requires an unusual amount of focus or reminders or administrative time that doesn't have to be there but historically has lived in the contract? This is your time.

It's also a time to look at the reimbursement rate structure and the claims adjudication rules that are in the contract. Those all should be well understood and should be something that you're considering changing if it serves you.

Be aware too of where you don't have control of the contract. An example is at the top of the slide at Page 11. Sometimes you're paid in a relationship to the payer's proprietary schedule. They may call the fee schedule a “network schedule” or a “plan schedule”. It may be called something unique. But if they control that they schedule on your plate and multiplier of that schedule, you're exposed to whatever changes may be coming. So it behooves you to well understand how that schedule set, and what's likely to happen in the future because that will change your results, your revenue generated from that contract.

Also important as many of you know is to leverage the relationship you hold with your counterpart of the payer. And, of course, negotiate as high as possible payer-wise within that payer organization. You should have been laying groundwork ideally throughout the year toward the moment when you would renew or change your contract, so that it's not the first handshake you're having; it’s actually now formalizing the process that you've been preparing for.

Most important is the last point here on page 11, is doing your homework so you are in the driver's seat. While two parties are in the contract, you represent your organization. You speak for them. You designed this for them, so you need to know what you want to have the highest likelihood of getting there. If you're waiting to see what the other parties want so you can react, you're likely not to get where you could have been because you didn't plan that roadmap.

Another tip that we wanted to share here is to really think about this is as the moment to get a fresh look at your contract. [There are] a lot of moving parts to that. You may or may not have been involved personally in negotiating it. So think of it this way, if you were to join this organization now fresh, a new hire in negotiating a role, you would take a very critical eye to that contract. You'd want to put your touch on it. You'd want to improve it to demonstrate your worth to the organization. It's important even in an existing job to be able to still add that value. But to add that value, you need to step back and look at the contract as objectively and as completely as possible to find the opportunities of where to negotiate.