<img alt="" src="https://secure.dawn3host.com/210977.png" style="display:none;">
Schedule A Demo

Industry Insights

The Four Key Components of Contracting

Part Two – Benchmark Contract Performance


Previous: One - Know your Contract Composition
Next: Three - Establish Your Expectations


Transcribed Video Content Below

Part of finding those opportunities have to do with benchmarking the contract. What are you comparing it to? How do you know what needs to change? So I have put together here a couple of perspectives so that you're not seeing it just through your eyes or historical reference, but against a different reference, and we'll go through these different examples.

First, benchmark that contract against its original projections. Chances are no matter who negotiated it, you or others, maybe members of your staff, that contract was modeled as having a certain worth, a certain revenue value to your organization. Each change of the rate last time was projected to yield a certain reimbursement.

The question is, did it actually yield that? If it didn't, why didn't it? What surprises you in here? Does it have to do with formulas and how the rates are calculated?

Perhaps you can't achieve the rates if you have a lesser of language with charges and rates. You're getting paid your charges, but the rates in the contract are irrelevant. Perhaps there's claims adjudication logic that wasn’t accounted for last time and you're all very proud of whatever percent increase it was, but it's not netting that in revenue. This is a time to get that baseline established very soundly.

The second is to mine that claims data and look very closely at particular services not just the ones that are high value now, but the ones that you project to be high value next. I'm going to have Greg review a few more details with some specifics on the modeling.

So as Susan noted, providers must do their homework which includes modeling the actual contract terms, really modeling all plans, all product lines and understanding the results in a side-by-side fashion. And the Excel view that you see on screen, this is an example that organizations should look to incorporate where you're taking into account the various plans, breaking out your modeling result for both inpatient and outpatient, often those should be done separately, really looking at first determining what dataset do you want to model? And in that dataset, that could be your historical service activity with the payer that you're looking to negotiate, that could be subsets of breaking out the plan component with that particular payer or it could be incorporating a broader set of records or accounts that resemble that particular payer population. Especially when you're modeling smaller payers, you may want to go with a larger dataset that would be a representative sample for that particular population, just so that you get an adequate service history in your modeling efforts.

When you're doing your modeling, we typically find it important to break out and then analyze the data from that service history into the actual reimbursement terms. So this particular example on screen is an outpatient example where we have APC reimbursement, and it would group the data and sort the information based upon the client actual history and experience, listing out the case volume, the adjusted total charges. With total charges, you could include or exclude denials. That's why we list here adjusted total charges taking out denied charges from the total charge. The expected reimbursement, this would be your calculated amount, the effective discount rate, and then a percent of the benchmark.

Your first contract scenario should be your benchmark. Many organizations will use Medicare as their benchmark, some groups especially as they're looking at incorporating negotiating scenarios with smaller payers. We're seeing a trend towards incorporating a benchmark of Medicare and Blue Cross Blue Shield or Anthem, so using either of those two as your baseline. So that as you then move to the second scenario here, this would be either your proposed contract that you receive from the payer or it could be your counterproposal. And we typically see and incorporate more of a column side-by-side approach where you're taking benchmark current and then propose counter-proposals so that you have all the data lined up for an easy analysis of how that contract is performing. Obviously, when you're doing this type of side-by-side analysis, it's important to really understand where the financial winning and losing is occurring. That's why it's helpful to see the data at that service-line level.

It's also important to note that sometimes you can negotiate different contract terms. Other times you may have to accept the new terms that are being proposed depending on who the payer is. But regardless, you should be modeling to have a clear understanding of the financial impact of the new reimbursement scenarios before they actually take place or roll out to your organization. An example that we're seeing more frequently today is where state Medicaid plans are moving to new outpatient reimbursement methodologies. The migration towards EAPGs is one that we're seeing in a number of states Florida, Medicaid, Ohio, Alabama, Blue Cross are some examples of where we're seeing that migration towards new outpatient reimbursement methodology. And with Medicaid programs, you may have little ability to negotiate new or different reimbursement contractual arrangements, but the modeling activity within that managed care or revenue integrity department should still be occurring because that helps from a leadership standpoint the organization to really understand and plan for that projected financial impact as Susan noted earlier. You have to have that original benchmark to understand where you're going so that as you're moving forward you can constantly see and adjust to make sure you're making the right decisions for the organization.

There are other cases where you do have the ability to negotiate, and that modeling approach can incorporate new rates as well as different reimbursement methodology changes to really ensure you're providing your team or yourself with the knowledge of where changes should be negotiated, so at the end of the day you end up with a win-win contractual arrangement with your payer. That's where we find it again so important to really look to move beyond just using traditional Excel modeling tools to really calculate all of the intrinsic contractual terms and rate schedules in presenting the data and that side-by-side analysis approach. Susan?

Susan: Thank you. You've made some really good points, you know, never are you more attuned to the details than when you're modeling that contract for the negotiation. It's great to have that be your baseline that you could reference again and again over the course of that contract’s life. Again, excuse my voice. I think it's deeper still.

We’re going to talk about some other benchmark methods. The one here on page 15 is benchmarking against the current market rate. Two different views on that, both you’d need to estimate, but they're extremely valuable. One is to actually look at what the payer in question reimburses your organization versus your competing providers. While those are proprietary contracts they hold with others, there are ways to buy intel on that information that gives you a feel for where those rate placements are, and there's certainly information in the market. But where you are compared to those. What does the payer say? What is their strategy for positioning your organization against their other valued providers in the network? That really matters to you and to them and sometimes it’s disregarded on the hospital or provider side because it seems like it's not our business, but it's all about this competitive positioning.

Second is to actually look at that payers reimbursement compared to how other payers reimburse you. Picture just a playing field. Do you want it entirely level? Do you want to reward certain payers for volume? What is your strategy for where those placements are? And if you don't how they compare to each other, then you wouldn't know how to move the given contract into its renewal. It's really important to benchmark that as well.


(part 2)


Another benchmark that has to do with looking at leveling out the various methodologies into a common methodology. So convert variance reimbursements to a common percentage of charge equivalent or a Medicare relativity, so that you're able to see things in a like way. Your modeling can help you to do that, to model this payer's book of business on Medicare rates. Or model each of your commercial, or your Medicare books of business, you know, against the same kind of output, so you're able to compare it apples-to-apples as possible and not have anomalies in there. If you look at just pure rates and leave out where you have carved out services, you're not seeing the whole picture on what that contract value is. So important to benchmark that as well. You could actually picture, as I say, that's probably plotting it on a diagram and deciding where the arrow should go, up, down, or otherwise to adjust.

Benchmarking against leadership dependencies really has to do with deciding internally before you're in the active negotiation what this payer means to your organization. What do you need to depend on? Where they are in your payer list now? How big a piece of the pie? What do you want that to be in the future? Where you want to see them grow? Are there certain sites that you represent? Maybe you're a multi-state organization, and some of your sites have a very different payer mix than others. What can you do to align those? How long a commitment do you want with this payer? Is the market changed so rapidly or the precarious relationship isn't as trustworthy that you want just to activate for a year or two? Or do you want to really commit long term and demonstrate a more serious commitment to that payer which would cause a different kind of negotiation?

Benchmarking against the overall performance is really key. And by overall, I don't mean just overall financial, I mean everything else it has to do with their relationship with that payer. Some examples are, you know, the claim payment accuracy, speed-to-pay. How they perform on authorizations? Are appeals pending to be upheld or overturned? What's the frequency of their behavior on those certain events compared to their peers? They may pay well, but they pay slow. They may be one of your most valued providers, but in certain departments, there's a lot of energy spent trying to get an authorization to move a patient. Those things matter, and they should matter all year. Some of you may have scorecards you use internally, some may use them as a document you share with your payers during the year, but all those factors come into play alongside the financials for the negotiation. We have an example here Greg of a scorecard. I'll leave it to you.

Greg: Thanks, Susan. Yeah, the first point to keep in mind is with scorecards, scorecards are I guess in a lot of ways like babies. They're all beautiful, but some babies are a little prettier to others than...so the same thing applies with the scorecard. This particular example is pointing out several different areas and doing comparisons. There's not a right or wrong. Some organizations prefer to use red lights, green light, yellow light, some prefer graph, some prefer tables. At end of the day, you need to make sure that the scorecard is giving you the relevant information that you and your team needs to make well-informed decisions. The second point with scorecards is that it's critical to ensure that the detailed data behind the roll-up report is accurate. If the detail data is not accurate, then you're going to end up with making false assumptions to what the scorecard’s telling you. So like in any scorecard, you have to have 100% confidence in the background data as you start to look at your particular peer scorecards and how your organizations are performing as Susan just noted.

Scorecards should point to key signs, market trends, sudden increases or decreases in reimbursement as well as those comparisons to benchmark statistics to really kind of determine where your organization stands. A few things that we often look at is both in terms of collection by payers, what is the payer volume? How does that compare period-to-period? Aligning your payers to really see “Are the payers really earning their discount?” An effective discount rate is one metric, if you will, that some organizations will use so that you can ensure that the payers that are producing the largest volume are really earning their discount. You may want to look at your recovery results by organization. You may want to separate out your results from a graphical standpoint of collections by month. There are different ways of scoring both in terms of volume as well as underpayments.

In terms of underpayments, we see a lot of groups breaking out denial rates from contractual variance rates. Another is the percent of claims with specific reimbursement terms. As you go into a new contract, you've probably modeled and you're expecting some level of volume as it relates to outlier hits or lesser-of impact scenarios or the additional reimbursement that would come from add-on provisions. You'd want to ensure that your scorecard, if you will, is mapping back and tracking to your goals that you outlined or the benchmark that you outlined with your original simulation, so you would want to potentially include those types of targets in your scorecard process. Susan?

Susan: Thank you. The payer's reaction to those scorecards that they're ones that you present to them where you have highlights from those that you extract and present to them, is also key to tell you what kind of relationship they want with you. So besides checking with your internal stakeholders to really check how they rank these payer relationships, again out of your seat looking through their eyes, is also to look through the payer's eyes, right? What is the value that you offer to that payer's network? If you are working for that health plan in that seat trying to negotiate the contract with your organization, so opposite side of the negotiation table, what value do you offer them? What are you bringing to their network that someone else can't? Is it geography, is it certain services, is it ease of relationship, is it certain access? Knowing those can help you to predict what the other party is likely to do in that negotiation and what's back-of-room being talked about as they prepare. It's never too soon to be listening for that and talking it through, and even if you had to make a written checklist of the items that you're learning as you go through the relationship, those are all in play as you go through the preparations here. Once you have that baseline, you've checked yourself, you've benchmarked, it's time to establish what you want to do with this particular contract with this negotiation. I think we're going to pause here and go through a polling question first.

Poll Results

So first, we'll share the results of our first poll.

As a reminder, the question was:

Q: What best describes your confidence in negotiating payer contracts at your organization?

A: The results

40% were confident in both strategy and tools;
21% were more confident in strategy than tools;
12% were more confident in tools than strategy;
and 27% were overall not confident

Q&A Session

Q: Should we involve staff from throughout the revenue cycle in initial negotiation planning sessions, and if so which departments might be best to include?

A: Absolutely. They will have perspective and data that either you won't have, or you may not fully appreciate if it comes to you on a written report. The earlier folks are involved and the more welcoming you are to having them give you input on that performance of the payer as you're preparing a negotiation the better, never too soon. Areas that are valuable really across the entire revenue cycle, hopefully are working closely already with your contract variance team to be monitoring what's not performing as expected whether you have evidence of rates being loaded incorrectly causing differentials in payment to expected reimbursement or whether you see that the model contract is not being activated that way and still under research. You'll want to have that intel and have them involved. The more comfortable you make folks of the internal planning team to share that input, the richer the input will be.

Q: If our analytics capabilities are limited, what are the top one or two things we should benchmark to be positioned well during negotiations?

A: So now we need to rank the order of those benchmarks... The benchmark against the current market is extremely important. The markets are changing very fast everywhere. Knowing you're doing well compared to your history is very narrow-focused. Knowing you're doing well on your value compared to what the rest of the market is enjoying from that payer is priceless. So I would rank that right at the top of that list.