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Lake Charles Memorial Uses Contract Modeling To Negotiate Better Payer Contracts

Lake Charles Memorial

  • Location: Lake Charles, LA
  • Number of beds: 365 Beds 
  • HIS System: Paragon/McKesson
  • “PMMC has the best tool for ‘gatekeeping’ reimbursement. I could not validate payer contract rate proposals without PMMC’s simulation tool.”

The Challenge


Lake Charles Memorial has contracts with 44 different commercial payers and processes over 35,000 outpatient claims annually through its largest commercial payer.Lake Charles Memorial Hospital, part of the Lake Charles Memorial Health System, needed the ability to calculate Medicare reimbursement for fee schedule changes and quarterly updates. This was important not only for calculating potential underpayments from reimbursement, but also for modeling future terms.

Another wrinkle is that not all payers follow the National Correct Coding Initiative (NCCI) edits. According to Centers for Medicaid and Medicare Services (CMS), the NCCI was developed to promote national correct coding methodologies and to control improper coding leading to inappropriate payment in Part B claims.

Given the volume of contracts and complexity of the bundling methodologies, Lake Charles Memorial required the ability to model the terms to determine the impact on reimbursement revenue as well as the flexibility to build out these unique bundling requirements.

Another challenge (not just unique to Lake Charles Memorial) is pressure from large commercial payers to move towards an MS-DRG reimbursement methodology. This is a methodology that pays the provider based on the weight assigned to the DRG code that is used to adjust for the fact that different types of patients consume different resources and therefore have different costs. In fact, two payers have implemented performance measures for Lake Charles Memorial since 2013. One concern surrounding this is how to quantify reimbursement when performance measures are being added in real-time.

In extreme cases a payer can push to change the reimbursement methodology for multiple services. Payers have a tendency to propose language subject to interpretation. Modeling the contract gives the provider the opportunity to understand the impact and address the changes in a counter proposal if needed. But more importantly, it is imperative that the provider understands completely what the language means.


The Solution

John Allen is the Managed Care Coordinator at Lake Charles Memorial and manages contract simulations to provide him with insight into the change in reimbursement based on proposed future contract terms. This is absolutely critical when the time comes to re-negotiate their payer contracts. “Without a tool like this a hospital that directly negotiates payer agreements stands to lose substantial reimbursement due to the complexity and the competiveness of the negotiation process,” explains Mr. Allen.

“PMMC’s ability to be flexible in modeling a variety of contractual terms is necessary to quantify the results and/or impact of a proposal based on coding, payer edits, case mix, and the way the provider bills it’s services,” adds Mr. Allen.

“PMMC has the best tool for ‘gatekeeping’ reimbursement. I could not validate payer contract rate proposals without PMMC’s simulation tool.”

Mr. Allen is the primary user of contract simulations and has the ability to set them up himself. The time it takes to set up a simulation varies widely depending on the data set. For example, a data set needs to be cleaned up if it contains claims outside the contract. The actual set-up for the simulation takes the least amount of time. For their most recent simulation with their largest commercial payer, Mr. Allen estimates at least 120 hours of work were involved because of the size of the contract.

Contract terms are typically entered for simulation when each payer agreement is up for amendment, which usually is every three years. However, those with ‘escalator clauses’ are reviewed every year. Based on the volume of payer contracts, this works out to an average of four contracts per year.

The user can then access the ‘Analyzer’ feature – an easy to use reporting tool that includes a ‘quick search’ bar to prepare for contract negotiations. “I have not seen this type of reporting capability in any other software tool. This is something that everyone should have,” adds Mr. Allen. Another important factor for Lake Charles Memorial was the ability to seamlessly integrate into their current HIS system (Paragon) and billing solution (ePremis).


The Results

Lake Charles Memorial benefits the most from the versatility to model contract terms that saves them time, and more importantly, reimbursement dollars they would have otherwise lost. Although Lake Charles Memorial doesn’t have exact savings figures as a result of the simulations, Mr. Allen estimates it to be “significant dollars over the past several years.”

Mr. Allen said it’s not uncommon for a payer to be as much as $350,000 short in reimbursement through just one contract simulation. In addition, the solution has been quick to respond to industry updates.Lake_Charles_Memorial_Contract_Modeling_Benefits.png

For example:

Federal sequestration – As of April 1, 2013, Medicare provider payments were cut across the board by 2 percent under the Budget Control Act of 2011. These adjustments were built into PMMC Contract PRO within one year. The Congressional Budget Office (CBO) estimates that Medicare budgetary reductions will total $123 billion from 2013 to 2021.

ICD-10 coding changes – As of October 1, 2015, CMS required the transition to ICD-10 coding procedures. According to CMS, ICD-10 will affect diagnosis and inpatient procedure coding for everyone covered by the Health Insurance Portability and Accountability Act (HIPAA), not just those who submit Medicare or Medicaid claims. The change to ICD-10 does not affect CPT coding for outpatient procedures. As healthcare providers prepare, PMMC Contract PRO is prepared to handle these critical changes. “PMMC will provide the ability to import ICD-10 codes and descriptions into the software master tables and identify those codes as ICD-10,” said Stephen Summers, AVP Contract Management at PMMC. “Modifications have also been made to accommodate contracts that rely on Diagnosis and/or Procedure codes for reimbursements.” Lastly, Mr. Allen commented on the ease of use of the software and the training and support provided. “The software is extremely user-friendly for the hospital staff to use and that’s very important.”


Click here to learn more about payer contract modeling.