Financial Sustainability

3 contracting strategies to accelerate a COVID-19 financial recovery for providers

September 28, 2020 3:50 pm

While U.S. providers have suffered profound financial losses because of COVID-19, health insurance companies have actually benefited from the pandemic. Providers require effective strategies to achieve a more equitable balance.

Healthcare utilization has dropped sharply as a result of COVID-19, causing most hospitals to experience a major drop in revenue and margin. But for most commercial payers, lower utilization has slashed claims expenses and created a huge financial windfall. For example, United Healthcare’s net income doubled during the first wave of the pandemic, jumping from $3.3 billion (2019 Q2) to $6.6 billion (2020 Q2).a

Although these market dynamics clearly seem unfair to providers, there is no reason that providers should simply accept the status quo. As they struggle to recover financially from COVID-19, hospitals and health systems should not hesitate to look to insurers to share their excessive surpluses.

Right now, the biggest potential opportunities for providers are in contracting with insurers. Financial leaders should focus on three broad areas where they should seek to renegotiate existing contracts and lay the groundwork for beneficial new partnerships.

1. Short-term tactics to get dollars in the door quickly

At the beginning of the pandemic, many insurers accelerated payment of outstanding claims. Finance leaders can take this opportunity to negotiate some permanent changes to speed up the revenue cycle.

Relax utilization management rules. Provider should ask insurers to ease their approach to prior authorization, concurrent review, daily inpatient updates and other requirements that slow payment.  

Adjust site-of-service payments. CMS made big news in March when it agreed to reimburse telehealth services at the same rate as in-person visits. Finance leaders should push to make this change permanent with commercial insurers. They also should look for other opportunities to shift dollars to sites of service where payments historically were lower, especially sites that have been leveraged as COVID-19-free service areas. For example, providers should negotiate inpatient surgery pricing for ambulatory surgery centers for the duration of the pandemic.

Request pre-payment of quality incentives. Many contracts include year-end incentives tied to quality or cost efficiency. Providers should talk with commercial insurers about disbursing these amounts now. Insurers have already budgeted these dollars, so they should be available for prospective payment.

2. Medium-term moves to secure more value-based payments

One of the lessons of COVID-19 is that the more an organization relies on fee-for-service (FFS) payment, the more vulnerable it is to volume disruptions. Provider finance leaders should immediately start looking for ways to build financial stability through value-based payment, focusing on the following elements in particular.

Care management fees. Better coordination of care can reduce unnecessary utilization, so many insurers are willing to pay per-member-per-month care management fees. This revenue can create a steady financial base that is not tied to service volumes.

Quality and outcome incentives. Provider finance leaders should work with payers to convert a portion of FFS revenue to pay-for-performance bonuses. One useful tactic: Quantify lost revenue from cancelled elective surgeries and build it into future quality and outcome incentives.

Shared savings arrangements. Shared savings contracts can help hospitals weather volume fluctuations by generating revenue from managing a population of patients. During the pandemic, some healthcare finance leaders have negotiated temporary hold harmless clauses that shield hospitals from potential downside-risk financial losses.

3. Long-term strategies for partnerships

As value-based payment evolves, insurers are seeking provider organizations that can take responsibility for patient outcomes and costs. Now is the time to begin laying the groundwork for these advanced partnerships. Providers should focus on two opportunities.

Expand risk-based partnerships with insurers. As a long-term strategy, hospital organizations should focus on developing the capabilities to manage patient populations. Insurers will increasingly seek out these hospitals to take part in high-performance provider networks and anchor their narrow networks.

Partner directly with employers. COVID-19 has led to revenue declines for most U.S. companies. More than ever, these companies will seek savings in healthcare spending. Hospitals are now in a great position to bypass payers and negotiate directly with employers to manage employee healthcare.

Hospitals that are new to direct-to-employer (DTE) contracting often focus on providing on-site primary care and on building near-site health centers. DTE contracting also creates the opportunity to make full use of telehealth and virtual health models.

Another strategy is to develop clinical service lines into centers of excellence (for example, for cardiac surgery or joint replacement). This approach gives employers a mechanism to attack the highest-cost conditions in an organized and measurable manner.

The critical first step

The big insurers know that hospital closures will only reduce access to healthcare, which will ultimately increase the burden of disease and total costs. Insurers therefore are ready to work individually with hospitals to keep the whole system afloat.

But here is the key point: You have to ask. Insurance companies cannot help everyone, so hospital leaders need to make the first move. Provider finance leaders should leverage individual relationships to open talks, examine promising strategies for reworking contracts and explore creative new partnerships that can benefit both parties.

Creating value through direct-to-employer contracting

Employer need

Provider value opportunity

Cost control/cost predictability

Lower costs via efficiencies, reduced complications

Better outcomes/faster return to work

Superior outcomes via centers of excellence

Employee satisfaction

Convenient access via on-site clinics, telehealth

Administrative simplicity

Streamlined management with preferred partner

Source: Lumina Health Partners. Used with permission. 


a. UnitedHealth Group, “UnitedHealth Group continues efforts to combat COVID-19; reports second quarter performance,” news release, July 15, 2020.


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