It’s important to know where a payer ranks and to choose your battles wisely.
To achieve balance in the revenue cycle, hospitals and health systems must hone in on payer management, especially as it relates to contracting. To help hospitals prioritize payer management, the following three strategies will help contracting leaders take control.
Strategy 1: Understand What’s Worth Negotiating
Objective measures take the passion out of an argument—either something happened or it didn’t. That’s why it’s important for payment and reimbursement staff to build relevant key performance indicators (KPIs) and create a holistic view of payer contracts.
First and foremost, ensure you are being fair: When you’re looking at KPIs such as variance and denials, be sure to evaluate your organization’s potential deficiencies before automatically pointing the finger at the other party. For example, you may have a large number of accounts with variances that were registered incorrectly to a different plan with the payer, which is not the payer’s fault. The same applies for authorization-based denials: If you didn’t get the authorization and there’s a denial, an internal problem exists.
It is also beneficial to examine the following factors:
Average days to pay. This number is calculated by looking at the time difference between the bill date and check date. It doesn’t look at payment, only response.
Initial denial rate. This rate is different than overall denial rate, although that’s a good metric as well. This figure is useful to help understand what the initial response rate looks like and where you’re having trouble with a payer.
Payment rate per encounter with a bill type breakout. Knowing what you get paid, especially by examining net payment over gross charges, can help you identify opportunities to negotiate. This KPI is especially useful in context. Compare these rates to your other payers, especially “like” payers (e.g., commercial comparison).
Paper claim percentage. This item can help you understand how hard you are working for the money. Paper is inherently harder to track, difficult to follow up on, and more expensive to record. It’s just more work, period. If you have to deal with the headache, negotiate a better rate.
Patient responsibility percentage. This KPI is increasingly important with the advent of high-deductible health plans, as it helps you understand how hard it is to collect your money. In some ways, the payment rate is less important if you have to do all the work to collect the money.
Contractual allowance percentage. This figure cuts two ways: It can show you how closely you’re working to your chargemaster—which can be particularly useful over time—and how well payers are paying you on what you’re charging. Some call this KPI a measure of chargemaster performance.
Appeal success percentage with a breakout by underpays and denials. When it comes time to negotiate your contract, being able to show appeal success can help you change rates and work.
While the items above are beneficial, the most important step is creating a KPI to determine the importance of each payer to your organization. Without a doubt, contract negotiations are time-consuming and difficult. You need to make sure you are investing time and effort where they are needed most.
It often makes sense to develop two baseline comparisons: all other payers by source of pay and Medicare. It’s important to know where a payer ranks and to choose your battles wisely. For example, if a payer’s days to pay aren’t quite where you want them to be, but their payment percentage is significantly higher than their peers, it is likely best to not make any changes. This is the “don’t rock the boat” strategy.
Strategy 2: Get Paid for Cutting-Edge Work
Payers are sometimes a few steps behind in what is, potentially, a best practice for treatment. If you’re an organization that does research and employs industry-leading techniques, it’s important to make sure you get paid for this work. Many cutting-edge treatments are extremely expensive. For example, a monoclonal antibody treatment can cost as much as $120,000 for a course of therapy. If you don’t pay attention to these heavy-hitters, you may be subject to stop loss or caps in your contract.
Look at your formulary to identify where risks exist, and make sure the heavy hitters are written into the contract. Remember, if it is not written into the contract, it doesn’t exist. When something is not explicitly written into the contract, make sure you coach your teams on prior authorization processes and how they should work. By doing so, you can create a good future proofing strategy, as new treatments may become available before the next contract term.
Strategy 3: Stop DRG Downgrading
In a recent conversation regarding contract value erosion, a conference attendee shared that the organization’s revenue was likely suffering from a compounding of “a million things,” not as a result of one major item. Of course, it would be nice to have the ability to narrow revenue challenges down to a single component, but that’s rarely the case.
In my experience, I’ve seen a lot of DRG downgrading as of late and have stressed to clients that it is often worthwhile to get a progression checklist included in a contract. This practice can prevent the payer from changing the DRG to a lesser paying code without following the proper steps. This can be a tough negotiation point, so it’s always best to support the request with data to make a solid case. Show the payer how many times they’ve done this and how many times you’ve appealed (and won). Also, be sure to discuss the cost to you in both time and money.
While these three strategies are not an exhaustive list of the “dos” and “don’ts” of payer management, they will help you head in the right direction. We understand that sometimes the hardest part is figuring out where to start and these strategies will put you on the right path.
Will Israel is director of product management, The SSI Group, and a member of HFMA’s Alabama Chapter.