Over the past ten years, the healthcare system in the United States has changed a lot. These changes affect how medical providers get paid. Payment models have shifted, payer rules have become stricter, and new ways to give care, like outpatient clinics and digital care, have become more common. All these changes make managing revenue harder for health systems and medical practices.
One big challenge is that a big part of an organization’s income depends on managed care contract results. Studies show about 40% of net patient service revenue (NPSR) comes from contracts that are still being decided. This is a risk for medical administrators if contracts don’t match the organization’s goals.
Also, claim denials have gone up. Between 2021 and 2023, commercial payer claim denials because of medical necessity increased from 2.4% to 3.2%. Requests for information (RFI) claim denials from commercial payers are 12 times higher than those from Medicare. This means payers are checking claims more carefully. So, it’s important to manage contracts more closely.
In the past, managed care contracting mainly looked at things like use rates and yearly payment growth. This narrow view can lower the real value of contracts over time. Healthcare leaders in the U.S. now see that contracts need to connect with their bigger goals.
For example, a big healthcare system changed how it handled contracts. Now the contracting team reports to both the Chief Strategy Officer (CSO) and Chief Financial Officer (CFO). This helps the organization think long-term about payer contracts, not just short-term finances.
When contracting links to strategy, health systems can include things like market competition, patient changes, and service plans. Without this, contracts might not help goals like keeping prices competitive or changing care models. This can cause money problems.
A fact-based portfolio approach means looking carefully at a health system’s income sources. These are grouped by markets, hospitals, payer types, service lines, and services. This helps leaders see which contracts make the most money, which have the biggest risks, and where changes might be needed.
By putting payer contracts in a portfolio, medical administrators can see contract contributions clearly. They can decide which contracts to negotiate based on full data, not just last-minute reactions.
Steve Prosser, a health system leader, said that organizations who link contracting to their mission and goals stand out. Using a portfolio approach helps healthcare groups get ready for more claim denials, tougher payer rules, and changing payment systems.
Risk assessment is key in a portfolio approach. This means looking at contract terms, payer actions, patient trends, and use of services. For example:
Health systems should not rely just on budgets or comparisons to past years. They need to judge contracts by how well they support future plans, like outpatient care growth or home care partnerships.
A recent study showed commercial payer claim denial rates rose from 2.4% to 3.2% in two years. This trend could cause income problems. Managed care contracts need to plan for this by asking for flexible terms or handling payer behaviors first.
To do well, managed care contracting should not work alone. Health systems in the U.S. are changing how they organize this by connecting finance officers and strategy leaders better. They often create “dyadic” reports, where contracting teams report to both the CFO and CSO.
This way helps leaders balance money control and strategy. It makes them think about prices, market share, and patient needs in the long run instead of just cutting costs quickly.
Organizations using this model say they get better contract results, stronger connections with payers, and healthier finances. This setup also helps them grow by making contracting part of their big plans, not just a separate task.
Contract talks, claim processing, and revenue management are hard and take a lot of work. Many health systems in the U.S. use artificial intelligence (AI) and workflow automation to make these jobs easier.
AI-Driven Contract Analysis: AI can study old contract data, find risks, and suggest negotiation ideas. For example, software spots contract parts that often cause denials or payment delays and advises better terms based on payer habits.
Automation of Front-Office Communications: Tools like Simbo AI handle phone calls for medical offices automatically. This helps patients talk to staff while freeing up people to work on tasks like revenue and contract management.
Claim Denial Prediction: Machine learning predicts which claims might be denied using payer data and patient info. This helps billing teams fix problems before sending claims and lowers money risk.
Streamlined Documentation and Reporting: Automation helps gather and send the large amount of data commercial payers need for RFIs. Since commercial payers deny claims with RFIs much more than Medicare does, using automation cuts work and lowers denials.
For healthcare leaders and IT managers, AI and automation give more control over contracts. They also support the fact-based portfolio method by providing clear and correct data for smart decisions.
To use a fact-based portfolio approach today, medical administrators and owners can do these things:
By doing these regularly, medical leaders can make their organizations more financially stable and able to adjust to healthcare changes.
Medical practices and health systems in the U.S. deal with many payer types like private insurers, Medicare, and Medicaid. Each has different payment patterns, rules for claim decisions, and contract needs.
The market’s competition, higher patient expectations, and government rules make managed care contracting very important in healthcare money plans. Practices that see payer talks as short-term jobs might miss chances to improve revenue and lower risks.
Using a fact-based portfolio approach that connects to big goals helps healthcare groups use resources wisely. It also lets them focus on payers that improve financial health. For example, where outpatient care grows fast, contracts that pay well for those services help margins and meet patient needs.
By using organized models, like dyadic reporting with CFO and CSO, U.S. health systems can better handle market shifts, rules changes, and payer complexity.
Today’s healthcare revenue systems need a more careful and measured way of working. Medical administrators, practice owners, and IT managers in the U.S. must see managed care contracting as part of their main plans.
A fact-based portfolio approach helps healthcare groups connect payer contracts to bigger goals, judge risks well, and keep steady financial health. Adding AI and automation makes this easier by supporting good data use, cutting admin work, and improving communication.
Healthcare organizations that adjust contracting to fit their overall plans and use technology are more likely to stay profitable and adapt to payer changes. This approach leads to smarter negotiations and quicker responses to claim denials, payer needs, and new ways of giving care.
By focusing on strategy, data, and automation, U.S. medical practices can manage managed care contracting as more than a must-do task. It can become a way to keep their finances steady and make their operations work better.
40% of net patient service revenue (NPSR) was at risk during the managed care negotiations.
Aligning managed care contracting with organizational strategy ensures that reimbursement, revenues, and margins support the future strategic directions of the health system.
Changes have eroded the financial value of contracts and minimized year-over-year negotiated reimbursement increases.
Growing ambulatory footprints, diverse partnerships, and digital care delivery are complexities in health system delivery models that affect reimbursement.
Managed care contracting has shifted to focus largely on short-term performance indicators such as utilization and rate growth.
Reassess the integration of managed care contracting with the Chief Strategy Officer to address incongruencies between negotiation strategies and organizational goals.
Health system leaders should view each payer negotiation contextually, considering competitive market dynamics, evolving patient demographics, and strategic objectives.
A fact-based portfolio approach allows health systems to assess key revenue drivers and identify risks while aligning contracts with overall strategic objectives.
By developing optimal alignment between strategic and managed care functions, health systems can create a payer portfolio that addresses complexity and improves financial positions.
Optimally aligned managed care contracting can enhance financial positioning and create a solid foundation for achieving differentiated success in the healthcare landscape.
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