May 12, 2022

Diving into Details: Accurate Contract Configuration


Both the contracting department and configuration department play key roles in ensuring that contracts are negotiated in a manner that can be configured and maintained easily, with minimal intervention, configuration, and other work around requirements.

MANAGING DIRECTOR, AARETE

By Erica Nelson


MANAGING DIRECTOR, AARETE

Maria Turner

A successful health plan offers the highest quality of healthcare to its members while operating efficiently with a strong network of healthcare providers at market negotiated rates. 

While the process to finalize a contract can sometimes take months, once signed, the importance of keeping both parties (the payer and the provider) happy in their relationship lies in symmetrical interpretation and execution of the agreed-upon pricing (e.g., rates, groupers, fee schedules) and payment terms that include lesser of language, payment hierarchy, outlier provisions, unlisted services, and other carve-outs. If the terms are not straightforward enough to be passed on and interpreted identically across departments in either organization with easy efficient processing, the relationship will surely suffer. 

It’s not as simple as it sounds. Incorrectly interpreted or inaccurately configured contracts are a key driver of the costs to adjudicate claims, which are amplified by claims payment inaccuracies and process inefficiencies caused by appeals and grievances, post-pay adjustments, pend volumes, and manual processing and/or pricing. The ability to accurately configure provider contracts and efficiently adjudicate claims can be enhanced by following a few key recommendations focused on understanding the configuration process and the limitations of the adjudication system, including the need for customizations and workarounds. 

NEGOTIATE CONTRACTS THAT CAN BE CONFIGURED 

Most standard negotiations result in reimbursements set at a “simple” fixed percentage of a defined rate that may be based upon provider’s billed charges, Medicaid rates, Medicare rates, or the payer’s custom fee schedule. In some of the more complex cases, custom terms and provider-specific rate cards are negotiated, resulting in highly complex contract carve outs, including contract terms that are so complex they cannot be configured in the payer’s adjudication system, resulting in pended claims and manual adjudication processes. As a result, complex contract terms can be more costly to the payer than the alternative (and much simpler) standard percentage-based rate. Health plan contract negotiators should be well-versed in how contracts are configured in the adjudication system and the related system limitations, including the related costs to manually process claims. 

NEGOTIATE CONTRACTS THAT ARE EASY TO CONFIGURE 

While some contracts are able to be configured, they sometimes require significant hours from the configuration department to load correctly. Contracts with multiple custom carve-outs, modifier-based rate adjustments, time- or age-based adjustments, or sequence-based rates typically require customizations or workarounds (beyond simple configuration), as well as the involvement of the plan’s IT team to accurately execute. Other contracts have terms that require the health plan to update the rates on an annual basis, which is costly to administer, especially when the rate revisions are delayed, causing claims submitted at the beginning of each contract year to fall victim to manual pricing errors. Health plan contract negotiators should understand the costs associated with creating IT customizations and workarounds, as well as the costs associated with manually priced claims (including an understanding of the potential for manual volumes associated with each contract). 

NEGOTIATE AMENDMENTS THAT ARE TRANSPARENT IN COMPARISON TO THE BASE CONTRACT AND PRIOR AMENDMENTS 

Many factors can lead to a payer and provider to renegotiate a contract or to add an amendment to adjust select terms. For every amendment, it is important that the document clearly articulates which reimbursement terms are changing and which are not changing in comparison to the most recent agreement. When the complexity of an amendment doesn’t mirror the base contract’s level of complexity (low to high, high to low), it can often lead to gaps in configuration, and ultimately to inaccurate claim payments. Avoiding transparency issues is generally as easy as running the amendment by the configuration team for consistency and transparency review prior to signature. 

MAINTAIN A CLEAN CONTRACT MANAGEMENT SYSTEM 

Depending on the age of a health plan and the span of products it offers, a base contract with a provider can evolve to tens if not hundreds of documents across decades. Saving, storing, and maintaining an accurate and searchable repository of contracts, amendments, W-9s, and other related documents become increasingly difficult. Adding in the impact of department turnover, cross-departmental collaboration, and technologies that change and evolve every few years, makes contract management increasingly difficult. Plans with proper organization of contracts and amendments typically have higher accuracy in adjudication.

REQUIRE FREQUENT AUDITS AND SAMPLING OF CLAIMS (INCLUDING A FEEDBACK LOOP) ACROSS THE CONTRACTING, CONFIGURATION, AND CLAIMS TEAMS 

As contracts grow increasingly complex with arrangements focused on value and quality, constant communication and feedback between the contracting, configuration and claims teams increases in importance. Health plans should ensure that audit and feedback loops exist between the departments to ensure contracts continue to be negotiated with terms that can be configured, as well as configured and processed as per the negotiated terms. 

Ensuring contract terms are properly configured, claims are paid accurately, and operational processes are efficient and effective is the foundation of the claims process. Identifying configuration gaps, inaccurate claim payments, and process improvement recommendations are the building blocks. Enabling health plans to operationalize changes, whether it’s related to system set-ups, provider communications, or process improvements is the finished product. Allowing claims paid under provider contracts to be cleanly auto-adjudicated with as little manual intervention possible is key in keeping operational costs low. Both the contracting department and configuration department play key roles in ensuring that contracts are negotiated in a manner that can be configured and maintained easily, with minimal intervention, configuration, and other work around requirements.

MANAGING DIRECTOR, AARETE

By Erica Nelson

MANAGING DIRECTOR, AARETE

Maria Turner

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