4 Key Areas of Managed Care Contracts

Laura Jacobson RHIA – Data Quality and Reimbursement Consultant

Laura is an expert on data quality and compliance issues, making sure our clients receive accurate and immediately useful results. She works with managed care contracts, modeling reimbursement terms for pricing and payment work. Her work allows our consultants to give accurate advice to help our clients be financially stable and successful.

Part of my job each day is to read through managed care contracts and decipher how the language applies to payment. I’ve noticed a few key areas that are often generically included or unclear, which can lead to a misunderstanding of how a payer reimburses their claims. Make sure these items are fleshed out in your payer contracts to ensure a complete understanding of how your claims are paid.

  1. Lesser of language– A lesser of clause indicates a payer will pay the lesser of either the payment rate or the amount charged. Most contracts with this language will include a brief sentence stating that this applies, however most don’t specify how it is applied. For example, if the contract includes line-level payment such as a fee schedule, how is the payer evaluating these claims? Are they looking at the claim in aggregate and summing the payments and charges, or are they looking at each line separately? The resulting payment will differ depending on the approach used so, it is important to understand exactly how the payer is evaluating these claims.
  2. Service Definitions– Every contract lists the service and the corresponding rate, but make sure your contracts also include how the service is identified. For example, does the payer define a cardiac catheterization by revenue code or HCPCS code? Do they require both in order to be paid? What codes does the payer use? And make sure the definitions are updated when code changes occur. If it is unclear what codes the payer requires for payment, there may be claims going out the door that are not receiving the correct payment or any payment at all. 
  3. Stoploss Methodology– Your contract may include a stoploss clause, for example, a clause that changes the payment methodology when charges reach a threshold, but does it specify what items of the contract are included? The payer may be excluding services, such as implants and drugs or items paid a percent of charge, which will decrease the number of claims reaching this stoploss status. If you are modeling contracts to project future payments or trying to validate your claim payments, this can lead to inaccurate results.
  4. Payment Hierarchy– Some contracts are great at specifying the hierarchy of payment, but many omit this entirely. For example, take a claim where the patient came through the ER and moved to observation. If your contract includes claim-level payment for both services, which one would apply? Does the claim receive an observation payment or an ER payment? Try to negotiate a section that clearly states the hierarchy of claim-level services. Again, not understanding this hierarchy can cause projections or validations that inaccurately represent your claims’ payment. 

Payers may not be omitting these things on purpose but leaving them out can lead to confusion and misunderstanding of how a claim should be paid. Review your contracts and if any of these areas are missing, try to negotiate them into your next renewal. Doing so can ensure both you and the payer are on the same page which leads to more accurate projections of claim payments and decreases the time spent reconciling payer reimbursement. 

How To Use Contract Testing And Analysis To Prepare For Payment Changes

Two areas that affect the impact of contract changes include how payers define categories and services and hierarchies of payment.

A substantial provider-payer contract is nearing the renewal period. The payer initiates proposed changes to current payment terms, but the provider already has in mind specific outcomes desired for the upcoming contract year. The provider is faced with two choices; accept and move forward with the proposed changes or engage in the negotiation process. What should the provider choose?

To read the full article, click here!

Why Removing Percent-of-Charge Provisions in Managed Care Contracts Won’t Address Concerns About High Hospital Charges

Healthcare figures to be a primary issue in the 2020 elections, with much of the focus on costs — especially hospital costs. A common concern among users of hospital services is the apparent lack of correlation between hospital charges and payment. Although some hospital managed care executives have suggested replacing percent-of-charge (POC) contract provisions with fixed-fee payment as a solution, these proposals are based on three myths regarding the POC payment methodology relative to fixed-fee payment.

Read the whole article here.

How We Look at Big Data and Bundled Payments

“Big Data” is a buzz word in a lot of industries right now, so what do we mean when we talk about big data in healthcare? We know that big data is, well, big – usually very, very big. When we talk about big data in any context we’re usually discussing something that is more than a single person can analyze and parse. In fact, it might need a team or specialized equipment,and is assembled from multiple data sources.

Of course, those of us in healthcare, and especially healthcare finance, know that more and more, big data is being used to guide health policy decisions.  Our challenge is how to leverage big data as a tool to support decision making.  A very pertinent and timely example is measuring bundled payments as payment trends continue toward multiple variations of bundled payment approaches. 

Bundled payments, put simply, are a method of shifting payment risk between healthcare providers and healthcare consumers, usually third party payers.   Unless a hospital arranges for risk-sharing, it is responsible for controlling costs of care, even in settings over which they do not have any direct control.  Bundled payment methodologies range from individual service arrangements, where each specific service provided is paid separately, to episodic and capitation methodologies.  Service arrangements and encounter arrangements can often be measured within an organization, however assessing and defining costs associated with episodic payments clearly falls into the area of big data.  An episodic payment is made for all encounters associated with a defined episode of care across all providers.

Using big data analytics from Medicare data files we can measure the cost as the sum of all providers involved in providing care.   Once we understand the variation and driving factors of cost we can better understand how much individual providers have control over those costs and whether the reviewed product line or service is likely to be profitable, will require subsidization, or is in a space to consider limiting or exiting.

Clearly big data isn’t going anywhere, so it is imperative that we find ways to access and analyze big data to develop and support our strategies and decision making.  If you have questions, let us know at 888.779.5663. We discuss this issue (with examples) in our whitepaper here.

What Would Die Hard Cost John McClane (and His Hospital)

Every year, as the winter holiday season rolls around, the greatest debate of our time resurfaces – is Die Hard a Christmas movie?

We at Cleverley + Associates believe that the answer to this question may be beside the point. What’s important are the traditions we make for ourselves, especially around the holidays, that bring us together and make us feel happy and fulfilled.

But also, yes. Yes, it’s a Christmas movie.

It’s also a totally awesome action movie, which means injuries…a lot of injuries. That got us thinking – we assume that John McClane went to a hospital eventually, and considering what he’d gone through, what would his treatment cost him and the hospital?

Now, we’re not doctors at Cleverley + Associates, so our diagnosis and treatments are probably only tangentially related to real life medical advice. Definitely don’t try any of this at home. That said, let’s speculate wildly!

Our hero’s first injury (or probably injuries) probably occur as he falls down the stairs while also engaged in a fist fight. There are a lot of injuries that can occur from both a fall and a fight, but since Mr. McClane goes on to punch several other people, we can rule out fractures, spinal injuries, and basically anything that would put in him in traction.

But we can’t rule out a concussion, or a subdural hematoma.

He’d probably get an MRI and CT scan (Let’s go ahead and do both, since he’s a hero.)

We’d also want to do an ImPACT test.

Next up, the most famous injury, deep lacerations to our hero’s feet, because he walked across glass.


So we’re talking lacerations to the feet.

We’re going to need a lot of antiseptic, bandages, and probably stiches. Also foreign body removal from the wounds.

Again, ow.

Next up, poor McClane is straight up shot in the shoulder. The following scenes, where he still manages to win in hand-to-hand combat with the villain, show that the bullet probably grazed him. Of course, we can’t rule out that the bullet is still there, or a shard of it. So, we’re going to have to explore the wound to make sure it’s clean, and probably take an x-ray to make sure we got all the bullet bits out.

Lastly, in the grand finale, John McClane wraps a fire hose around himself and bungee jumps off the building. This is, generally speaking, a terrible idea. He then breaks through a window using his own body. Again, not usually a great idea.

This could, of course, cause a lot of injuries, but let’s go ahead and just assume the worst – a fracture of the vertebrae and ribs. There would probably also be internal damage as well, but considering he’s still walking around and making quips, let’s assume he’s miraculously okay-ish.

The end of the movie seems to suggest that McClane rides off into the sunrise with his wife, triumphant and filled with the Christmas spirit, but probably not. More likely they stopped at the ER to at least make sure he wasn’t bleeding internally.

So here’s everything all together! Happy Holidays everyone! Yippee-ki-yay!