Key Areas of Managed Care Contracts

Managed care contract terms

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. 

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