Health Systems Must Optimize Revenue Opportunities and Maximize Payments

Over the past decade, changes in the healthcare landscape have squeezed margins, brought disruptors into the marketplace, and fundamentally changed how providers get paid. Maximizing revenue has become imperative. Here’s why:

Financial health is vulnerable

  • 2018 Operating margins were virtually flat with 2017’s 10-year low

  • Median operating margins were at 1.7% in 2018, against a sustainable rate of 2.5%
  • Enrollment in Medicare/Medicaid/TRICARE is rising while reimbursements for those patients are falling

Pressure on revenue will only get worse

  • Migration from inpatient to outpatient

  • Payers are demanding lower pricing
  • New competitors are attacking with low prices and convenient alternatives to traditional healthcare delivery

The need for data and analysis will intensify

  • Quality incentives and penalties
  • Bundles and episodic reimbursement
  • New care and payment models share risks

National goals for payment reform outlined under the Department of Health and Human Services’ Health Care Payment Learning & Action Network (LAN) shift the U.S. from traditional fee-for-service models toward risk-based payment models, especially alternative payment models and population-based payments.

FFS in 2015 vs 2017
  • Total Alternative Payment Model (APM) spending in the United States reached $385.5 billion in 2017.
  • FFS payments with no link to quality decreased by 34% over the 2-year period.
  • The majority (90%) of payers said they believe APM activity will increase.

Factors Influencing Contract Performance

Contract negotiations, compliance, and denials management will continue to provide strong returns for health systems. That’s why contract management performance is critical to a health system’s financial improvement efforts.

Contract performance factors

3 Ways to Maximize Revenue

  1. Negotiating Profitable Contracts: When negotiating with payers, healthcare organizations need to model their own counter proposals to ensure they make financial sense and gauge the impact on the organization’s patient population. While government contracts may not have negotiation leeway, you must understand the impact on your bottom line.
  2. Evaluating Payment Compliance: 20% of all health claims are processed incorrectly. And contracted fees are incorrectly paid 41% of the time. An organization should gather baseline data on payment compliance to understand the issue before making changes.
  3. Analyzing and Managing Denials: 10% of claims are initially rejected, with half being accepted upon resubmission. Claims scrubbing software can resolve some issues, but it will not catch 100% of your billing errors.

All of these activities are more effective when healthcare organizations can review data to measure past performance and drive forecasts.

Negotiating Profitable Contracts

Managed care contracts are becoming increasingly complex, and appropriate software can help health systems understand costs at the service level, model current payments/profit levels, and perform simulations of proposed contract terms.

Managed Contract Process

"Revenue from successful contract negotiations dwarfs the amount of dollars that are recovered by clients through underpayment recoveries."

Director of Managed Care at a major health network

Cardinal Rules to Any Negotiation

  • If you do not ask, you will not receive
  • If you do not deserve, you will not receive
  • If you ask and if you deserve, you must demonstrate why

Important Tips:

  • Develop a positive working relationship with all payers
  • Remember, nearly all provisions within a managed care contract are negotiable
  • Get a copy of any proposal well in advance of negotiations and plug in cost figures to determine the financial impact, service line by service line
  • Understand how any payer fits into your revenue mix and how revenue breaks down by inpatient-outpatient care
  • Using current payer data, figure denial percentages into your negotiated rate. A 5% increase means nothing if 5% of claims get denied
  • Be aware of how your health system fits into a payer’s coverage area. Being the only game in town or dominating a service line can give you a leg up during negotiations
  • It’s easier to ask for 3% more each year than 10% every three years

In this example, the initial proposal from a payer called for net-neutral rates, but analysis through Axiom Contract Management showed a potential loss of $367,000 (left variance box). Through concessions and counteroffers, the organization received an overall 5% increase (right variance box), a reimbursement swing of $1.3 million.

Direct Comparison - Payer Contracting


Evaluating Payment Compliance

Calculating an accurate expected payment is the key to payment compliance. Organizations must internally assess their current position by mining their claims reimbursement books retrospectively and prospectively. The goal is to use your contract management system and your reports to identify and validate revenue improvement opportunities.

With the right contract management software in place, hospitals and health systems can accurately calculate an expected payment for all patient billings no matter the complexity of the reimbursement scheme. Focus on these areas of most difficulty for payment accuracy:

  • Stop-loss terms
  • Carve outs (thresholds, implants, high-cost drugs)
  • Outpatient ASC / APC / EAPG
  • Medicare Advantage HMO claims
  • Newly negotiated payment methodologies
Axiom Contract Management

Profitability reports like this one from Axiom Contract Management are extremely valuable in understanding the true net impact of payment compliance within your organization.

Additional tips to ensure payment compliance:

  • Ask payers to provide current fee schedule, particularly the top 50 modifiers
  • Constantly maintain and update the fee schedule as rates change and addendums are added because it’s not uncommon to see mid-contract addendums that aren’t communicated by the payer
  • Run payment reports to identify contractual variances, which you should be able to run with 100% accuracy
  • Ensure your contract management system can incorporate true costs into reports
  • Address anomalous patterns immediately, working with both internal resources and payers, as appropriate

Analyzing and Managing Denials

Prior authorization costs for doctors

Managing prior authorizations and denials as early in the process as possible will benefit your health system. The Commonwealth Fund ranked the United States last among industrialized nations based on the amount of time, money, and paperwork spent on disputes related to their medical bills.

Obtaining prior authorizations costs physicians more than $31 billion annually, and the issue is growing. A 2017 poll by the Medical Group Management Association (MGMA) shows that 86% of healthcare organizations believe the prior authorization burden is worsening

Top reasons for denials

  • Duplicate claim submission
  • Patient lacks coverage
  • Services bundled
  • Benefit exceeds maximum allowable
  • Claim missing modifiers
  • Inconsistent point of service on claim
  • Lack of medical necessity
  • Pre authorization missing
  • Out-of-network physician

Denial next steps

  • Scrutinize denials line-by-line and not by encounter
  • Do not accept reimbursement for one line as payment in full
  • Determine the source of the denial before resubmission
  • Ensure there are processes in place to work and resubmit denials

Contract management reports should provide a clear view into denials and
denial codes to better understand where denials occur in the moment and
compile historical data for use during the next negotiation of the contract.

Key Takeaways

An effective approach to managing reimbursement and optimizing your
reimbursement requires discipline around the contract management
process and having the right tools in place to support process improvement.

Keep these eight takeaways in mind:

  1. Know your organization’s limitations
  2. Ensure information is complete and accurate
  3. Know the market, your costs, and your quality
  4. Model multiple scenarios and establish goals
  5. Negotiate favorable and profitable contracts
  6. Know what you should get paid and establish a process to ensure
    payments are correct
  7. Examine and learn from remittances
  8. Success requires flexible and extendable software tools

About Axiom

Axiom® Contract Management helps organizations predict and manage payments using a data driven approach for improved payer negotiations. The solution helps hospitals and health systems estimate net revenue by patient and better manage contracts, claims, and payments.

Contract Management helps improve processes in these three areas:

  1. Sophisticated contract modeling: Perform “what-if” modeling to understand financial impacts against proposed changes in contract terms and enter contract negotiations armed with information.
  2. Contract and payer compliance: Monitor the variance between each payer’s payment performance against contract terms using actual claims to get accurate expected payments for the patient population.
  3. Denials management analytics: Analyze denials to understand why and how often each payer denies claims and uncover specific claim types or services that are more commonly denied.

Learn More About Axiom Contract Management