Rethinking Payer Contracting and Revenue Cycle in a Value-Based World

Rethinking Payer Contracting  Web

In no industry anywhere in the world is the pricing of goods and services, as well as the process of securing payment, as complex as it is in the US healthcare system.

Consider what a typical hospital with an employed network of physicians must manage: a charge master with pricing for approximately 760 inpatient DRGs, 790 APC groupers for hospital outpatient services, 25,000 HCPCS/CPT codes for physician services, and more than 72,000 ICD-10 diagnosis codes that describe why a service was provided. The hospital likely contracts with a dozen or more payers, each of which has several insurance products. Based on those factors alone, the possible combinations of items and prices that the organization must manage would be virtually limitless.

Alas, if only it were that simple.

The payers are also likely to have different (and constantly changing) payment methodologies, bundling rules, claims adjudication rules, and authorization and eligibility requirements. And then there are rules for incident-to billing, supervision of residents, APP billing, and so forth. It’s no wonder that healthcare providers spend a whopping 3.4% to 4.6% of their entire net revenue just on the process of getting paid.

As if that weren’t enough, the industry is shifting away from a fee-for-service (FFS) model to a proliferation of value-based reimbursement methodologies that tie payment to factors other than simply providing services. Payment is increasingly determined by factors such as patient satisfaction scores, quality measures, readmission rates, and total cost of care. Figure 1 shows this trend over the past few years, and payers have given every indication that this will continue indefinitely.


This shift to value-based models creates another layer of complexity for healthcare professionals whose job is to make sure their organization is paid appropriately. It is no longer enough to negotiate good rates, document the billable services provided, and then collect what the organization is owed. The process of maximizing revenue increasingly involves the redesign of clinical processes, capture and management of a much broader array of performance metrics, and greater communication of economic incentives across provider organizations to drive operational change. This requires a more extensive skill set, and many organizations may find they are not currently set up for success in the future-state environment.

The implications of this are real. Imagine an environment in which performance under value-based reimbursement could legitimately drive a 10% swing (positive or negative) in revenues. That’s not a far-fetched scenario, and it presents a make-or-break proposition to providers, given the slim margins under which most operate. Failure to succeed in that environment could easily result in an organization’s demise.

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