HIM 3304 Rasmussen College Module 5 Effective Contract Management Essay

The five (5) key components to effective contract management are as follows:

  • Identify how the managed care environment, players, and dynamics can impact your organization.
  • Review insurance, PPO and ERISA plan contracts in order to successfully maximize reimbursements and minimize denials.
  • Recognize problematic contract terms affecting both reimbursement and operations.
  • Discuss capitation per diem and percentage of charges rate, and understand the risks assumed, plus develop strategies for managing and sharing those risks.
  • Review the driving forces in managed care (including healthcare reform), specifics on payer initiatives, public policy, and patient service imperatives that are shaping change.

In a 1-2 page Word document, explain how each one impacts contract management in your own organization (or an organization that you may have encountered in your own research). Then, give an example for each key component of how contract management would be negatively impacted should that component be ignored.

Last week’s announcement talked about an item that is negotiated in 3rd Party Contracts – allowable billing period. This is but ONE item in every negotiated 3rd Party Contract. When one considers all 3rd party contracts, a mix of allowable billing periods is good. You can imagine if ALL your contracts had a 30 day allowable billing period, finances could be a disaster. Even if all accounts were coded in that timeframe, issues that naturally arise like unsigned attestations, missing insurance cards, etc. would still come up on some accounts, and there would be no time left in the billing cycle to resolve them and resubmit in the 30 allowed days.

As I said, Medicare allows a full year and I’m aware of other 3rd party contracts that were set at 6 months and 90 days. Again, this allows for prioritization of coding and management of the full coding workload.

One of the main sources of revenue for a healthcare organization is the third party payer contracts negotiated between the payer and the facility. Having knowledge of the various types of contracts and strong negotiation skills are vital to a facility’s financial success. Another key aspect of contract management is having sound practices and procedures in place to ensure enhanced accountability of expected revenue capture as a result of negotiated reimbursement and discounts.

Payer Mix

A healthcare organization’s payer mix will depend largely upon the types of contracts they acquire. The most common payer contracts are:

  • Managed care: Health insurers offer options referred to as managed care plans. These managed care plans offer a variety of services such as physician office visits, emergency care, prescription drug coverage and more. Payments are based on whether the member uses a service that’s covered by the network and what type of managed care plan they have.
  • Government (Medicare and Medicaid): Healthcare providers contracted with Medicare and Medicaid must accept reimbursement as payment in full. There are no negotiation options for these two payers whose discounts can be much larger than managed care or commercial payers.
  • Commercial: These types of plans are provided by for-profit companies and are known to be the most widely used type of health insurance plan in the country. The commercial plans are offered to individuals or employer groups. They are generally less expensive when sold to employers due to the group plan allowing for a lower cost per employee the larger the group.
  • Medicare Advantage:These plans are administered by commercial or managed care payers to provide an option for Medicare eligible beneficiaries versus the straight Medicare option offered through the government.

Successfully negotiating reimbursement and discounts to meet or exceed the organization’s financial goals is imperative to remain competitive in spite of the ever changing healthcare industry. Monitoring an organization’s contract performance will help in identifying potential budget risks, and possibly even rewards, based on terms negotiated for reimbursement and discounts.

Healthcare organizations forecast third party payer mixes so that they can accurately predict their profits for the coming term. Each third party pays a different type of fee, often a discounted fee, depending on the provider, the patient, and the third party organization. By adding up these different fees and applicable discounts, hospitals can project their expected earnings.

Data Mining

Data mining contract management results will provide information as to whether or not an organization is accurately capturing revenue, as well as whether or not the organization will meet budget targets. Some organizations will review payer discounts on a monthly basis to ensure there are no incorrect denials or payments received from contracted payers. Due to contractual terms related to filing and appeal limits, a monthly review will prove necessary, versus a quarterly or annual review of contract performance.

Government Regulation

Another facet of healthcare is the federal guidelines and regulations. Government regulations can pose risks to healthcare organizations that are beyond their control. Therefore, planning for potential budget risks or rewards related to the political climate can prove challenging. An organization must consider government regulations and the effects of market trends on contract negotiations in their finance management process. However, having a capable contract management department to stay on top of potential risks and the continuous monitoring of contract performance can prove valuable to the financial success of a healthcare organization.


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