Revenue Cycle Practices – Part one: The Importance and Effect of Contract Maintenance

Almost 50 percent of rural hospitals in our country are operating in the red, and over 450 are at risk of closing.[1]

As regulatory and market drivers squeeze margins, hospitals are taking a long look at areas that might have an immediate and positive impact on their cash flow, and the revenue cycle management (RCM) is one of the “usual suspects.” In this series we will delve into some of those RCM pain points.  Our first topic — while critical — is not one that is necessarily top-of-mind in a typical “RCM” discussion: contract management.

Providers annually dedicate approximately $157 billion to manual contract management.[2]  An often-overlooked component in the revenue cycle, contract management and maintenance is essentially the template for revenue and compliance planning. Success in negotiating agreements with payors, labor, vendors, Group Purchasing Organizations (GPOs), and facility and equipment contractors (among others) can have a significant impact on revenue. The process of contract development is well-documented. There are many tried and true steps to contract development that include workflow and process automation, a central document repository with audit tracking, linking to regulatory and policy documents, and appropriate representation on the development team. One of the finest corporate attorneys I ever worked with told me “a contract is only good if it can be signed.” That was her way of encouraging me to consider both parties in the negotiation. One of the best CFOs I ever worked with gave me another great bit of insight which was “a contract will perform as poorly as you let it.” That was his way of introducing me to performance metrics.

A hospital may believe they have negotiated a fine contract, but without an effective means of payor and contract monitoring, it can be a challenge to know if that’s really the case. A contract may be performing particularly well for a period and then start realizing occurrences of specific types of denials, down-coding, or underpayments. At an average cost of $118 per appeal, this cost can be significant.[3]  Effective analytics and performance monitoring should provide insights into your denials. The critical information like below should be analyzed:

  • What is the source of the denial?
  • Is it an issue with a specific provider?
  • Is this a new occurrence?
  • How deeply is it impacting our revenues?

A quality analytics approach should also allow you to see performance comparisons: provider to provider, payor to payor, and contract to contract. Not only can this information help you in preventing denials it can also help you in subsequent contract negotiations.

To learn more about how MEDHOST can help you with operations, contract management, and monitoring, please reach out to us at inquiries@medhost.com or call 1.800.383.6278

 

[1] Chartis Center for Rural Health:  https://www.chartis.com/resources/files/Crises-Collide-Rural-Health-Safety-Net-Report-Feb-2021.pdf

[2] Black Book Market Research: https://www.blackbookmarketresearch.com/

[3] Becker’s Hospital Review https://www.beckershospitalreview.com/finance/denial-rework-costs-providers-roughly-118-per-claim-4-takeaways.html

 

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