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5 Ways to Maximize Profitability in Contract Negotiations

Troy Roth, for HealthLeaders Media, March 16, 2011

Hospitals should train contract auditors to think outside the box and incent them to get to the root of issues to truly maximize returns. Tools like an “account work list” give hospitals the ability to analyze payment trends and evaluate opportunities to improve contract terms. Combined with contract modeling tools and capabilities, hospitals can model the impact of changes and make informed decisions when negotiating new payor agreements.

4. Have Plans A, B and C – As with every successful project, hospitals must have a plan for contract negotiations. It’s important to address crucial issues, such as how to handle the “what if” scenarios, how to formulate and compare large volume payers to one another, and how to make enterprise-wide cultural changes, not just departmental changes, around the negotiation process. Hospitals should start with a key goal in mind – net revenue growth. They should identify specific volume and growth expectations, always using the prior year as the basis. To ensure the total net revenue goal is met, providers must revisit prior payor behavior for trends in areas such as underpayments, overpayments, denials and patient liability shifts. This step also helps forecast how much administrative time will be spent on a particular negotiation and identify prospective views of what might roll to allowances for doubtful accounts or bad debt.

5. Know Where You Net Out – In addition to utilization, contract modeling calculates an organization’s net revenue per day per contract as well as averages of other payers, including length of visit by service line type, total patient days, visits by IP/OP and high risk items like observation and multi-service bundling. Net revenue per day serves as a benchmark of how much money a hospital must bring in per patient per day to ensure profitability, and it usually comes up during contract negotiations. Armed with this information, all internal parties involved in the negotiation process can see the causes of any reimbursement or pricing issues and work together to resolve them in advance of negotiation sessions.


Troy Roth is senior vice president of revenue cycle product strategy and solutions support for MedAssets, a financial improvement partner for healthcare providers. Roth can be reached via email at troth@medassets.com.

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1 comments on "5 Ways to Maximize Profitability in Contract Negotiations"


Stefani (3/16/2011 at 12:01 PM)
Another factor not mentioned is the contract language. House of economic negotiations can all go down the drain it the contract language regarding pre-certification, utilization review, and medical record access puts the hospital in a defensive position requiring investment of excessive resources to meet contract lanaguage requirements. In my experience, hospital contract negotiators fail to consider the hours expended by hospital staff members to meet payer demands. Contract addendums spelling out these processes must be negotiated along with financial considerations.