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Are Your Payer Contract Increases keeping up with Premium Increases?

Recent data highlighted in Modern Healthcare shows that costs for service firms in the New York–New Jersey region rose 7% last year, up from 5.2% in 2024, according to a survey by the Federal Reserve Bank of New York. Manufacturing firms saw even larger increases at 8.5%, compared to 4.9% the year before.

The biggest driver behind these increases was health insurance costs. The study found health insurance expenses rose about 13% for service firms and nearly 14% for manufacturers, with some businesses reporting renewal increases of up to 50%.

For hospitals and health systems, this raises an important question:

Are those same increases being reflected in your payer contracts?

Even in regions that haven't experienced increases at this level, commercial payers across the country continue to raise premiums while tightening denial practices.

Many of our hospital clients face a unique challenge: they operate as both healthcare providers and employers. As a result, they are impacted on both sides of the equation:

• Rising insurance costs for their own employee health plans
• Payer negotiations that fail to reflect the same premium increases

At the same time, patients are dealing with higher out-of-pocket costs and reduced coverage, while many large insurers continue to report strong quarterly profits.

The healthcare system should not function in a way that primarily benefits the insurance industry.

At CMCS, we negotiate payer agreements using regional market dynamics and objective financial data. Our process integrates:

• Client financial data
• Payer performance metrics
• PT reports
• Regional premium trend data

This approach allows us to move beyond negotiation posturing and focus on data-driven discussions about the real revenue yield of each contract.

Do Payer Negotiations Have to be “Bloody”?

A recent article ¹ in Modern Healthcare described upcoming negotiations between providers and payers as “bloody”.

We find in our work that they don’t have to be.

Both providers and payers have been and are still progressing through a worldwide pandemic so we are both still dealing with plenty of uncertainty about the future clinical needs of our communities and the costs to provide that care.

The insurance industry is built on measuring and pricing risk using statistical analysis based on historical data, then building products that move as much of that risk to others or adding extra protection for their profits.

The pandemic has called into question many of their base assumptions, just as it has changed many of our clinical practices.

In the case of healthcare insurers, the payers have contractually obligated themselves to cover the costs of their subscribers, but only once all conditions are met. So, they build complex products that many of their employers and subscribers (our patients) don’t understand.

However, payers cannot provide the care for the products they sell - so they contract with healthcare systems or build fragmented networks that can provide the care they have contracted for.

We have found that by preparing rational, fact based analysis of the current business relationship with goals based on the realities that both parties face, we can have productive business negotiations that can build a foundation for a solid business relationship.

We are not suggesting that these discussions will be easy or without some discomfort but if you stay focused on reasonable objectives, the payers can adapt. Afterall, they report quarterly profits on a routine basis so they are not in much danger, but they cannot provide the care you do for your community so they need you to keep those premium dollars coming in.

Our process starts with an assessment of the current relationship based on data that both parties have so we start from common ground. We then use tools to measure the net revenue value and the reasons for that result. From there we discuss internal and external opportunities to improve the value of the relationship and the variety of options to achieve those goals.

We discuss the external opportunities with the payer to see which they are most amenable to and remind them of the value of the care we provide to allow them to collect premiums from our community.

In almost all cases, if we are dealing with a rational team on the payer side, we will come to an agreement that allows us to serve their subscribers in our community with a margin than allows us to reinvest in the advanced clinical care that keeps our patients healthy cost effectively.

We are not suggesting this is easy, but if approached intelligently, we find that you can achieve your goals.

Know what you are up against; are Payers using AI to reduce your claim payments?

In our work with hospital systems across the US, most payer negotiations are focused on improving the rates.

But how much will those rates help you if, in the payer’s adjudication system, your claims are systematically dissected by AI algorithms that find every element of the claim that they can deny or reduce according to the programs written by the payers?

An article in Modern Healthcare’s January 17 issue highlights the provider’s peril in getting claims paid in accordance with what the provider thinks the terms of their contracts are.

While payers have been using automated claims systems for some time, the article ¹ states that this has evolved to an unprecedented level.

Many payers have added a machine learning system in addition to their standard processes to perform another level of review that identifies patterns in claims - that they then use to inform their future payment polices.

How are providers to keep up when each payer introduces significantly different payment policies?

Growing Demand

According to the CEO of a data automation startup who counts six of the 10 nations largest payers as clients, the combination of the COVID pandemic, the No Surprises Act, and the uncertainties in the healthcare delivery system, the payers have adapted by using these software programs to keep their margins healthy. “It's really game-changing in the market. It’s forcing them to modernize.”

However, in defending the use of these tools she states, “The tool isn’t the problem. I think what is happening is that the tool has become a good excuse for enacting bad policies that might not be doing good things for people.” Many of us would agree...

So, what to do about it? You can’t fight bots with FTE’s and expect to be successful.

First you have to identify the problem, then measure it to quantify the financial and operational impact.

Our analytics team provides these measures to us in an organized, quantified way so that we can use them as an essential part of our negotiating strategy.

This information allows us to use a fact base that both parties recognize to propose a couple of reasonable business solutions to the payer that will either reduce your administrative cost or add that factor to the rate increase we are proposing. Both of these options will add measurable increases to your bottom line.

One way or another, the payers can’t be the only ones who benefit from these agreements.

We would invite your thoughts to these comments.

What is the Value of your MA Payer Contract?

Since the trend is towards Value Based arrangements, let’s take a look at the value of your Medicare Advantage (MA) contracts to your health system and your community.

Hospitals often believe that MA contracts are “just like CMS” so there isn’t much danger in them, or they require much analysis when evaluating these agreements.

As an increasing number of seniors sign up for these plans, we want to point out a couple of things you will want to be aware of as you consider these agreements based on our experience negotiating these contracts for our clients.

As providers, don’t we need to evaluate how well these payer contracts help us to serve our communities and at whose expense?

Value

An article in the January 3rd, 2022, issue of Modern Healthcare questions the market value of some of the payers in the $350 billion dollar market.

A lot of the money in this market is from venture capital firms investing billions hoping to achieve an outsize return for their investors. How do they expect to achieve these returns?

Data Sharing

If you look at your payer contracts, many if not all of them have clauses that require you to share data with the payer -- so how are these payers using that data?

This article cites a recent report from the HHS OIG that notes that 20 insurers account for more than half of the $9.2 billion that our government pays for care that beneficiaries may not have needed or received in 2016. ¹

The article also sated that “United Healthcare enrolled 22% of MA enrollees and generated 40% of their payments that year by listing conditions that were not verified in the medical claims, the federal investigators said.”

“OIGs audits have also accused Anthem and Humana of misrepresenting their members illness to bilk the government out of billions.”

Many of the contracts we review also contain clauses that require you to share in any penalties if the payer is penalized based on information from your claims.

We recommend that you review your contracts for these clauses and negotiate them out since you have no control over how the payers use your data.

Payment Rates minus Administrative Costs

According to the Medicare Payment Advisory Commission, payers are paid 104% of what CMS pays you.

Payers say this is because their patients require more care, however a Commonwealth Fund refutes that based on research showing no significant differences with fee for service care.

However, many hospitals believe that because this is a Medicare product you should accept 100% of CMS rates.

Most all payer MA contracts we review specifically state that they will not pay the following items: Direct Graduate Medical Education (DGME), Operating Indirect Medical Education (IME), Bad Debt, Annual cost report settlements, any capital costs for new facilities that are not included in the published CMS base rate, including but not limited to, additional cost components or settlements (annual or interim)

Your Costs

When measuring the value of these contracts you also have to quantify the additional expense you incur in holding these contracts versus CMS claims.

1. They contain requirements for your team to provide an unlimited amount of information to the payer in their format and in a timely way in order to get your claims paid.
2. There are requirements for authorizations, precertification’s, notifications, all of which must be done within the time requirements specified by the payer.
3. Then most payers have their own unique bundling, coding, and claim edits that your team must follow so they can pay you less than CMS does for these patients.

The Modern HC article was questioning whether this investment segment is overvalued based on their share prices.

We are suggesting a different kind of measurement – one that measures the value of these agreements from your perspective.

We are not advocating that you not agree to an MA contract if it will help serve patients in your community.

However, we do suggest that you be aware for the many risks and measure the revenue impact of the administrative requirements when you negotiate the rates for these agreements.

After all, if:

1. CMS is paying the payers 104% of your rates,
2. You are agreeing to accept the business and government risks described above,
3. Why would you agree to 100% of CMS from a payer who is seeking to profit at your expense for having you serve your Medicare patients in your community?

If you are considering negotiating a Medicare Advantage contract, why not give us a call to make sure it adds value for you?

Have you updated your Payer Contracts to reflect the new realities of Caring for your Community?

The events of 2020 have driven changes to many of the clinical and operational processes in our delivery of care - which has had a significant impact on your finances.

Have you modified your payer contracts to reflect these changes?

A recent article in the HFM Winter 20-21¹ magazine highlighted the decrease in chronic care visits and the corresponding drop in revenues from canceled elective procedures due to fear of COVID.

The WSJ² reported on January 20 that UHC’s quarterly earnings report cited additional costs for care that had been delayed as having an impact on their profits, even though UHC’s revenues had increased.

When the pandemic started, CMS increased payments to providers to cover the additional costs of providing care during the pandemic.

Let’s look at some of these costs.

• PPE from new and more expensive sources.
• Increased staff costs: contract nursing (often at premium pricing) for infected or worried nurses.
• Staff PTSD & HR costs:
• non-productive time worrying about loved ones, elevated stress for prolonged periods.
• Constriction costs from converting resources to ICU or laminar flow rooms.
• Reconfiguring your facility layout to accommodate regulatory time and distance protocols.
• Decreased revenue from essential and non-essential care.
• Have your contracted for profit payers made similar adjustments for their government or commercial product reimbursements?

When you measure how your clinical and operational costs have increased for providing care since the national health emergency started, have you considered the cumulative operational and financial impacts of these changes?

If you are in risk based relationships have you measured how patients being afraid to seek healthcare may have increased the amount and intensity of the care you now have to provide under the pre-pandemic payment models?

Payers have been collecting premiums throughout the pandemic and adjusting future premium increases in anticipation of some of these costs.

They have also been issuing an increasing number of denials according to the American Journal of Managed Care³, “Medical Claim Denial Rates Rising, Highest in Initial COVID-19 Hotspots.”

If your fee for service system is highly accurate at capturing the value of all of the care your team has provided and you aren’t getting denials, you may in fact get reimbursed fairly for all of the additional cost of care you are providing.

If not, you are likely to be accepting rates that may have been adequate in the past, but no longer are.

Is it time you revisited your relationships with your payers to adjust your contracts to reflect the new realities of providing care to their subscribers?

CMCS assists our clients to have fact based business conversations so we can align your contracts with your strategies for your market.

We use analytical tools specifically developed for this task, combined with experienced negotiators who have been payers to develop contracts that deliver the revenue to support your strategies.

The payers have already adjusted their rates – isn’t it time we did the same?