Direct Answer
Payer contracts set the reimbursement rates that determine the maximum revenue your billing operations can collect. Negotiating better contracts — or even understanding what your current contracts say — is one of the highest-leverage revenue cycle improvements available. Many providers operate under contracts they've never fully reviewed, with rates that haven't been updated in years and provisions that may be actively working against them.
Table of Contents
Understanding Your Current Contracts
Before negotiating new contracts, understand what you currently have. This means: obtaining current copies of all active payer contracts and amendments; reviewing the fee schedule attached to each contract or identifying how the fee schedule is derived (many contracts specify rates as a percentage of Medicare, which means rates automatically change when Medicare updates its fee schedule); noting contract term, renewal date, and termination notice requirements; and identifying the specific services you bill most frequently and what those services reimburse under each contract.
Many practices discover during this review that they're operating under contracts they believed had been renegotiated but where the amendment was never properly executed; that auto-renewal provisions have allowed unfavorable contracts to continue for years without review; or that certain high-volume services are reimbursed at rates that haven't been adjusted since the early 2010s.
Fee Schedule Analysis
A fee schedule analysis compares your contracted rates to: Medicare fee schedule rates for the same services in your geographic area; your own charge master (ensuring you're not charging below your contracted rates, which is a common and costly error); and market benchmarks for your specialty and geographic area from MGMA or specialty society data. Understanding where your rates fall relative to Medicare percentages and market norms identifies which payers and which service categories present the strongest renegotiation opportunities.
Focus fee schedule review on your highest-volume and highest-revenue CPT codes — the 20 codes that represent 80% of your billing volume. Rate improvements on these codes have outsized financial impact compared to improvements on infrequently billed codes.
Building Negotiating Leverage
Contract negotiation leverage comes from: volume (how many patients you represent to the payer); network need (whether you provide services or geographic access the payer's network needs to meet adequacy standards); quality performance (star ratings, quality metrics, and outcome measures that demonstrate your practice's value to the payer's quality programs); and alternatives (credible ability to either terminate the contract or reduce network participation if terms aren't improved).
Building a data package that quantifies your value to the payer — patient volume, services delivered, quality performance, and uniqueness of your service offerings — is more effective than simply requesting rate increases. Payers negotiate with data; enter the negotiation prepared to present data.
Contract Provisions That Matter Beyond Rates
Reimbursement rates get the most attention in contract negotiations, but other provisions significantly affect revenue:
- Timely filing limits: How long you have to submit initial claims and appeals after the date of service or claim denial
- Timely payment provisions: Required payer payment timeframes and interest or penalty provisions for late payment
- Audit provisions: What the payer can audit, how far back they can look, and what recovery rights they have for identified overpayments
- Medical necessity criteria: Whether the contract references specific coverage policies and LCDs that you can anticipate and plan for
- Clean claim definition: The specific definition of a "clean claim" that triggers the timely payment obligation
- Bundling and edit provisions: Whether the payer uses NCCI edits and whether the contract specifies any deviations
Identifying and Recovering Underpayments
Contract underpayments — instances where the payer paid less than the contracted rate — are surprisingly common and often go undetected. Systematic underpayment identification requires a contractual payment rate loaded into your billing system for each payer contract, and ERA posting logic that compares actual payments against expected contract amounts and flags discrepancies. Underpayment recovery rates depend on the age of the underpayment and the payer's correction process. Many payers have specific procedures for correcting underpayments — the contract itself should specify the dispute resolution process.
FAQ
Can small practices actually negotiate commercial payer contracts?
Yes, though leverage varies. Small practices with unique geographic coverage, specialty services, or strong patient satisfaction metrics often have more leverage than they realize. The payer's network adequacy requirements in your area may make your participation genuinely important to them. Even without significant leverage, simply requesting a formal contract review and presenting market benchmark data often achieves incremental rate improvements — payers sometimes maintain lower rates simply because they've never been asked to update them.
How often should payer contracts be renegotiated?
At minimum, payer contracts should be reviewed for renegotiation opportunity at each renewal date. Proactive review every 2–3 years, even for contracts not approaching renewal, allows practices to identify rate drift (rates becoming significantly below market without having changed) and to take advantage of improved negotiating positions that may have developed through practice growth or quality improvement. Some large groups review major contracts annually.
Revenue Cycle Expertise That Extends to Your Contracts
Valiant Lifecare helps healthcare organizations understand their payer contracts, identify underpayments, and build the data case for successful renegotiation — maximizing the revenue your contracts make possible.
Review Your Payer Contracts