The success of your healthcare organization doesn’t just depend on the quality of care you provide. You must also manage the intricacies of reimbursement. Contracted rates are at the center of this financial puzzle. But what is a contracted rate in healthcare?
Contracted rates are the pre-negotiated fees that healthcare providers agree to accept from insurance payers for specific services. These rates are set through contracts between providers and payers, typically as part of a provider network agreement.
Let’s say that one of the providers at your organization has a standard service fee of $500. However, they have a contracted rate with one payer to accept $300 for that service. Anytime that provider performs that service for a patient with that insurance, they will be paid the contracted rate of $300, not the standard fee of $500.
In this guide, we’ll explore how contracted rates impact your revenue cycle, break down the difference between contracted rate vs. allowed amount, and demonstrate how you can protect cash flow with Payer Performance.
Contracted rates set a baseline for reimbursement. Every time one of your providers submits a claim to payers, those claims are processed using the agreed-upon rate. This affects the following:
If your organization does not have a clear view of contracted rates, it risks underbilling or accepting underpayments without realizing it. Over time, this leads to significant revenue leakage.
Discrepancies between the contracted rate with each payer can make projecting and managing revenue challenging. Therefore, it’s vital to understand how contracted rates impact your revenue cycle and cash flow. View our on-demand webinar and learn more about how contractual terms affect provider payments.
Understanding the difference between contracted rate vs. allowed amount is critical to protecting your revenue cycle.
A contracted rate is the negotiated amount a provider agrees to accept from a specific payer. A contracted rate in healthcare can vary from one payer to the next, even if the provider is performing the exact same procedure or treatment.
The allowed amount is usually identical to the contracted rate. However, some payers may include the patient’s contributions in the allowed amount, meaning there could be a discrepancy between that figure and the contracted rate.
Some plans, especially out-of-network ones, may base payments on different fee schedules or usual and customary rates. Tracking both contracted rates and allowed amounts is crucial for your organization. Failing to do so could lead to unexpected payment variances and other discrepancies.
Once you set contracted rates with a payer, it should be easy to collect the correct reimbursement for each procedure or service. Unfortunately, that’s simply not the case. Managing contracted rates is far from easy. Here are some of the biggest challenges providers face:
Each payer contract can differ in how reimbursement is calculated. Variations in CPT codes, modifiers, and fee schedules can create discrepancies. Manually decoding these details and submitting accurate claims can become a nightmare.
The key is to automate contract management so that you can reduce the risk of errors and ensure your billing and coding teams aren’t bogged down with tedious work. With the right automation tools, you can manage every contract and hold payers accountable to the terms they agreed to fulfill.
Contracted rates aren’t static. Payers are notorious for adjusting their reimbursement models annually (or more frequently). Keeping up with these changes makes it hard for you to stay current and ensure claims are processed correctly.
When finalizing a contract with a payer, pay close attention to how often they can implement rate changes. Make sure you update your billing practices at similar intervals so that your team is aware of the current rates.
Many organizations still rely on spreadsheets, PDFs, and decentralized applications to track rates. This fragmented approach increases the risk of inaccuracies and billing inefficiencies.
Centralizing rate-tracking processes helps alleviate this pain point. Replacing manual processes and disjointed documents with a single source of truth promotes complete visibility into contracted rates.
Payers are accustomed to entering negotiations from a position of strength. Without analytics data, providers go into negotiations without insights into how existing rates compare to industry benchmarks or actual payments. This limits their ability to advocate for better reimbursement terms.
A one-sided negotiation process can negatively impact your revenue cycle for the entire life of a contract. On the other hand, using robust analytics tools can help you negotiate fair contract terms that promote business continuity.
Even when a contract is in place, payments can vary based on claim errors and payer inconsistencies. Tracking actual payments against expected contracted rates is vital for spotting discrepancies. However, it’s hard to do manually.
One of the biggest hurdles you’ll encounter is resistance from payers. Some payers treat negotiated rates like trade secrets. The good news is that there is a streamlined process for getting your fee schedules and contracts. Download an ebook from Rivet Health and learn how to get the documents you need fast.
Understanding your contracted rates is only half the battle. Efficiently managing them is what truly protects your bottom line. That’s where Rivet’s Payer Performance tool comes in. Payer Performance, Rivet Health’s contract management software, is loaded with features designed to help you promote strong cash flow. With Payer Performance, you can:
All too often, contracted rates are poorly understood. Payer Performance changes that and empowers your organization to maximize reimbursements. Schedule a demo with Rivet Health.
