Ending The Dilemma: New Technologies Enable Payers to Negotiate Complex Provider Contracts Without Driving Up Administrative Costs

Healthcare payers are facing a tough dilemma. They’re negotiating highly detailed and innovative provider contracts to gain better control over spiraling medical costs, but this strategy can add substantially to administrative costs.

Administrative cost increases occur because most claims administration systems can’t accommodate highly complex terms. Moreover, many contract-modeling and claims-pricing systems are expensive and hard to use. So payers are pricing claims manually, which tends to increase costs, errors, and delays.

That leaves payers to choose between controlling medical costs and controlling administrative costs.


The administrative issues begin while a provider contract is negotiated, during contract modeling and testing, which we’ll focus on in this blog. In a later blog, we’ll discuss the claims-pricing process.

As your network management team prepares to negotiate a new contract with providers, the team typically will have to call on the IT staff and ask for help to support the analysis of proposed new rates and terms.

That can be a costly distraction for IT employees already inundated with projects arising from healthcare reform legislation. Developing programs for contract analysis and modeling only adds to the burden.

Once the programming and development work is done, your network managers can model and test the proposed new rates and gauge their likely impact on the budget. At many organizations, the IT staff will play a role in this process as well, given the complexity of the modeling solutions available on the market today.

If the initial test results are unfavorable, the network management team will define new terms, ask the IT team to program these and then launch another round of modeling and testing.

Once a contract is approved, another potentially costly concern arises. Most payers move the new rates and terms to the claims administration system or pricing engine manually; in other words, someone has to rekey the contract. As we all know, keying errors are hard to avoid. In the case of a provider contract, such errors can lead to inaccuracies in pricing claims, something we’ll focus on in our next blog.

This entire process, from developing a new contract to loading the approved agreement in the pricing engine, is expensive and cumbersome, taking considerable time and effort on the parts of highly-skilled resources and adding to administrative costs and headaches. These issues reduce the financial gains that your network managers had hoped to achieve by negotiating optimal agreements.

The End of the Dilemma

Fortunately, there are technologies on the market today that can resolve these problems and put an end to the dilemma in which payers have found themselves.

These advanced solutions integrate both modeling and pricing capabilities in a single package – a far more cost-effective option than implementing separate solutions for pricing and modeling.

On the modeling side, these technologies enable business users, with a limited amount of training, to define and configure new contractual rates and terms. That eases demands on the IT staff and it speeds the testing process.

One important feature the solutions offer is the ability to use historical claims as a basis for making financial forecasts, comparing contracts, and evaluating “what-if” scenarios.

Advanced technologies also can automatically move approved contracts to the pricing engine, without the need for manual rekeying. That substantially reduces errors as well as costs, not to mention potential friction with providers and members.

Another important feature is a library in which you can store predefined calculations. As your staff develops calculations for use in pricing claims, the calculations can be stored in the library and reused later, when you’re developing future contracts.

With the right tools, you can negotiate more precise contracts – without adding to administrative costs and challenges – and gain better control over medical costs.

In our next blog, we’ll focus on claims-pricing challenges that complex contracts can create and how advanced technologies can help.

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