Contract Modeling: The Key to Fostering a Positive Health Plan-Provider Relationship

The ‘pay and chase’ model of reimbursement is prevalent in the health care industry. This means many health plans know and accept the fact that payments to providers are simply incorrect and will require remediation.

At HealthEdge, we’re asking lots of questions about this traditional model and challenging the status quo.

  • What if health plans modeled contracts before or during negotiations with providers?
  • What if health plans understood how contract terms would affect their claims before putting them in place?
  • Could health plans streamline contract terms and ensure that reimbursement methods pay correctly and automatically?
  • Could health plans remove manual processes and rework?

Getting to the root cause of conflict

The friction between providers and health plans is multi-faceted. Erroneous payments are simply accepted, allowing the pay and chase model to be normalized and standard. But consistent errors wear on both health plans and providers. Allowing a claim to be underpaid or overpaid by even a few cents, will become a substantial amount over time, increasing tension between health plans and providers.

The pay and chase model also takes time away from the individuals working to remediate the discrepancies. Rework requires time to be spent on the same tasks that could have been correct the first time. Overall, this leads to waste in the form of time and dollars.

What is contract modeling?

Contract modeling can be thought of as testing terms for reimbursement. This allows a health plan to gain valuable insights into impacts of the terms within contracts prior to applying them to production claims.

Contract modeling can build a comparison of ‘what if’ scenarios to help a health plan make important decisions when it comes to negotiating provider contracts.

The benefits of contract modeling: how it can resolve the abrasion between health plans & providers

Contract modeling can also be valuable to a health plan that is negotiating contract terms with a provider. It will allow for the health plan to understand the contract terms and their application to claims, while also bringing the same clarity to the providers, creating a strong and transparent relationship.

A comprehensive approach to accuracy & efficiency

Can we change the status quo of reimbursement with contract modeling? Perhaps the process of creating provider contracts is backwards. Instead of the traditional approach, what if we first know and understand the payment that providers are expecting and how contracted terms will behave on claims prior to negotiations? With a complete and transparent approach, we can stop the pay and chase model and start paying claims accurately and efficiently the first time.

5 Requirements for Health Plan Vendors to Achieve Payment Integrity

Standard Manual Processes and Disjointed Tech Stacks Combat Payment Integrity

Traditionally, payer’s internal IT and business operations have implemented government updates and/or third-party software updates to ensure compliance.

Remember those daily CMS transmittals?

Executing a change process internally can range from 3 weeks to 6+ months depending upon the organization and details of the update. Even when efficient, this timeline still allows for errors to be made in claims payment. When errors occur due to untimely updates, time consuming rework is required in addition to potential fees and penalties for non-compliance. A reasonable window for updates, based on the frequency of compliance changes, is 2 weeks.

Single Interoperable SaaS Solutions Promote Payment Integrity

Subscribing to a Software-as-a-Service (SaaS) delivery model is a more efficient basis for handling recurrent changes. SaaS is a delivery model in which software is licensed on a subscription basis and is centrally hosted in a secure data center. It is the most promising solution for reducing costs for internal IT resources and supporting scalability of computer resources “up” or “down” to match business demand.

When using a SaaS delivery model, automatic and frequent updates can lessen the burden of several internal teams while also promoting a culture of paying correctly the first time instead of chasing down inaccuracies at a later date.

According to a report by Grand View Research, “the global healthcare software as a service market is expected to grow at a compound annual growth rate of 19.5% from 2021 to 2028 to reach USD 51.7 billion by 2028.”

Requirement 1: Timely Updates

Ask Vendors:

  • How frequently is your library automatically updated? 
  • Does it require any effort or time from our internal teams?
  • Are there different pricing tiers related to frequency of updates?

SaaS providers can deliver ever-evolving CMS updates virtually “just in time” versus the months spent waiting for implementation in-house. It is possible for organizations to dramatically increase first pass claims payment accuracy with constant CMS compliance though the use of a SaaS model.

However, the industry needs to be wary of SaaS solutions from vendors whose software and internal Software Development Life Cycle (SDLC) are not designed for rapid change and scalability.

Often, these third parties will “host” their legacy or installed software and advertise SaaS delivery models. A hosted solution may alleviate health insurers’ IT burden; however, the claims adjudication process may still be subject to slow software update cycles. Infrequent updates can limit performance and keep payers in the cycle of inaccuracy.

Requirement 2: Workflow Efficiencies

Before a Demo: Draw up a flowchart with your claims specialists of current processes. During a demo continually evaluate how the software will fit into workflows and ask strategic questions about customizability.

The right SaaS solution can also provide workflow efficiencies to enhance core claims systems. Something as basic as claim routing information in addition to the “claim price,” can help insurers avoid inappropriate adjudication and high pended claims counts.

Integrating the claims system with a SaaS model through a variety of industry accepted technologies like Web Services enables meaningful information to be efficiently returned to claims systems.

Make sure your vendor partner offers customized features and transparency to fit into your unique workflow. Both customization and transparency are important when it comes to setup and keeping your workflow running efficiently.

Requirement 3: Robust Features

When Vetting Vendors: Create a checklist with each of the below 5 features to ensure your partner is offering a comprehensive technology.

Make sure your vendor offers the following features:

  1. Medicare, Medicaid and other government program fee schedules and policies in production prior to their effective dates – so that operational and financial impacts can be analyzed and managed
  2. Negotiated reimbursement terms with providers configured accurately in the core claim system or third-party systems 
  3. Automation of claims payment maximized, avoiding the costs of manual rework and manual errors
  4. The ability to retroactively modify claims payments
  5. The ability to analyze areas of current or potential waste – analytics and decision support – as the basis for new payment related practices

Requirement 4: Intuitive Design

Ask Previous or Current Clients: How long did it take for your team to learn the interface? What does the training time look like for new employees? Does the vendor offer any resources or support?

A well-designed system can serve payment integrity and end user needs quicker and more affordably than heavily promoted, cobbled-together alternatives. This also allows for interoperability and solutioning in one place rather than across vendors.

Maintaining transparency and continued progress after implementation is crucial to continued success. Vendor partners should continue to be intuitive and modern by consequently making design updates.

Requirement 5: Cultural Alignment

Before Calls with Vendors: Assess your company’s strengths and weaknesses to help determine what type of partner and solution is needed.

Keeping your analysis process one-dimensional may lead you to a partner that has the right solution, but the wrong culture to adequately provide day-to-day improvements to your business.

It’s imperative to eliminate the fear, uncertainty, and doubt (FUD) that often clouds judgment and drives organizations to the perceived “safe” choices when those choices may not be optimal, more cost-effective, or efficient. Establishing and weighing business requirements for long-term partnerships helps health plans score each vendor objectively and counteract FUD.

A vendor as a partner should take the initiative to listen and absorb feedback to ensure you feel supported by cultural alignment now and in the future.

How to Use These Requirements to Vet Vendors

Before beginning discussions with or researching vendors, health plans must first understand the unique core features needed for a successful partnership with their firm. The above 5 criteria can help health plans organize a comprehensive list of requirements from vendors and then objectively score each solution according to their unique needs.

Learn more about how SaaS solutions empower health plans to achieve payment integrity here.

Why Automation Technology Will Disrupt Claims Processing


Automated claims technologies are uniquely positioned to increase accuracy of claims because:

  • Most claims paid by health insurers are based on predetermined rates
  • Medicare and Medicaid policies change frequently

Pricing Accuracy is a Blue-Chip Item

Pricing accuracy is a continual concern due to:

  • Today’s fee-for-service (FFS) claims processing landscape
  • Frequent disputes and time-based fees or penalties from inaccurate claims
  • Continued expansion of data sources such as:
  • Claims
  • Encounters
  • Enrollment forms

Claims, encounters, and enrollment forms all need to be reconciled to accurately pay fee-for-value (FFV) methodologies like the payment bundles and shared savings programs being implemented nationwide.

Inaccurate Claims Lead to Disputes and Time-Based Fees or Penalties

Millions of identified underpaid or overpaid dollars are waiting to be reclaimed by the overpaying payer or the underpaid provider, creating disputes and time-based fees and penalties.

What makes these inaccurate claims so prevalent?

Updates are impossible to keep up with using standard practices.

These standard practices include relying on disjoined technologies or SMEs to manually establish library changes. Disjointed technologies update content libraries sparsely and fail to do so as a single system. Manual changes by SMEs are time-consuming and impossible to do profitably while staying in compliance.

Both lead to claim errors and rework.

Effectively and profitably accommodating daily updates to policies, methodologies, and rates will instead require investment in single interoperable automation technologies.

Medicare and Medicaid Experience Policy Changes Almost Daily

Centers for Medicaid and Medicare Services (CMS) publishes daily transmittals to communicate new or altered policies, rates, and other specific modifications. These can include retroactive changes to claims payment rules dating back months or even years. On average, using standard methods, libraries are updated every quarter, a far cry from the daily needed updates to stay compliant and avoid rework.

With a comprehensive and interoperable automatic claims technology, policy changes are updated at least every two weeks – saving health plans costly and complex rework on millions of claims.

Most Claims Are Based on Predetermined Rates

Commercial in- and out-of-network payment arrangements are often based on predetermined Medicare payment methodologies like:

  • MS-DRGs
  • APCs
  • Other prospective payment baselines like third-party case-mix groupers

The complexity of these payments partnered with standard practices like manual entry and disjointed technologies, lead to millions of errors in pricing.

Automating these complex claims with a single interoperable technology solution is the only proven effective method for eliminating these errors.

How Address Claims Payment Accuracy

To optimize payment accuracy, health plans are slated to invest in interoperable, customizable claims automation technology.

Vendors should be screened for ability to integrate into current workflows, comprehensiveness of training and strategic business alignment.

Learn more about claims payment accuracy or how to find the right technology vendor here.

Why Isn’t the Payment Error Rate Closer to 0% for Health Plans?

Claims Payment Accuracy Hasn’t Significantly Improved in Recent Years

Today the overall claims error rate is at 6.26%. In the past decade this error rate has reduced by >1%, representing miniscule improvement compared to previous years. For example, in 2010 to 2013 error rates dropped from 20% to 7%.


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Payment Inaccuracies are Costing Health Plans Millions

With millions of claims processed annually, lack of improvement in error rates this past decade significantly impact health plans’:

  • Bottom line and financial health
  • Ability to effectively serve populations
  • Capabilities of forging trusting partnerships with providers

Erroneous claims also cause massive under or over-payments to providers and add up to hundreds of thousands lost per year for health plans.

Causes of Payment Inaccuracies

If the decline of error rates kept dropping as they had from 2010 to 2013, it would be nearly 0%. Why isn’t this the case today?

Error rates have plateaued due to:

  1. Providers submitting inaccurate and duplicate claims, causing administrative errors.
  2. Enrollment and prior authorization checks that require manual reviews and inaccurate payment calculations.

How to Significantly Improve Error Rates

In the next five years, top health plans will realize unprecedented improvement in their error rates through the implementation of claims automation technologies.

By automating tasks, these technologies will remedy:

  • Administrative errors
  • Manual reviews
  • Inaccurate payment calculations

Automation technology will prove to be especially helpful for health plans serving the 18.4% of the nation’s population covered by Medicare and the 17.8% covered by Medicaid.

This is because Medicaid and Medicare plans operate on payment policies and fee schedules predetermined by governmental programs, or through payment methodologies and fee schedules negotiated between payers and providers.

Payment success must involve vetting vendors

Many health plans continue to invest in solutions that rely on legacy technology and cobbled-together solutions. These complicated tech stacks result in limited interoperability and continued error rates.

To realize payment success, payers should partner with vendors offering comprehensive solutions designed for cloud-based delivery, interoperability, and automation.

Learn more about reducing incorrect payments between payers and providers here.