Posted March 31, 2017 by admin in articles

Reducing Payment Errors- The Right Contract Management Steps



In order for hospitals to be certain that they are being paid accurately for the care they provide, it’s crucial to the hospital’s financial health that they have an effective and functioning hospital contract management system. These contracts include Medicare, Medicaid, commercial, workers comp, and employer payers which account for more than 95% of all patient care.

Each contract comes with its own unique language and stipulations, many of which apply various scenarios and formulas that help to value each bill to determine how much is owed for a particular service to a specific patient. Each contract management system should be able to:

  • Calculate reimbursement for individual claims as well as analyze all posted transactions such as payments, contractual, and administrative adjustments
  • Accurately identify correctly and incorrectly paid claims and provide a detailed analysis of denials and payer performance.
  • Model proposed contract reimbursement changes to aid in negotiations and provide analysis of upcoming payer trends.

Knowing how and when to collect these payments according to the contract can prove to be quite challenging, but utilizing the appropriate contract management system can help make things clearer.

By implementing the proper contract management system into their revenue cycle processes, hospitals can improve net revenue by 2-3%.

Organizations that value the contract management system solely based on the payer collections tend to overlook missed reimbursement opportunities because they don’t fully understand the potential of contract management.

After all, the purpose of a contract management system is to reconcile all payer payments with the appropriate amount laid out in the contract.

Rather than narrowing the focus to only recovered amounts, hospitals can benefit from taking the time to fully understand the details of their contract and spot areas where they can effectively manage a high volume of low balance accounts.

Causes of Payment Errors

Although payment errors are tough to avoid entirely, there are steps an organization can take to limit mistakes; and if a mistake is made, steps can be taken to catch it before it reaches the payer. One way to limit the number of payment errors within a contract management system is to make sure that the staff is properly trained to manage and renegotiate the contracted terms on behalf of their organization.

The first step is to list your organization’s top 20 payers and ensure that the staff fully understands the terms and conditions expressed throughout their reimbursement regulations used by the payers. Try asking yourself these five questions:

  • Do I have an organized method of tracking the renegotiation date for every one of the hospital’s payer agreements?
  • Have I saved electronic copies of each contract, addendum, and fee schedule to allow the collections team to access at will? Are these documents kept in a secure location?
  • Is there a functioning system for communicating all reimbursement changes internally as well as to the contract management vendor?
  • Am I accurately tracking reimbursement changes from the insurance company?
  • Do I regularly attend payer meetings and stay up-to-date on Governmental mandates?

If your contract management system is not helping the staff to detect changes and patterns, it’s not doing its job. By displaying these trends, the staff can spotlight certain variances like underpayments and overpayments as soon as they are received and processed into the system, thus reducing the number of unnecessary billing errors.

Another way to reduce billing errors is to monitor your staff for any incorrect or inconsistent billing practices. Many organizations instill a billing policy manual that’s constantly updated and explains how to correctly code claims, makes sure they comply with strict government regulations, and addresses pre-authorization and pre-certification requirements for each payer.

Common billing errors include:

  • Posting errors
  • Missing charges or late charges
  • Non-covered services
  • CCI edits
  • Missing or incorrect use of modifiers

In an effort to prevent billing errors from occurring in the first place, staff should also be trained to navigate through the billing software and detect claim denials.

When it comes to managing claim denials, early detection is key to preventing it from ever reaching the payers. Whether or not the denial is detected by the Clearinghouse, contract management vendors need to provide software that displays reports that help identify the common causes of denied claims. These reports help to spotlight the biggest payers by volume and charge amount as well as the reason for why a claim or line item service is denied for payment.

Denial types can be broken down into three categories: Clinical, Administrative, and Contractual.

  • Clinical- Ensure a process is in place for tracking provider trends as well as payer habits.
  • Administrative- Coding and billing errors should be quantified and tracked for process improvement.
  • Contractual- These can be vague and require a call to the payer. These denials should be researched against the contract to make sure they are legitimate.

Reducing Payment Errors with Accurate Reporting

In order to report these types of errors, contract management systems should keep a thorough list of reports such as recovery productivity, underpayment and denial recovery collection, claim inventory and A/R reports, slow pay and unpaid claims analysis, overpayments, and denial trends.

  1. Recovery productivity:

This is strongly recommended for managing the collection team’s productivity rates. Make sure that this method is reliable for keeping track of these accounts for items such as successful and unsuccessful recovery appeals.

  1. Underpayment and Denial Recovery Collection:

It is advised that denials and underpaid account recovery efforts are tracked separately. Details of these reports should include payer trend analysis and a root-cause analysis. This helps accomplish two goals:

  • Allows for denials to be assessed
    • Instills preventative regulations so they don’t reoccur in the future.
  1. Claim Inventory and A/R Reports (Unbilled claims):

If an organization’s billing system does not provide a way to easily identify unbilled charges, your contract management software should. In order to have the patient submit the payment in a timely fashion, it should be able to compare billed claims from the charge code files. If the unbilled claims begin to pile up, it’s important to identify the gaps in the process and correct it quickly.

  1. Slow Pay and Underpaid Claims Analysis:

Each payer contract should have a contract provision addressing timely payment for working claims. You should assign a reliable team to manage claims that error out at the electronic claim clearinghouse.

  1. Overpayments:

Insurance plan refunds can arrive unexpectedly, so teach your staff how to run overpayment analysis.

  1. Denial Trend Reporting:

Your staff should also monitor denial trends closely. If you spot an error in the system that’s an easy fix, correct it right away so it doesn’t linger on and possibly cause further complications.

Best Practices: Metrics to Improve Contract Management Performance

Contract management performance can be a lot to monitor due to the vast amount of information processed. Here are several metrics your organization can use when assessing how efficient your contract management system is actually running:

  • Are all payer contracts up-to-date?
  • Are account errors resolved in a timely matter?
  • Does the system calculate the variance accurately and reliably?
  • Is your hospital paid correctly for the services provided? (the most important metric)

When dealing with hospital finances, healthcare contract management should be considered “mission critical.” By applying these metrics into a hospital’s day-to-day operations along with other process improvements and methodologies, organizations have been known to significantly improve their underpayment recovery collections and ultimately increase net revenue. This allows healthcare organizations to focus on helping the patient’s immediate medical needs rather than worrying about its finances.

To learn more about how to apply metrics to the hospital contract management system, click here to download the complimentary whitepaper – Using Key Performance Metrics for Hospital Contract Management.

About PMMC

PMMC provides high value revenue cycle software and services to improve the financial performance of healthcare organizations.  Our software and expertise focuses on payment accuracy and identifying more revenue opportunities across the revenue cycle. PMMC helps hospitals identify underpayments and denials, increase price transparency, and manage bundled payments. Clients see, on average, a 10 to 1 return on investment with software and services.

For more information, visit

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