How Two Health Systems Fared After Payer Contract Terminations

Pulling uncomfortable levers is a must for providers when negotiating with payers. But how do providers fare after pulling the plug on a payer?

Amid a heated payer/provider landscape, some CFOs are feeling like they have no option but to terminate a payer’s contract. What we hear even less about though, is how the organizations fare after contract termination.

Is contract termination a financial loss for a provider? Is it a win? Or is it somewhere in between? Two leaders recently shared their experience with the aftermath of termination.

First, understand your leverage.

CFOs have more leverage in talks with payers than they think, but it requires willingness and preparation to pull levers that may be uncomfortable yet necessary for financial survival.

Dropping a payer is “absolutely an important strategy,” Britt Berrett, managing director and teaching professor at Brigham Young University and former CEO with HCA, Texas Health Resources, and SHARP Healthcare, says.

“Providers are becoming more capable in measuring the impact of the slow or rejected payments, and providers are looking at the actual cost of care by patient. Payers need to be aware of that.”

But what is it like on the other side of a termination?

Hamilton Health Care System, a not-for-profit, fully integrated system of care serving the northwest Georgia region, has been out of network with Medicare Advantage (MA) after terminating its contract with the payer years ago.

“We are not currently in network with any Medicare Advantage plans. We would end up netting less than traditional Medicare because of denials and administrative hassles,” said Julie Soekoro, EVP and CFO at Hamilton Health Care System.

In addition to a lessened administrative burden, being out of network hasn’t affected Hamilton’s bottom line or patient experience.

“Since we are out of network, the MA plan should be paying us as if the patient were a regular Medicare patient, so it has not affected the patients adversely,” Soekoro said.

All the time and money spent on takebacks, pre-authorizations, and denials add up. Coupled with low reimbursement rates, CFOs can find it doesn’t make business sense to continue with a payer.

Another example comes from Berrett and his time at Texas Health Resources.

While Berrett didn’t specify the type of plan, the organization terminated a payer contract because its patients had significantly higher CMI, resulting in losses for their patients.

“The impact [of terminating the contract] was very positive for the hospital. We lost volume but improved margins,” he said. “The payer was able to promote a significantly lower premium for companies because their rates to the providers were so low. When we terminated the agreement, they could no longer sell lower premiums and their market share dwindled. They eventually retreated from the market.”

Having been on the other side of a fruitful termination can provide CFOs with more confidence in future negotiations too.

For example, Hamilton Health Care has spent a lot of time going back and forth on a contract with a national payer that wanted to bring them in network, only for Hamilton to walk away from the negotiation table.

“After spending a great deal of time and effort modeling the contract, we learned the payer will require all diagnostic imaging business to go to a freestanding competitor, while building in very attractive looking rates for imaging,” Soekoro said. “This is misleading in that they never intended to allow their subscribers to come to us for imaging.”

“This was discovered incidentally by our contracting director, rather than fully disclosed by the payer,” she added. “Also, certain provider-favorable terms that we built into the language have mysteriously fallen out of the most recent version of the language.”

As stated, Hamilton walked away from that particular negotiation.

When considering a contract termination, there are two important questions providers need to ask themselves, Berrett says.

“Are we able to collect our negotiated rates, and are the patients covered by this payer more expensive to treat?”

Make sure to read more from this story here.