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Jun 4 2012   6:00AM GMT

Tech beneath the talk — Part 2: Better contracting for better care

Posted by: Jenny Laurello
Contract management, Medical loss ratio, MLR limits, payers, Reimbursement

Guest post by: Sam Muppalla, Vice President, Marketing and Strategy, McKesson Health Systems, Network Performance Management

In an earlier blog, we explored the idea of designing a provider IT infrastructure for better, affordable care. Health plans need to step back and look at the entire technical interplay of care products, delivery models and reimbursement systems as if it were a single, integrated entity. Contracting needs to be integrated and streamlined despite serious challenges in today’s health care landscape that’s always changing. Who is contracting with whom, to deliver what services, on what terms, against what kinds of quality and success metrics? It’s all up in the air right now. Payers need to think through the kinds of services they want to provide and to whom, and then they have to refine their contracting systems accordingly. Even more critically, they have to link those contracting systems to reimbursement systems in ways that streamline claims processing and ensure transaction transparency along the way.

Focusing on automation

Despite all that we do not yet know about who will ultimately be doing what with whom, one thing is certain: Payers need to improve their ability to create, manage and execute on contracts in a more streamlined and cost-efficient manner. Under Patient Protection and Affordable Care Act (PPACA), commonly referred to as Obamacare, medical loss ratio (MLR) limits make it imperative that payers cut costs not directly related to care. That means eliminating slow, manual contract development processes as well as any other manual tasks associated with contract management (be it fixing manual errors or filing the forms in a steel cabinet).

The entire contracting process needs to be automated. It requires the use of standardized templates that can be created online and easily shared among negotiators, financial and legal analysts, contract writers and administrators during the development phase. Workflow systems can facilitate development, ensuring that each party remains on task and stays aware of changes made by other parties. Standard language for clauses, terms and processes can be codified; rates and terms can be captured in tables that can be used again and again.

Connecting contracts to reimbursement

Thinking through how to automate the contracting process – from contract creation to signing on the dotted line – is challenging enough. But the thinking cannot stop there. Contracting is the gateway to the entire claims processing and reimbursement process, and the automated systems that a payer puts in place to manage contracting must be designed to integrate seamlessly with the claims processing and reimbursement systems. As claims come in, the claims processing system can interact automatically with the contracting system and adjudicate the claim without manual intervention. The reimbursement system can interact with the contracting system to prepare the proper reimbursement in accordance with the terms and conditions in the contract – all automatically and transparently.

From the standpoint of curbing costs, these kinds of refinements can lead to substantial savings quickly. One MHS Network Performance Management project (deploying MHS Contract Manager for a plan with approximately 250,000 members) resulted in a net savings of $1.7 million per year and a project payback period of only 22 months. Overall ROI was nearly 150% after three years.

Designing for change

The contracts of tomorrow will reflect the complexities of tomorrow. As we move to team-based health care delivery systems and develop more complex bundled payment approaches and reimbursement structures based on outcomes and performance, the contracts, contracting, claims management and reimbursement systems all need to accommodate change quickly. That will come as no surprise to a contract writer, but it may come as an unwelcome shock to the IT department tasked with extending an existing contract management system to accommodate these changes and to integrate these new terms and payment scenarios with the claims processing and reimbursement systems.

Even as payers develop an infrastructure designed to automate and streamline the contracting, claims processing and reimbursement processes, they must also design the infrastructure with unforeseen changes in mind. Flexibility is key, but it takes considerable forethought when designing a solution. Flexible data models and a service-oriented architecture that takes advantage of loosely-coupled web services and modular building blocks — both of these can help payers create a solution that will, ultimately, provide the flexibility, adaptability and extensibility that it needs to streamline all these integrated processes in a manner that lowers costs, increases transparency and contributes to improved outcomes.

Sam Muppalla is vice president, McKesson Health Solutions, Network Performance Management (NPM). For more information, visit, and follow the company on Twitter at @McKesson_MHS.

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