Managing Payer Friction Through Contract Negotiations

Featuring: Brad Gingerich | VP of Payer Strategy

HealthcareNOW Radio’s Healthcare de Jure podcast recently featured Ensemble VP of Payer Strategy, Brad Gingerich, discussing the fraught relationship between payers and providers.

Let’s take a closer look at this tension, how it’s evolving and why it’s coming to a head, and how these evolving dynamics between payers and providers ultimately impact care delivery for patients.

Medicare Advantage tensions lead to payer/provider friction

As Gingerich shared during the Healthcare de Jure discussion, many managed care agreements are grandfathered in with an evergreen clause that allows them to auto-renew with no action required on the part of the provider or payer. These agreements may have an annual rate increase of a few percentage points or they may not factor in any increase at all. Ultimately, many of these are older contracts and may not have been reassessed in quite some time.

“I came to find, early in my career, that many of these contracts were neglected; there was never really a focus on them,” said Gingerich, adding that managed care has often been an afterthought for many providers.

Why is that? Much of a hospital’s revenue used to be through traditional Medicare. Today, more and more of that revenue is moving into the managed space — i.e., Medicare Advantage (MA) plans, plans offered by private companies that contract with Medicare, which are very different than traditional Medicare plans. Since they’re routed through third-party commercial companies, MA plans are all based on negotiated contracts, meaning that a greater portion of hospital revenue is also subject to these contracts.

The confluence of these market pressures — neglected managed care contracts coupled with a rise in Medicare Advantage enrollments — means that providers seeking appropriate reimbursement for services rendered now need to shift their focus to properly managing these contracts.

“This is one of the most heightened, focused areas of any healthcare provider,” said Gingerich. “There are limits on what you can do to really draw patient volume — you can market, you can advertise, you can try to bring in new services, things like that — but at the end of the day, one of the last remaining opportunities to actually drive revenue into a health system is those negotiated contracts you have with payers.”

Providers are feeling the pressure

Given inflation and other headwinds, providers face a great deal of pressure to get these contracts right. Although operating margins performed relatively well in Q1 2024, March’s numbers saw declines in volume and associated revenue.

Half of U.S. rural hospitals still operate at a loss, with hundreds vulnerable to closure. As a result of extreme financial pressures, more hospitals closed in 2023 than opened, while the largest health insurance companies accumulated $1.1 trillion in revenue — a five-year high.

For small hospitals, much of the difficulty comes from the fact that MA plans — which are increasing in enrollment — don’t have to pay the full amount it costs to provide services, unlike traditional Medicare. This means that facilities may be receiving one-third less in payment, depending on the plan alone. Add in Medicare Advantage marketing pushes and low and delayed reimbursements, and providers’ concerns around these managed plans are understandable.

Taking a firm stance on managed care contracts represents one way providers can push back against these market pressures. One example comes in the form of network access.

Historically, Gingerich said, health systems were giving away network access — a provider might have contracts with every payer without creating scarcity around that notion. Collectively, this open access to a provider’s network pushed reimbursement rates down. When it comes to network access, however, there’s an opportunity for providers to take a stand.

There’s a delicate balance between allowing access and requesting a rate that covers a health system’s bottom line, says Gingerich, adding, “health systems have to find ways to bridge those gaps, and so creating more of a value structure around access to the health system is one way to be able to command those rates.”

Historically, providers have not taken a hard stance to pick and choose the payers with which they sign. But in making those specific choices, Gingerich notes, providers can request that these business partners reciprocate with proper rates and proper terms.

Leaning on contract negotiations

When it comes to revenue, the critical lifeblood of the healthcare industry, there will always be tension in the market. However, revenue cycle management partners like Ensemble are working to ease this friction between payers and providers — or at least enable them to collaborate.

One predominant issue is that there’s a lack of transparency in the payer/provider relationship, says Gingerich. “No one really wants to show their cards. Payers, for example, are not really transparent when they tell you what their medical necessity criteria are going to be. You have to stumble through it… It’s very challenging to know exactly what payers want. They hold a lot of things close to the chest as proprietary and as a result, we get into a stand-off in many cases.”

This type of stand-off, an impasse in contract negotiations, most often happens because of a requested rate increase or the language of the contract, which governs how claims are paid and at what cadence.

With the clock ticking down to the time that a hospital will be out of network with a specific insurance company, Gingerich says the advantage is to the provider. Payers don’t want the negotiations to spill into the public domain, riling up patients and the press about the possibility of going out of network.

Between inflation, cost challenges, staffing challenges and more, today’s providers are operating in a whole new world, and they will have to embrace contract negotiations as one lever to pull to stay afloat.

“These opportunities have always existed but now cannot be ignored,” says Gingerich. “Now, providers have to stand up and preserve what they’ve negotiated for…historically, maybe the provider had the wherewithal to not be aggressive about that. That luxury is gone.”

Choosing out-of-network as a strategy

The out-of-network landscape has gone through a lot of changes in the past 10 years, says Gingerich. Providers are focused on serving their communities and increasing access; ideally, they want to be in network with as many payers as possible.

This is where managed care agreements come in, which Gingerich describes at their most basic level as being “like a Groupon — I’m going to steer all my members your way, you give me a discount.” If a provider chooses to go out of network, however, the payer no longer gets a discount, which brings with it a threat of increased spend to the payer.

In today’s market, full risk products are the largest source of revenue for payers. Outside of employer-sponsored coverage, however, patients are plan-agnostic and have the ability to choose a plan. They care most about seeing their preferred provider, rather than sticking with a preferred plan. This dichotomy provides leverage for providers in contract negotiations.

Shifting friction to collaboration

How can the relationship between payers and providers improve for the better? That is the critical question often overlooked in conversations about the friction between payers and providers.

“I think we need to understand what everyone’s really after,” says Gingerich. “As a provider, the objective is to be paid quickly, timely and easily. What that means is they don’t want to have to do a lot of rework, they don’t want to have to bill a claim and then have to substantiate why it’s payable for the next 90 days — submit medical records, itemize bills, have a physician write an appeal — they don’t want to have to do any of that.”

Ultimately, he says, for providers, it comes down to efficient reimbursement so care can continue: “We provided the care six months ago, but we’re still fighting for payment today. That’s a problem for us. If the payers are ultimately going to release funds, how can we move it upstream faster?”

Payers, on the other hand, want predictability. They’re seeking to predict their future spend, so they can right-size their premiums and really manage their expenses. If a contract with a provider is terminated abruptly, that represents a significant rate increase that a payer doesn’t have forecasted into their budget.

Negotiations need to be about collaboration, says Gingerich, less about finding a middle ground and more about coming to the table with trust and acting in good faith. Ultimately, these evolving dynamics between payers and providers impact care delivery, affecting the very patients that all parties were formed to support. With collaboration in mind, contract negotiations can help keep the patient at the center, while ensuring both payers and providers have the financial flexibility to continue their important work.


This 30-minute Healthcare de Jure conversation, which covered the need for negotiating agreements and the tension that can arise from payer-provider lawsuits, can be accessed on demand. Keep up with the latest in payer/provider dynamics by subscribing to our monthly newsletter, Ensemble Exclusive.