Beyond the Rates: The Contract Terms That Shape Reimbursement
Part 1: Payment Corrections and Financial Predictability
The Negotiation Is Done. Time to Celebrate?
A health system finishes a tough payer renegotiation and is celebrating a larger-than-typical reimbursement rate increase. But if the negotiation focused on rates alone, actual reimbursement over time may fall well below what the health system believed it negotiated.
A rate increase is only as durable as the other provisions supporting it.
A rate concession can be financially modeled, so a health system can understand its impact. A language concession creates exposure that is harder to quantify and easier to underestimate.
It is easy to overlook the importance of contract language. Among the many defined terms and interrelated provisions, the meaning and impact of a single clause may not be immediately apparent. Language can appear fair and equitable on its surface, yet when all interconnected provisions are read together, their combined financial effect can be very different.
This multipart series focuses on commercial payer contracts and identifies key terms with the potential to undermine the predictability or magnitude of reimbursement. This first installment focuses on the correction of incorrect payments: overpayments and underpayments.
Equal in Theory, Unequal in Practice
Consider the timeframes a payer and a health system have to correct inaccurate claims payments. The clause may appear reciprocal: the payer has twelve months to recover overpayments, and the health system has twelve months to correct underpayments. That settles it, right? Not so fast. A later clause may describe circumstances in which the payer’s twelve-month limit does not apply. Reading a single payment-correction provision is not enough to determine the result.
Reasonable exceptions to the timeframe may include fraud, misrepresentation, or intentional misconduct but should apply equally to both parties. Exceptions that are one-sided can unreasonably extend recovery rights and have an impact far greater than anticipated. In some instances, exceptions to the payer’s recovery deadline may be so substantial that they render the original time limit largely meaningless, while the provider is afforded no exceptions, not even for fraud, misrepresentation or intentional misconduct.
Overpayments: Known or Unknown?
One exception may involve a health system’s failure to notify the payer of an overpayment. On its surface, that might seem fair: the health system should report an overpayment it identifies. But what if the health system was not aware of the overpayment? Should an unknown overpayment leave the health system exposed beyond the ordinary correction period? And if the payer identifies an underpayment, does it have a corresponding obligation to correct it beyond the provider’s time limit?
Some payers do not specify a time limit for their overpayment recovery while giving the health system a firm deadline to correct underpayments. In such cases, the contract preserves an open-ended recovery opportunity for the payer without extending the same protection to the provider.
Does an Obligation to Comply with State Law Always Provide Protection?
Some external protections exist, but they vary significantly by state. A state may limit how far back a payer can recover overpayments without providing a corresponding minimum period for a hospital to recover underpayments.
States Differ
For claims subject to Florida Statutes §627.6131, the statute establishes a general 30-month overpayment limit and a shorter twelve-month limit for certain licensed practitioners. Florida statutes do not, however, specify a matching 30-month right to recover underpayments for hospitals.[1] In Texas, in claims subject to prompt-pay requirements, the Department of Insurance specifies that notice of overpayment recovery must be sent within 180 days after the provider receives the overpayment, absent fraud or material misrepresentation.[2] In both examples, statutory protections are unequal for underpayments and overpayments and may leave providers subject to the language in their contract. When not governed by statute, a proposed contract could limit provider retroactive underpayment collection to any duration, for example, as few as 90 days.
Self-funded Plans May Lack Protection
For self-funded plans, state law may not apply at all. State insurance regulation generally does not apply to self-funded ERISA plans.[3] Texas expressly excludes self-funded ERISA plans from its prompt-pay requirements.[2]
KFF’s 2025 Employer Health Benefits Survey found that 67% of covered workers were enrolled in self-funded health plans.[4] The KFF figure covers employer-sponsored coverage nationally; however, each health system’s mix will differ. But for many systems, self-funded plans likely represent a substantial share of commercial volume. How much of your claims portfolio falls outside the statutory protections you are relying on?
Does Statutory Protection Apply?
The following factors illustrate the complexity of determining statutory protections.
Factor | Potential Differences |
|---|---|
State | Which state governs for a claim? Applicability depends on the statute’s jurisdictional reach, including where coverage is issued or delivered, the patient’s state of primary residence, and other relevant factors. |
Statutory Protection | Do protections exist? Some states establish specific payment-correction protections; others do not. |
Funding Type | Is a claim within a protected funding type? Protections may apply to fully insured coverage but may not extend to self-funded ERISA plans. |
Provider Type | Do protections differ by provider type? Timeframes may differ for institutional providers, such as hospitals, and individual providers, such as physicians. |
Overpayment vs. Underpayments | Does a payer recovering an overpayment have the same protections or obligations as a provider recovering an underpayment? An overpayment recovery limit may not be matched with a corresponding underpayment correction period. |
Contractual Flexbility | If all other factors align, do the statutes always govern? Some statutory protections are mandatory; others permit negotiated contracts to supersede statutory requirements. |
Defaulting to statutory protections is not enough. State law does not provide comprehensive protection. Health systems need express contractual protections for business outside the statutes’ purview.
Are We Talking Pennies or Pounds?
A single high-dollar claim can create substantial payment recovery exposure, and over time, unfavorable contract language can add up to significant financial consequences. Without a clear endpoint for payment finality, a health system may experience recoveries long after it considered claims settled.
The hypothetical example below assumes $100 million in annual allowed reimbursement and shows how payment corrections can offset much of the anticipated financial benefit of a negotiated rate increase over one year.
Effect | %* | Amount |
|---|---|---|
Expected negotiated increase | 5% | $5,000,000 |
Contract language impact | ||
Overpayment recoveries | 2% | $2,000,000 |
Unrecoverable underpayments | 1% | $1,000,000 |
Total adverse impact of payment correction language | 3% | $3,000,000 |
Realized reimbursement increase | 2% | $2,000,000 |
* Illustrative only. Assumes $100 million in annual allowed reimbursement and constant historic and prospective claims experience. The figures represent recoveries and losses attributable to the contract language, beyond what balanced terms would allow.
In this example, payment corrections offset 60% of the anticipated annual $5 million benefit.
Contract Review: Where the Details Matter
A minor difference in wording can dramatically affect meaning and financial impact.
When Twelve Months Is Not Twelve Months
Does the twelve-month overpayment correction period begin on the date of service, upon initial claim payment, or following discovery of the error?
Date of Service: If a service was provided June 1, 2026, the twelve-month deadline is June 1, 2027.
Initial Claim Payment: If a service was provided June 1, 2026, and the claim was initially paid September 1, 2026, the twelve-month deadline is September 1, 2027.
Discovery: If the period begins upon discovery of the overpayment, the recovery window may effectively have no end date.
Watch for discovery-based triggers. A clock that starts only when the payer discovers the error can function as no deadline at all.
Also examine what must occur before the deadline. If a contract requires underpayment correction requests to be resolved rather than initiated within twelve months of initial claim payment, the health system’s ability to recover those amounts may be significantly curtailed. For example, a health system might submit a reconsideration request six months after initial claim payment, only to have the review process extend beyond the twelve-month deadline. The payer could then invoke the resolution deadline to deny an otherwise valid underpayment correction, even though the health system submitted its request well within the correction period.
As noted, statutory restrictions may further affect the correction period for some, but not necessarily all, claims.
Other Considerations
Narrow exceptions: What knowledge or conduct triggers an exception, and does it apply reciprocally?
Reciprocal correction duties: Must the payer notify the provider of and correct identified underpayments commensurate with the provider’s overpayment reporting obligations?
Protection during resolution: What documentation is the payer required to provide for an alleged overpayment, and are offsets permitted even if the provider disputes it?
Protection from conflicting policies: Can administrative guidelines or payer policies alter recovery timeframes, i.e., expand them for overpayments or shorten them for underpayments, either now or in the future?
Financial predictability requires more than negotiated rates. It requires clear rules for when payments become final, how errors are corrected, and who controls the money while a dispute is unresolved.
Develop Insights and Take Action
BDC Advisors helps health systems evaluate existing contract language, identify risks, and translate findings into negotiation strategies. We lead managed care contract negotiations, work alongside internal teams, or advise behind the scenes, from initial assessment through agreement completion.
To assess whether your contract language affects reimbursement and develop a strategy to address the risks, contact Carrie Knowles-Atkinson, Principal, at carrie.knowles-atkinson@bdcadvisors.com.
Coming in Part 2: Offsets Against Future Claim Payment
Sources
[1] Florida Legislature. Florida Statutes §627.6131, Payment of claims, subsections (6), (18), and (19); subsection (10) addresses nonwaiver of statutory requirements.
[2] Texas Department of Insurance. Prompt Pay FAQ, discussions of overpayments, underpayment appeals, and applicability to self-funded ERISA plans. Updated October 1, 2025.
[3] Employee Retirement Income Security Act of 1974, §514, codified at 29 U.S.C. §1144(a), (b)(2)(A)–(B).
[4] KFF. 2025 Employer Health Benefits Survey, “Plan Funding.” Published October 22, 2025.
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