Why payer contracting can no longer be treated as a back-office function
Health systems need a clearer view of payer economics, operational readiness and shared performance if contracts are going to support both fee-for-service and value-based care.
Payer contracting has traditionally been treated as a specialized managed-care function: negotiate rates, manage renewals, resolve disputes and move to the next contract cycle. That model is increasingly difficult to sustain because the economic relationship between health systems and payers now extends well beyond a fee schedule.
The portfolio itself is more complex. In 2026, 55% of beneficiaries eligible for Medicare Advantage are enrolled in a private plan, and nearly half of national Medicare Advantage enrollment is concentrated in plans owned by UnitedHealth Group and Humana. At the same time, 511 ACOs are participating in the Medicare Shared Savings Program for 2026, serving 12.6 million people with Traditional Medicare. Health systems are therefore managing payer relationships across conventional fee-for-service, Medicare Advantage, accountable care and other risk-bearing arrangements at the same time.
The administrative burden is also material. The American Hospital Association estimates that hospitals spent $43 billion in 2025 trying to collect payments from insurers for care already delivered, including work associated with denials, prior authorization and repeated documentation requests. That estimate comes from the hospital industry's trade association and should be understood in that context, but it illustrates why payer relationships are not simply a reimbursement-rate discussion; they affect operating cost, staffing, clinical workflow and cash performance as well.
The practical implication is that contracting can no longer sit apart from enterprise strategy. A negotiation that looks favorable on paper can underperform if the organization cannot operationalize its quality requirements, manage attributed populations, produce trusted data or resolve administrative friction. Conversely, a health system with a clearly defined care model and reliable performance data may have more to negotiate around than unit price alone.
That does not mean every payer relationship should be converted into a strategic partnership, nor does it mean collaboration eliminates the adversarial issues that inevitably arise over payment and utilization management. It means health systems should manage payer relationships as a portfolio, with a clearer understanding of where collaboration can create value, where transactional discipline is sufficient and where the organization is ready to assume additional performance risk.
Four capabilities make payer strategy more credible
The following four capabilities are not regulatory requirements or a universal contracting formula. They are an operating framework for deciding whether a health system can support a more collaborative payer relationship and whether the commitments negotiated by the managed-care team can actually be delivered by the rest of the enterprise.
A shared data source of truth
Contract discussions are harder when payer and provider teams arrive with different definitions of attributed lives, medical expense, quality performance or avoidable utilization. Before organizations can collaborate on performance, they need to know whether they are measuring the same population, time period and event definitions. The goal is not necessarily one physical database; it is a governed reconciliation process that produces numbers both sides understand well enough to act on.
That requires more than exchanging files. The parties need documented attribution logic, agreed measure specifications, a common approach to runout and adjustments, and a way to investigate differences without reopening the entire contract interpretation each time a dashboard changes. A shared performance view can reduce avoidable disputes, but only when the definitions and data lineage behind it are explicit.
Contract-aware operations
The second capability is operational: the terms negotiated in the contract have to become visible to the people and systems responsible for delivering care. A value-based arrangement can include incentives for access, transitions, network use, coding, quality or total cost of care, but those incentives create little value if they remain inside the managed-care department rather than being translated into workflows, data and accountability.
The objective is not to hand clinicians a contract document or add another administrative task to the visit. It is to translate the agreement into operating rules: which population is in scope, which measures matter, where performance is drifting, which teams can influence the result and what action is expected. That translation is what turns a negotiated construct into a care-delivery capability.
A full view of payer economics
Health systems also need to understand the economics of the payer relationship across the lines of business they actually manage. Looking only at a value-based bonus or only at fee-for-service rates can obscure the larger contribution of the relationship, particularly when commercial, Medicare Advantage, self-funded and risk-based arrangements interact with the same physician network and care infrastructure.
That does not mean combining unlike contracts into one simplistic margin number. Fee-for-service revenue, shared savings, downside risk, administrative cost, quality incentives and investment requirements should remain separately visible. The enterprise view is useful because it shows where economics reinforce one another, where one arrangement is subsidizing another and whether additional risk would improve or weaken the total relationship.
Year-round joint governance
The fourth capability is governance that continues between contract negotiations. Joint operating committees, shared performance dashboards and recurring quality or operations reviews can move payer-provider conversations away from episodic reconciliation and toward earlier problem solving. The value of that structure is not the meeting cadence itself; it is the creation of a place where disputes, performance gaps and implementation decisions can be addressed before they accumulate into a renewal crisis.
Joint governance works only when accountability is clear. Both parties need named owners, agreed escalation paths and enough authority to resolve operating issues rather than merely document them. Without those features, a governance committee can become another reporting forum that produces visibility without action.
Not every payer relationship needs the same investment
A health system with many payer contracts cannot devote the same executive attention, analytics resources and joint-governance infrastructure to every relationship. The more useful approach is portfolio segmentation: decide which payers warrant deeper collaboration and which relationships can be managed primarily through disciplined transactional contracting.
The selection criteria should be explicit. Scale matters, but so do payment performance, data-sharing capability, administrative friction, strategic fit, market position and willingness to redesign workflows jointly. A payer with significant membership but poor operational responsiveness may require a different strategy from a smaller payer willing to participate in shared data, aligned measures and joint problem solving.
I use the term “collaborative payer” for the relationships that justify deeper strategic engagement, co-developed performance models and standing governance. That is a recommended portfolio category, not a standard industry designation. The purpose is to protect organizational bandwidth by concentrating the most resource-intensive collaboration where there is a credible pathway to better economics or better execution.
Medicare Advantage illustrates why portfolio concentration matters. The 2026 market remains highly concentrated: 46% of enrollment is in plans owned by UnitedHealth Group and Humana, and in 28% of U.S. counties those two organizations account for at least three-quarters of Medicare Advantage enrollment. That concentration does not dictate a contracting strategy, but it means the economic importance of a small number of payer relationships can vary dramatically by market.
Sequence risk around readiness, not ambition
One of the most consequential contracting errors is taking on downside risk before the organization can reliably manage the variables the contract makes it accountable for. Risk does not create the operating model; it exposes whether the operating model already works.
Before moving from upside-only incentives into arrangements that include shared losses or more advanced delegation, leaders should assess the capabilities required to perform: analytics, attribution, network integrity, care management, risk adjustment, funds flow, physician alignment, quality operations and governance. The relevant question is not whether the organization wants to move toward risk, but whether it can identify performance problems early enough to intervene before they become financial losses.
Readiness is also contract-specific. A health system may be prepared to manage quality incentives in one population while lacking the data or care infrastructure required for total-cost risk in another. Sequencing allows the organization to build capability deliberately rather than treating risk progression as a badge of sophistication.
Move from responding to payer terms to shaping the operating model
Many health systems still enter negotiations primarily in response to terms placed in front of them. A more strategic posture begins earlier, with a clear description of the organization’s network, access model, physician enterprise, care-management capabilities and demonstrated outcomes. The goal is not to invent differentiation for a negotiating deck; it is to identify what the health system can prove it does differently and connect that value to contract terms.
That may include proposing network designs, aligned quality measures, alternative attribution approaches, specific data-sharing commitments or medical-policy collaboration where the organization has sufficient evidence and operating capacity. The strategy should remain grounded in what can actually be implemented, because a sophisticated contract that depends on one-off manual processes can create more fragility than value.
This is where an all-payer operating model becomes useful. Market intelligence, common definitions, contract inventory, performance reporting and core care-management capabilities should be reusable across payer relationships even when the economic terms differ. Standardizing the operating chassis reduces the temptation to build a separate program for every contract and makes it easier to see which payer-specific requirements genuinely deserve customization.
The value at stake is broader than the negotiated rate
A well-managed payer relationship can affect reimbursement, administrative cost, quality performance, attribution, network use and the stability of care-management investment. The inverse is also true: poor data, repeated denials, unclear accountability and badly sequenced risk can consume margin even when the headline reimbursement terms appear favorable. That is why total payer economics need to include the cost of operating the contract, not only what the fee schedule or shared-savings formula promises.
The broader market is already moving toward arrangements in which providers are accountable for more than volume. CMS reports that 12.6 million people with Traditional Medicare are assigned to Shared Savings Program ACOs in 2026, the largest total in program history. That federal program is only one part of the value-based care market, but its growth reinforces the need for health systems to understand whether their contracting, analytics and care-delivery infrastructure can operate as one system rather than as separate departments.
At the same time, collaboration should not be romanticized. Payers and providers can have legitimate disagreements over rates, medical necessity, denials, network design and risk transfer, and shared governance does not eliminate those conflicts. Its purpose is to make the economic and operational relationship more transparent so that both sides can distinguish issues that require negotiation from issues that require better execution.
Payer contracting is an enterprise capability
The managed-care team still needs deep expertise in reimbursement, contract language and market dynamics, but the function cannot deliver enterprise value by itself. Finance has to understand total relationship economics, clinical operations have to know which outcomes they can influence, analytics teams have to produce trusted measures, and executive leadership has to decide where the organization is willing to commit scarce capital and operating capacity.
That is the shift health systems should be making: from contract management as a calendar of renewals to payer strategy as an enterprise operating discipline. The objective is not to collaborate deeply with every insurer or to accept risk faster; it is to know which relationships matter most, which capabilities can be credibly differentiated and what the organization must be able to execute before the contract is signed.
In a market where reimbursement pressure, administrative burden and value-based accountability are all increasing, the health systems with the clearest payer strategy will be those that connect negotiation to operations rather than treating the two as separate work. The contract creates the opportunity, but the operating model determines how much of that opportunity becomes real.
Christine Mulheran is Chief Operating Officer of Navvis, a population health company that partners with health systems, physician enterprises and health plans on value-based care operations and performance.