Understanding Managed Care Contracts: What They Are and How They Work

In the complex world of healthcare, managed care contracts play a crucial role in shaping the financial and operational success of long-term care facilities. For facility operators and administrators, understanding how these contracts function is essential for navigating reimbursement rates, service provision, and regulatory requirements. This article will define managed care contracts, outline their key components, explore their benefits, and address common challenges in the contracting process.

What is a Managed Care Contract?

A managed care contract is a legal agreement between a healthcare provider, such as a long-term care facility, and an insurance company or managed care organization (MCO). The contract outlines the terms under which the provider will deliver services to patients covered by the MCO, including reimbursement rates, the scope of services covered, billing requirements, and quality expectations.

At its core, managed care contracting aims to control healthcare costs while maintaining or improving care quality by creating structured networks of healthcare providers who agree to deliver services at negotiated rates. These contracts set the financial and operational framework for providers, defining how they will be compensated for the care they deliver.

Key Components of a Managed Care Contract

Understanding the components of a managed care contract is essential for administrators to navigate the often complex terms and conditions. The main elements include:

1. Reimbursement Terms

One of the most critical aspects of healthcare contracting is determining how much a facility will be paid for the services it provides. Reimbursement rates can be set on a per-service basis (fee-for-service) or through capitation (a set amount per patient, regardless of services provided). It’s essential to ensure that these rates align with the facility’s operating costs and the level of care required by the patient population.

2. Covered Services

The contract specifies the healthcare services that the MCO will cover. This can include a wide range of services, from routine care and preventive treatments to specialized procedures. It’s essential that facilities fully understand the scope of services covered and negotiate terms that align with the type of care they provide.

3. Billing and Claims Submission

Managed care contracts outline how and when providers should submit claims for reimbursement. This section covers the specific billing codes to use, timelines for claims submission, and any penalties for late or incorrect submissions. Ensuring a seamless claims process is key to maintaining steady cash flow and reducing the risk of rejected claims.

4. Quality and Performance Standards

Many managed care contracts include performance metrics or quality-of-care expectations that providers must meet. These standards may include patient outcomes, readmission rates, or adherence to treatment protocols. Facilities need to ensure they can meet these standards to avoid penalties or reduced reimbursements.

5. Term and Termination Clauses

Every contract has a set duration, after which it can be renewed, renegotiated, or terminated. It’s vital to carefully review termination clauses, as they define under what conditions the agreement can be ended early, such as non-compliance, performance issues, or mutual agreement.

Benefits of Managed Care Contracts

For healthcare facilities considering going in network, managed care contracts offer several benefits:

1. Stable Patient Base

By entering into managed care contracting, facilities gain access to a network of patients covered by the MCO. This can provide a steady flow of patients, ensuring consistent occupancy rates and revenue.

2. Predictable Reimbursement Rates

Managed care contracts allow facilities to predict revenue more accurately, thanks to negotiated rates and structured payment schedules. This financial stability helps with budgeting, resource allocation, and long-term planning.

3. Incentives for Quality Care

Many managed care contracts reward providers for meeting or exceeding quality-of-care standards. This can lead to financial incentives, as well as improved patient satisfaction and outcomes, enhancing the facility’s reputation within the community.

Common Challenges in Managed Care Contracting

While managed care contracts offer many advantages, they also present challenges that operators and administrators must navigate.

1. Complex Negotiations

The negotiation process for managed care contracts can be lengthy and complex. Facilities need to ensure they secure favorable terms that cover their operating costs while still delivering high-quality care. It’s important to fully understand the financial implications of the reimbursement rates and ensure they are sufficient to cover staffing, equipment, and other operational expenses.

2. Underpayments and Denials

Despite best efforts, many facilities encounter issues with underpayments or denied claims. MCOs may deny claims for services that they deem non-covered or non-compliant with the terms of the contract. Facilities must be vigilant about claims submission processes and ensure the contract terms are equitable/fair to providers in the event of a denial or take back.

3. Administrative Burden

The administrative complexity of managed care contracting can place a heavy burden on facility staff. Ensuring compliance with billing procedures, quality metrics, and performance standards requires meticulous attention to detail and ongoing education to keep up with ever-changing regulations.

4. Limited Flexibility

Once a managed care contract is in place, providers may have limited flexibility to adjust terms until the renewal period. If the costs of providing care increase or if the reimbursement rates prove insufficient, the facility may struggle to maintain profitability without renegotiating the terms.

Best Practices for Navigating Managed Care Contracts

To successfully navigate managed care contracts, administrators should focus on the following best practices:

  • Engage in thorough contract review 
  • Invest in revenue cycle management
  • Foster strong relationships with MCOs 
  • Monitor performance metrics

How LTC Ally Can Help with Managed Care Contracting

Navigating the complexities of managed care contracts can be overwhelming for long-term care facilities, but LTC Ally is here to help. With extensive experience in healthcare contracting and revenue cycle management, LTC Ally provides expert guidance and support throughout the contracting process. From negotiating favorable terms to ensuring compliance with reimbursement and performance standards, LTC Ally works alongside your team to optimize financial outcomes.

LTC Ally’s back-office solutions streamline the claims process, reduce administrative burdens, and improve billing accuracy, helping facilities avoid underpayments and denials. By leveraging advanced technology and industry expertise, LTC Ally ensures that your facility is maximizing the value of every managed care contract, allowing you to focus on delivering exceptional patient care while maintaining financial stability.

With LTC Ally by your side, you can confidently navigate the contracting landscape and secure the best possible agreements to support long-term profitability and success.


Founded in 2006, LTC Ally serves the long-term care industry with an unbound dedication to improving back office and financial operations. With a mission to reduce burdens and increase peace of mind, LTC Ally set out to revolutionize the way facilities handle their revenue cycle management. With a full suite of financial, case management, and contracting solutions for healthcare providers, LTC Ally is your partner in long-term care and skilled nursing.

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