Hospital contracting is a critical element for health plans because it dictates the plan's financial viability, price predictability, and market competitiveness. There are various reimbursement methodologies, including base rate multipliers. Unlike Medicare's government-set baseline ($6,752.61 for FY 2026[i]), a negotiated base rate is determined strictly by private negotiation.
How does this type of reimbursement methodology work?
Reimbursement is based on the negotiated base rate multiplied by relative weight.
Negotiated base rates may include carved out specific revenue codes, DRG, or procedures. Examples:
Revenue code 174 (Newborn Nursery - Level IV)
DRG 280-285- Myocardial Infarction
Procedure such as liver transplant
How may this be impactful?
Without ‘lesser of’ language in the hospital contract, the health plan may be locked into reimbursing the hospital a significant amount over/above the billed charges. Through the years, we have seen reimbursements of more than 2 to 3 times the billed charges. For example, a liver transplant billed $450K, but due to the base rate calculation (and no lesser of language), reimbursement was $900K.
Approach to medical management and cost mitigation
Know your hospital contracted rates and what services cost. This is often not part of the medical management process, but understanding reimbursement methodology is essential for effective medical management and cost containment. This applies not only to hospital admissions, but also to services such as pharmacy, surgeries, devices, procedures and treatments.
Utilization Review. Review of inpatient stays should be addressed with medical necessity details to verify the level of care is appropriate in accordance with the clinical picture. For transplant requests, access centers of excellence (COE) through COE networks that might compliment your current network at better rates.
DRG validation. Because the multiplier magnifies the financial impact of the DRG's relative weight, accurate clinical documentation is imperative. Chart reviews to ensure complications or comorbidities (CCs) and major CCs (MCCs) listed by the hospital are clinically supported by the objective documentation.
Discharge Planning. Knowing which hospitals in your network operate on higher multipliers allows medical management to build smarter discharge pipelines. Transitioning a stabilized patient from a high-multiplier tertiary hospital to a lower-multiplier community hospital or skilled nursing facility (SNF) preserves health plan resources while maintaining clinical quality.
Contracting Team. Reassess hospital contracts and make sure lesser of language is included.
Member services. Incentivize members to use designated COE facilities by waiving or lowering the deductible or copay for admission, surgeries and/or procedures.
Article by Kathy Clark, RN, BSN, CMCN, RIT, Vice President, Director of Managed Care. For more information about how the impact on your plan, please contact your Summit ReSources care specialist. The following sources were used as reference material for this article:
[i] Stevenson, Claire. “What the FY 2026 IPPS Final Rule Means for Hospitals.” https://www.aapc.com/blog/93928-what-the-fy-2026-ipps-final-rule-means-for-hospitals/?srsltid=AfmBOorZZHkXSEmhL4uE2Rrbb4az0dPuOdrDXjhCvmvr56eXuOP2fhXh. Accessed 7/14/2026.