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Contract Modeling Software or Microsoft Excel: Which is Better?
Bradley Olin

By: Bradley Olin on September 5th, 2019

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Contract Modeling Software or Microsoft Excel: Which is Better?

What are the Pros and Cons of contract modeling software versus using Excel for modeling and negotiating payer contracts?

Negotiating payer contracts is one of the most important functions of Managed Care within hospitals and health systems. When done correctly, new contract terms can sometimes save healthcare organizations millions of dollars in reimbursement.

For healthcare professionals looking to make improvements to their current contract modeling system, selecting the right tools and technology for your hospital can seem like a daunting task.  

But we’re here to help you simplify the decision.

Generally speaking, hospitals have two options for implementing their contract modeling initiative:  

  • Contract Modeling Software (provided by a third party vendor) 
  • Microsoft Excel

Now the purpose of this article isn’t to try to convince you that one method is better than the other, nor that you should purchase contract modeling software from a particular vendor. Rather, the goal here is to provide hospitals with enough information so that their organization can make informed decisions when it comes to modeling their payer contracts.   

With that being said, here is a list of the pros and cons for comparing contract modeling software to Microsoft Excel so you can compare both options and make the best decision for your hospital.  

Pros of using contract modeling software to model payer contracts

1. Results are generated quickly. 

  • Faster in setting up the contracts on the front-end, enabling you to build your model quicker rather than starting from the baseline with Microsoft Excel. 
  • User is presented with a clear dashboard view with drop down boxes and contracts that you can copy to make changes to rates and terms.
  • With a traditional contract management system, you have greater flexibility from a time standpoint in identifying and creating modeling data sets to run your calculation simulations against. This is because the modeling capability is connected to your contract management data 

2.  It helps the user save time modeling contracts.

  • More agile in data set selection and for presenting multiple simulations at once. This is because payer contract data within the contract management software sets the baseline for modeling    

3.  Quickly share/export results internally with high-level detail.  

  • Generates more helpful reports on a very user-friendly display that includes a high-level executive summary. All you need to do is point and click, it’s that easy. 
  • User is presented with a relational database where they can pull mass amounts of data from a specific payer, code, etc.  

4.  Less time is needed to train staff to use the software, even at a high level.

  • With a contract management system, you should be able to go through 3-5 days of training to be proficient in using that tool 
  • You can train a new user how to use the tool rather than relying on someone with experience in building models from scratch. 

5.   Spend less time aggregating the data because it’s imported on a real-time, daily basis.

Cons of using contract modeling software to model payer contracts

1.  Slower calculation run time.

  • For example, changing a rate in Excel can be updated immediately.  

2.  Cost is high and may not be able to successfully justify the budget increase.

  • This usually amounts to a 10%-20% budget increase for Managed Care departments that use the contract modeling system.
  • This cost can be rationalized (if you consider the time and revenue savings) but upper-level administration usually won’t approve that high of a budget increase without a projected return on investment.

2 doctors and a computer

Pros of using Microsoft Excel to model payer contracts

1.  Make any changes or updates to the data immediately. 

  • Once you make a large or small calculation change (i.e. rate changes), it updates immediately for the user.
  • Once you know which data sets you want to model in Excel, the results process much faster.

2.  Microsoft Excel has evolved from being an individual application downloaded on a PC to being hosted by the Cloud. 

  • This allows users to access Excel more easily from any device.

3.  It’s much more cost effective to use Excel.

  • The cost is still significantly less than any contract management system--no third party software license needed.  
  • Organizations view a managed care department as a cost center, not a revenue producing center. While they may be negotiating to generate significant revenue (by negotiating better contract terms), it’s not viewed as a revenue producing department. 

Cons of using Microsoft Excel to model payer contracts

1.  Takes more time to model payer contracts. 

  • You’ll end up spending a lot of time (re)building out the calculation rules/changes in Excel for inpatient and outpatient services.  
  • If you work for a large health care system, you’re probably going to have data limitations because of how many lines Excel can handle and calculate issues. This could force you to settle by modeling with a smaller data set. Typically, the goal is to model a 12-month history of data, so with Excel, you’re going to have to choose between limiting your data set from a time standpoint or limiting it to a certain group of payers. 
  • If you model your contracts in different ways, you’re going to spend a lot of time querying data out of your contract management system in order to link it to Excel, before it gets calculated.

2.  Limited reporting capabilities that don’t roll up to higher service lines, departments, contracts, etc.

  • This is because calculations are done at a detailed formula level but the formula level is not enough to generate useful insight; it needs to be rolled up to a higher service category.
  • Since there is no relational database, reporting is pre-built into Microsoft Excel which can limit your reporting capabilities. 

3.    You need to pay for an official Microsoft Office license, which includes Excel.

4.    You will need staff members on your team that have expert level proficiency in Excel in order to model complex contracts. 

  • This does not mean that all internal users need to have this high-level expertise, but you need a few experts to build complex formulas and charts as well as to then draw insight from those results. You can’t go through a 2 or 3 day course and be proficient in contract modeling in Excel. It can require years of experience. 

5.   It’s very important to have someone on your team with the right skill set. This is because it’s more efficient to find someone who already knows the ins and outs of the software rather than train someone with no prior experience on the software. 

  • If they don’t have experience, it’s very difficult to train them on how to quickly do something at detailed level in Excel. In order to understand reimbursement, you have to be able to build models that can have as much as 30,000 lines just to handle the outpatient calculations. If you choose to use Excel, you’re going to have to find the experience to transfer the knowledge.  

6.   There's a lack of predictive analytics to provide key insight to your hospital. 

  • Provides greater flexibility, but you’re going to spend more time aggregating the data and getting in and out of the model. For some hospitals, this can take almost a week of nothing but aggregating data. 
  • It doesn’t deliver the same high-level executive insight and trends that visual analytics can provide.

Tablets, iPhone, analytics, HFMA booth design-3

So Which Contract Modeling Option is Right For Your Hospital? 

Ultimately, the decision of which contract modeling tool your hospital chooses to use comes down to three factors: time, staff, and money. 

If you’ve got the time, you can build it into Excel. If you have the right staff with enough industry experience, you can build it in Excel. 

If you do not have those two things, however, you need to then find the budget to buy a system that will allow you to perform the necessary complex calculations and analysis with accurate results.   

For healthcare providers with enough resources to obtain this contract modeling software, users will benefit from an interface that makes it really easy to select drop down boxes and other buttons where the calculation code is hidden in the background.  

Together, the provider and vendor build a system of rules and codes, and then from that point forward, the system does all the work.

If your hospital can objectively weigh the pros and cons of both options for contract modeling software, you will be that much more prepared for contract negotiations and find yourself negotiating more favorable terms for your hospital. 

Learn how contract modeling software can help your hospital negotiate better payer contracts! 

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About Bradley Olin

Bradley Olin is the Marketing Communications Specialist at PMMC, a leading provider of revenue cycle management solutions for hospitals and other healthcare organizations across the U.S. Brad offers a modern outlook into the evolution of the healthcare industry and general practices used to grow an organization’s revenue integrity.