You’re signing a contract with risk adjustment companies. You’ve done your evaluation. You’ve checked references. You’ve negotiated the price. The contract is 40 pages of legal language, but your procurement team says it’s standard. You sign.
Two years later, you’re stuck in a relationship that isn’t working and can’t get out. Here are the contract terms that seemed innocuous when you signed but created nightmares later.
The Auto-Renewal Trap
Most contracts with risk adjustment companies include auto-renewal clauses. If you don’t provide written notice 90 or 180 days before the contract end date, it automatically renews for another term.
That sounds reasonable. Nobody wants contracts to expire accidentally. But here’s what happens in practice.
You realize in month 22 of a 24-month contract that the vendor isn’t performing. You decide to switch. You check the contract and discover you needed to provide notice six months ago. You’re locked in for another full term.
So you’re stuck with an underperforming vendor for another 12-24 months. By the time you can actually switch, you’ve wasted three or four years with the wrong partner.
Before you sign, negotiate the notice period down to 60 days. That gives you flexibility to exit if the relationship isn’t working without being locked in for years.
The Data Ownership Ambiguity
Many contracts with risk adjustment companies have vague language about who owns the data and work product. The vendor might claim ownership of “methodologies,” “algorithms,” or “derived data.” You think you own your coded HCCs, but the contract language is unclear about whether you own the audit trails, evidence documentation, and coding rationale.
This becomes a problem when you switch vendors. You want to take your historical data with you. The vendor says that certain elements are their proprietary work product. You’re forced to negotiate a data extraction agreement, which takes months and often costs money.
I’ve seen organizations pay their old vendor $25,000 just to get access to their own historical coding data in a usable format. That’s extortion enabled by ambiguous contract language.
Before you sign, make sure the contract explicitly states that you own all data related to your members, including coded diagnoses, supporting documentation, audit trails, and any analytics or reports generated. The vendor can own their general methodologies, but anything specific to your members should be your property.
The Price Escalation Clause
Most contracts with risk adjustment companies include annual price increases. Often these are tied to CPI or another index. A 3% annual increase seems reasonable when you’re signing.
But read the fine print carefully. Some contracts allow for additional price increases beyond the index if the vendor’s “costs increase materially.” That language is dangerously vague. What counts as material? Who decides?
Other contracts have tiered pricing that changes dramatically based on volume. If your membership grows or shrinks, the per-unit price changes in ways that aren’t obvious during initial negotiations.
I worked with an organization whose contract had a volume discount that expired if their membership dropped below a certain threshold. When they lost a large employer group, their per-member-per-month fee doubled overnight. The contract allowed it.
Before you sign, understand exactly how pricing can change. If there are volume tiers, model what happens if your membership grows or shrinks by 20%. If there are material cost increase clauses, negotiate specific limits on how much prices can increase.
The Performance Guarantee Loopholes
Many contracts with risk adjustment companies include performance guarantees. The vendor commits to specific accuracy rates, productivity levels, or turnaround times. If they miss targets, you get credits or reduced fees.
Sounds great. But read how performance is measured. The vendor might guarantee 95% accuracy, but accuracy is measured by their internal QA process, not your independent review. They’re grading their own homework.
Or the guarantee has so many exclusions that it’s meaningless. “We guarantee 10-day turnaround unless charts require provider queries, contain incomplete documentation, or involve complex cases.” Those exceptions cover most of your charts.
Before you sign, negotiate performance guarantees that are measured by metrics you can independently verify. If accuracy is guaranteed, it should be measured by your QA process or third-party audit, not the vendor’s internal reviews.
The Termination for Cause Difficulty
Most contracts allow you to terminate for cause if the vendor materially breaches the agreement. That seems like adequate protection. But “material breach” is defined so narrowly that it’s almost impossible to invoke.
Missing a few deadlines isn’t material breach. Having accuracy rates 5% below target isn’t material breach. Even having systematic quality problems might not qualify as material breach if the vendor is making “good faith efforts” to fix them.
So you’re stuck with an underperforming vendor because their performance is bad but not quite bad enough to meet the legal definition of material breach.
Before you sign, negotiate specific performance thresholds that trigger termination rights. If accuracy drops below 90% for two consecutive months, you can terminate. If they miss deadlines on more than 20% of deliverables in a quarter, you can terminate. Make the termination rights concrete and measurable.
What to Actually Do
Don’t let your procurement team treat contracts with risk adjustment companies as standard template agreements. These relationships are too important and the switching costs are too high to accept unfavorable terms.
Negotiate hard on auto-renewal periods, data ownership, price escalation limits, performance measurement, and termination rights. These terms seem minor when you’re signing but become critical when the relationship isn’t working.
And read the damn contract yourself. Don’t rely on procurement or legal to catch the problematic clauses. You understand the business implications better than they do.
