Negotiating Better Contracts

by Michael N. Brown

Summary: As medical costs continue to rise and insurers try to keep their profits up, it makes financial sense for physicians, group practices, and hospitals to fine-tune their tactics when negotiating with insurance providers. This fine-tuning includes evaluating goals before negotiating, deciding on priorities, considering all the stakeholders who will be affected by the negotiation and preparing yourself with relevant data.

Consolidation in healthcare has changed the relationship between physicians and insurance companies, particularly when it comes to negotiating contracts. It appears that the larger the physician or hospital group, the more leverage they have in negotiating rates. This has made it harder than ever for private facilities, and smaller practices, regardless of specialty.

It’s all part of the Healthquake™ that is shaking the healthcare system.

Insurers want to increase profit, physicians want to protect (or increase) their incomes, and hospital groups are expected to earn more, especially if their acquisitions have been funded by private equity. This can lead to a tug-of-war between increasing revenue and controlling expenses.

One of the leverage points in this tug-of-war is insurance contracts between the medical providers and the insurance companies, which makes it even more important to make sure you aren’t missing anything when negotiating these contracts.

Based on our experience and conversations with medical providers, especially those in larger physician-owned practices, there are some core steps doctors can take to improve their outcomes.

It’s important to remember that most patients have no idea that doctors get paid different amounts by different insurance companies for exactly the same procedures. They don’t know that these rates must be renegotiated for each contract period. They don’t know that these contracts are secret and are sometimes used by large players such as hospital groups to repress competition from smaller groups or practices. This is one reason it’s becoming harder for the private or smaller entities to negotiate the best rates.

Clear Goals

Although it might seem obvious, the starting point in any negotiation is to be clear about what you want. Do you want maximum revenue? Do you want to optimize throughput? Are you looking to find a work-life balance that trades the smallest drop in revenue for the biggest gain in free time? Do you want to be able to spend more time with patients? What’s the trade-off?

For a small practice, this is straightforward. For larger group practices and facilities, it requires more discussion.

Once a large group has canvassed all of its doctors about what’s most important to each of them, then they can negotiate with each other as a group and decide on what is universally agreed on before discussing the specific trade-offs each doctor is willing to make as part of getting the best deal for the group.

Compile and Analyze your Data

Prior to negotiation, understand your clinical volume. Do a financial analysis. Where’s the money in the practice coming from? What is the current procedure mix with each payer? How do your clinical outcomes compare with the competition in your area? How much does that save the insurer over time? What reimbursements matter in a procedure?

Determine what is most important to the practice and focus on the biggest upside when preparing to negotiate. You might need the help of a specialist in healthcare negotiation although if you are served by one of the more sophisticated billing companies, they may be able to help you directly. If you do hire a consultant, make sure they know all the ins and outs of your situation. Not all of them do.

Carve Outs

A carve out refers to procedures and services that are “carved out” from the basic insurance agreement between doctors and insurers or between employers and insurers. For example, a large medical group that focuses mostly on joint replacements might “carve out” those procedures for a better rate because of the high volume of cases they do or because they service a larger piece of the market than other doctors.

For doctors, decide your strategy in advance. For starters, focus on billing codes that are important to your practice, the ones you do a lot of, the one’s you are known for. You’ll have to work with the payers on this so be prepared. Look at their terminology before you start negotiating. This is where you can use data from the financial analysis to gain an edge.

Employers can carve out, too – often for pharmacy costs, which might be cheaper with another provider.

Leverage

Groups and practices can negotiate better payment rates by showing clinical outcomes supported by data. If you can demonstrate to the insurance companies that “I cost you less as a clinician because I get better outcomes”, you can make a case for a higher rate because it will cost the insurance company less in the long run.

There’s even a strategy to compete against the competition-crushing tactics of bigger systems. You can make a case to the payer that your “smaller” group should be encouraged to survive by getting more because if the insurers don’t, the big system might destroy the smaller practice which will give them even more power to get higher rates in their next negotiation with the insurance company.

Negotiating

This is the time to use your data on outcomes. If your group has spine surgeons who do such good work that their patients don’t end up back in the hospital after being discharged, it’s a big savings for insurers. For example, if the standard length of stay is 3 days and readmissions are 20% but your readmissions are 2%, you do better.

Another tactic is to focus on value-added services – after hours, weekends, multiple locations, same-day services, etc. If you are open when a patient needs care, they might not have to go the ER, which can be very expensive for insurance companies. It might be worth it to the insurer to pay you a higher rate to avoid having to pay a hospital a lot more.

There are a lot of negotiating trade-offs that are specific to the practice or facility. You may be able negotiate a better rate for one type of specialty than another because you have more doctors in that specialty. If you take on more high-risk patients, you may have to explain how your acuity rates are affecting outcomes so that they insurer won’t penalize you when compared to “averages”.

For all negotiations, get to know your payer reps at the insurers because you eventually end up dealing with the negotiation specialist, which can go smoother if they understand relevant specifics of your practice.

There are so many different negotiating situations, such as value-based care, requiring thought, analysis, data, and strategy to get the best rates that one issue of Healthquake™ can’t cover them all. Regardless of your particular situation, you’ll do better if you have clear goals, prepare using analysis and data, understand your leverage, and negotiate to take advantage of your specific strengths while minimizing your weaknesses.