Planning for Payor Negotiations
Arne Pedersen, MBA, FACMPE
Director of Client Services, ABC
Every year, the time comes to begin looking at one or a set of payor contracts. A multitude of questions abound regarding appropriate rates, term length, and whether or not to participate or stay on panel. These are all good questions to raise. But are these the only questions to ask? This article seeks to explore the value of planning for payor negotiations.
As a backdrop to the planning, it is important to remember the value of strategic planning as described by Sun Tzu:
The general who wins a battle makes many calculations in his temple where the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.1
The point is primarily to ensure that a group can position itself for the best value in a given payor contract. There is an old saying in contract negotiations, “Everything is negotiable.” This is important to keep in mind when planning for payor negotiations. Finally, the approach to planning is also important. This should represent the consistent methodology to make decisions for the group. Two good examples include the McKinsey strategic problem-solving model2 and the decision-making model found in Pedersen’s book, Lead with Intent3.
A general plan for negotiations follows along a path similar to the following stages of negotiations:
In reviewing a contract for negotiations, it is important to understand what the main issues are for the group. This lays the groundwork for the research and ultimately, the group’s contractual objectives. Secondly, it is very important to note the termination provision of the current contract. There are times when it makes sense to terminate before the group negotiates. There are several issues to be brought up in the Identify phase including money, claims submission time, term and termination provisions, conflict resolution provision, and audit provisions to name a few. Again, focusing on the critical issues for the group will drive the process and ultimately the final deal.
Intuitively, the conversion factor is a big deal for most groups. This is the one part of the money that impacts a greater percent of anesthesia providers. Another area of money to focus on is the OB rate. It depends upon the practice if this is of major importance or not. The area demographics will drive that. There are schools of thought on OB rates. One focuses OB on a flat rate while the other is base plus time, with a cap. Again, the group needs to identify what makes sense for them. The last area of money is the flat fee schedule. The flat fees impact chronic pain practices primarily as well as nerve blocks (femoral and sciatic), arterial lines, CVP, TEE, and Swan-Ganz catheters to name a few.
The language of the contracts tends to go largely unnoticed by groups. There are some specific areas that might be of interest such as claims submission time, term of the contract including renewals, termination provisions, conflict resolution, how under and over payments are handled, and audits in particular. Again, a review of the practice will help to identify the areas of importance. When it comes to contractual language, it is a good idea to have outside counsel to help review and negotiate as necessary.
All good decisions and negotiations begin with research. The first step of identification is important because it drives the focus on gathering the data points for the negotiations. It is important to understand the size and scope of the practice as well as the yield per unit and case. With the growing trend of high deductible health plans, you should analyze payments from the health plan only, not the patient portion. This will determine the actual yield from the payor. While deductibles and co-payments are a growing part of the financing of healthcare, this article is not going to focus on them. A separate article will better serve that purpose.
Another aspect of research is the review of the practice. This includes the internal business process for getting the finalized anesthesia records from the facility to the billing office or company and ultimately to the payor for payment. Take the time during the research phase to audit both the payor and the practice to understand the working relationship better. This will help when working on the mutual trust required in negotiations.
One final point to make in the research phase is how the data is pulled and prepared for presentation. It is important to help to make the case, or argument, for an increase.
From the findings in the research phase, it is time to develop the options for the negotiations. One critical error made in negotiations is the definition of the pie. Is it set in stone, or is there way to recast it? In Getting to Yes, Fisher and Ury discuss the concept of inventing options.4 While planning for the actual negotiations, ask questions and look for ways to brainstorm on mutual gain between the parties. Decide exactly what the practice needs and wants. There is a difference between the two and the distinction should become perfectly clear during the course of negotiations.
Another item to consider in this phase is the contractual language. In particular, this is the time decide which provisions match the actual business functions of the relationship and which do not. It is also important to note that many payors put their updates and provider manuals online and expect participating providers to read them (or not to read them, but to sign anyway). Recalling our earlier suggestion to engage legal counsel regarding language, that professional will now be able to help the group with the contract and the trends of a particular payor especially if that legal counsel works with other anesthesia groups in the area.
The final aspect of this phase is the decision on roles. This includes who will participate in the negotiations as well as what role the person will play.
With all of the planning completed, the group is now prepared to begin negotiations. One of the key tenets to negotiation is building trust.5 An easy approach to starting correctly is to meet and talk about the impending negotiations and act cordially with one another. In the first meeting, it is also good strategy to present the group’s case for the opening offer. Building the case might rely on national and regional data from the ASA on commercial payment rates. It might also include any quality measurement efforts in which the group is engaged. It is important to leverage available information to help build the case. The opening offer comes at the end of the case building. The payor representatives will guard their reaction to the presentation and offer. Realize that they do come in prepared as well.
During the early phase of the negotiations, it is not unusual to have several different counter-offers. In addition, look at the pie. Is it set in size or can it grow? How else can the parties slice up the pie for their mutual benefit? Does a group have to accept a standard type of offer? Or, can that offer be more creative? The planning phase has already provided the base line that the group will accept.
Once an offer is accepted, it is time to celebrate. It is easy to overlook celebration if there has been an adversarial relationship. However, it is important because of the emotional investment made prior to, during, and after the negotiations. It helps both parties to celebrate a win. In the end, the contract must be a win for both parties or it is not a winning contract.6
Arne Pedersen, MBA, FACMPE, serves as Director of Client Services for ABC. He is a Fellow of the American College of Medical Practice Executives. His distinguished background includes serving as a former Anesthesia Group Administrator, an expert on leadership, and a Bronze Star Medal recipient from the Persian Gulf War. Mr. Pedersen authored the book, “Lead with Intent” a comprehensive, yet practical leadership bible with a vision of training leaders. Mr. Pedersen serves an adjunct professor at the University of Notre Dame in the Executive Education Certificate Program and teaching Performance Management.
1 Sun Tzu, The Art of War,
2 Rasiel, Ethan M. and Paul N. Friga, The McKinsey Mind, McGraw-Hill 2001, pp. xv-xvii
3 Pedersen, Arne, Lead with Intent, IBJ 2007, pp. 73-74
4 Fisher, Roger and William Ury, Getting to Yes, Penguin Books 1991, pp. 57-80
5 Id., pp. 18-19
6 Id., pp. 147-148