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Tips To Keep In Mind When Negotiating A Managed Care Contract

By: Reed Tinsley
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It is one thing to want to negotiate and another thing to know HOW to negotiate. However, the first step in this process is to understand the do's and don'ts of a negotiation - Here they are:

Before negotiating, define your leverage

Most doctors bore in to a negotiation without a defined contract strategy, which should be developed before the negotiation process even begins. The core of this strategy is to define up front what leverage your practice may have over the payer to begin with.

The failure to define leverage before negotiating has soured many physicians on the contracting process. Many times this is because leverage did not exist in the first place; in these situations, the doctor(s) wasted time and resources. In other cases, the doctor or doctors had leverage but nobody recognized it, resulting in a failed or unfavorable negotiation. Payers certainly are not going to bring up missed points of leverage with you!

Before negotiating, decide what you want to negotiate (i.e. what is important to you in the negotiation)

There are two main issues involved with any managed care contract negotiation: (a) Negotiation of financial terms and (b) negotiation of legal terms. Before you even begin the negotiation process, you must decide what are the important issues you want to negotiate. It is no secret that financial issues are critical factors to doctors since they have a direct impact on compensation. However, it is often difficult to get a consensus about what legal terms need to be negotiated. The objective is to try to negotiate in to a contract legal terms similar to the ones included in the AMA's model agreement.

Remember that negotiation is a give and take

A negotiation is rarely successful if a doctor adopts a "my way or the highway" stance. Only in cases where the provider holds all the cards (i.e. has all the leverage) might this work. Whenever negotiating, both parties must walk away from the negotiation table knowing they won something in the negotiation. If not, hard feelings could linger and that could impact future negotiations with the payer.

Understand the meaning of "partnership" with the payer

Winners in a negotiation with a managed care plan or any other third party payer understand that managed care is not necessarily the "big, bad evil one." When managed care grows in a service area, it is best to accept it and move forward. The best way to move forward is to work with these payers rather than against them. They are under the same cost pressures as physician practices. This is why it is so important to make any negotiation a "win-win" for both parties and the best way to this is to consider the payer a partner with you. You both have the objective of offering and rendering efficient, quality, cost effective health care. What I mean by "partnership" in this context is to find out what is important to the payer from a contracting standpoint and trying to deliver this to the payer in exchange for a another contracting concession by the payer. This is why the next negotiating point is so important.

Try to find out what the payer is interested in

As stated, the best negotiation is a win-win scenario for both of the parties to the negotiation; one where each party walks away from the negotiation table knowing something was won. To accomplish this, find out what issues the payer is most interested in from a contracting standpoint. These issues are usually found out during the first meeting between the negotiating parties. Your goal is to deliver these issues to the payer in exchange for what you want to achieve as part of the negotiation process. In other words, try to create a "you scratch my back and I'll scratch yours" situation.

As you read this, think about what are the cost drivers for your own medical specialty. Put yourself in the payer's shoes and ask: If I were the payer, how can all related costs be reduced for this medical specialty? The negotiation strategy mentioned here should be obvious. You will be much more successful if you make the negotiation a two-way street rather that a one-way, my way or no way, situation.

Determine what services are important to you up front

In many contracting situations there are certain services where you find the payer's reimbursement is just totally unacceptable. Find and list these services before you begin the negotiation process. Many payers will enter into a discussion with you about a finite number of services rather than a whole bunch of them. Concentrate on the services that are utilized most often by the doctor(s).

Is everyone on the same page?

Make sure the entire negotiation team is on the same page. This includes doctors, administrators, consultants, and any other person associated with the negotiation team. Everyone needs to understand completely what the goals and objectives of the negotiation need to be, of course making sure the entire time antitrust issues are not violated. Everyone also needs to agree with the negotiation strategy.

Contrary to popular belief, the payer is not your enemy

Winners in contract negotiations really understand this concept. Unfortunately, many managed care payers have created a situation where they have become hated by the physician community and vilified in the healthcare press. Here are a few reasons for this:

  1. Most payers have reduced severely reduced doctor reimbursement in order to make their own economics work out.
  2. Most payers do not increase doctor reimbursement when they have been able to increase insurance premiums, even though the doctor community supported the payers by accepting lower reimbursement when these payers had to reduce the premiums in the past.
  3. Most payers have increased their administrative "red tape" for doctor practices.
  4. Most payers do not pay doctors on a timely basis, even they require the doctors to file their claims in a timely manner.
  5. Most payers have not been willing to work with doctors to reduce healthcare costs,
  6. AND,

  7. Most payers do not reward the doctors who are more cost effective than their colleagues in their own medical specialty. They tolerate the doctors who are the culprits driving up healthcare costs.

So it is hard to perceive a managed care payer as your friend when all of this is going on but somehow this is what doctors need to try to do. Many negotiations start off on the wrong foot simply because the attitude is "let's beat up on the enemy." Instead of trying to find ways to win and at the same time compromise, many doctors and their negotiators run into a negotiation meeting like a bull in a room full of china. Soon each negotiating party will adopt a bunker mentality and nothing will get accomplished. You will be much more successful if you will stay "above the fray" and not let negotiations start off on the wrong foot simply because you might at the time have a severe dislike for the payer and its representatives.

Reed Tinsley, CPA, is a Houston-based CPA, Certified Valuation Analyst, and healthcare consultant. He works closely with physicians, medical groups, and other healthcare entities with managed care contracting issues, operational and financial management, strategic planning, and growth strategies. His entire practice is concentrated in the health care industry.

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