Turn Your Next Managed Care Contract Negotiation into a Two-Way Street

January 20, 2015
iVantage Health

By Randy Bury, Vice President, iVantage Advisory

While the calendar may have changed to 2015, much of the uncertainty and adjustment to change that defined last year will persist. This prolonged state of fluctuation only further emphasizes the importance of measuring opportunity and risk across specific payors, service lines, and markets.

If hospitals are going to make any headway in preserving net patient revenue or pursuing strategic growth opportunities, then they have to start capturing better outcomes at the negotiating table. For anyone that’s ever sat across the table from a payor, therein lies the challenge, right? With limited resources and rigid modeling systems, compounded by a lack of access to key metrics, hospitals aren’t exactly sitting down at the table in an advantageous position.

But with a thorough understanding of how your performance measures up, across internal and market metrics, and a proven methodology for driving higher returns in payor negotiations, that table doesn’t have to be quite so slanted. In fact it’s quite possible to tip it in the other direction.

Build a Foundation of Information

In order to transform your approach of negotiating managed care contracts, it’s imperative to understand key elements relating to the Payor, the Contract, Contract Performance, and your Hospital.

The Payor: What do you know about the payor? The more you know, the better off you’ll be. Think of everything from annual revenue and largest employer groups to medical loss ratio trends. Since many payors are public companies, SEC filings and annual reports can offer an invaluable glimpse to your negotiation counterpart.

The Contract: No piece of information within the contract is irrelevant. You’ll want to identify baseline facts such termination dates and terms, products covered, rate differential across those products, and historical rate trends. Also, identify those sections and/or terms in which language has reduced the anticipated yield of a negotiated rate.

Contract Performance: This is typically where reality sets in and the importance of data gains new clarity. What’s the contract yield as a percentage of Medicare? What’s the net revenue leakage and relative payment position compared to other internal payors and external peers?

Your Hospital: Having a handle on organization objectives and upcoming capital investments is absolutely critical knowledge for this process. But you also have to ask yourself, what is the story you’re going to tell during the negotiation? You have to be able to take all of those market data points and all of those facts about contract performance and craft a compelling, defensible story that will net you better outcomes.

This post is intended to point you in the right direction. For a more in-depth look at how you can turn the negotiation process on its head – including best practices from which you can base a new strategy, read our new whitepaper on Managed Care Contract Negotiation.

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