Negotiation: Relearn Art of the Deal

Whether haggling with vendors, insurers or business partners, these savvy strategies will give you the upper hand.

By Farrell “Toby” Tyson, MD, FACS

Negotiating is one of the most basic skills in life, but one that we as medical professionals have somehow managed to lose or forget. Growing up, we were great negotiators, managing to convince educators and parents to come around to our desires. We initially started by bartering grades for rewards. As we matured, we used our perceived greater intellect to educate and persuade to get our way. Then we ended up in the medical world, where true negotiating was frowned upon. Our reimbursement rates were set by Medicare and we thought ourselves “above” the art of negotiating the deal. Through years of suppressing these skills, most of us have lost the touch and now lack comfort with negotiating.

In the restructuring of modern medicine, overhead costs have skyrocketed and reimbursements have plummeted. To earn a living, we cannot just “make it up on volume.” Recently, for instance, I was presented with a managed care contract that paid $35 for an eye exam and $20 to dispense glasses. At those rates one cannot continue to survive, much less make a profit. Most ophthalmology practices will approach such a scenario with a take-it-or-leave-it mindset, since that is how most of the managed care companies approach us. However, these managed care scenarios, along with any equipment or service purchased, should be seen by the practice as a negotiating opportunity. This article will describe several strategies that have helped my practice tremendously.

The Power of Six

Every dollar negotiated in your medical practice gives you the spending power of six. First, start with your taxes and assume you are in the 35% bracket. That means you need to take home $1.53 for every $1.00 that you will actually be able to spend.

Then let's be optimistic and assume you have a 65% overhead running your practice. Now you need to collect $4.40 to take home the $1.53 pretax that you need to cover your 35% tax bracket, to end up with the $1.00 to actually spend.

Consultants recommend that we use a fee schedule of at least 150% Medicare rates. In a best-case scenario, we are assuming a 67% collection rate. That means that you must bill out $6.57 to collect the $4.40 to cover your overhead, so that you can net the $1.00 you will be able to actually spend. That power of six makes a $10,000 savings on a phaco contract worth $66,000 in charges that you don't have to bill out. The time spent negotiating will reap rewards six times over and is definitely worth your time in both learning the skills and practicing them.

Now that we can see the value in negotiating, the next step is getting started. All negotiating skills can be practiced in everyday life; we have just been programmed not to try. At the time of writing this article, I negotiated $50 off the sale price of my family's Christmas tree, which is equivalent to $330 in charges. While I probably embarrassed my son in doing so, he learned the same lesson that I learned growing up watching my father embarrass me, while he haggled over the purchase of a TV at an electronics store: the worst they can do is say no.

Dwight Eisenhower said that “leadership is getting other people to want to do what you want them to do.” This is seldom easy. It is time consuming, and requires a diverse set of skills. Educating the other party helps to align the differing points of view. Usually, if all parties have the same set of facts, they will come to the same decision. Disagreement often occurs when one party does not have all the facts.

If agreement cannot be accomplished through education, the next step is the use of persuasion. Persuasion is the ability to convince someone to do something because they perceive it is the right thing to do. Persuasion and education are both time consuming, but should always be used before negotiating; they do not result in the loss of concessions. When both of these methods fail or run their course, only then is it time for negotiating.

Negotiating requires a different mindset from educating and persuasion. It needs to be focused, interactive and unemotional. It is very strategic and needs to be played like a game with a predetermined but flexible course of action and ground rules. The ultimate goal of negotiating is to preserve the relationship between the two parties and still get what you want. This is accomplished by always showing respect, looking for win-win scenarios and never lying. If it is ever discovered that one was not truthful in negotiations, their future statements will hold no value, thus reducing their bargaining position and reputation.

Opening Gambits

When starting a negotiation, always establish that you expect a win-win outcome; this helps set an environment that is conducive to progress. Never be confrontational or argumentative, as that approach makes the other party defensive and less likely to offer concessions. It is usually to your benefit to be liked by the other party, as then they are more receptive to your needs.

Before any negotiating, do your homework. You need to know the boundaries of the deal and stick to it. Also, it helps to know as much as possible about the other party's needs and wants. The party with greater knowledge usually negotiates more effectively. Ask open-ended questions such as how, why, when, who and where. Information garnered from a third party is usually easier to obtain than gathering information from the person with whom you are negotiating.

To start the negotiations, always ask for more than what you are looking for. This allows you to later grant concessions that make the other party feel that they have achieved some success in the process. My optical purchasing manager was once presented with such an attractive price on frames that she opted not to negotiate or ask for better terms. Upon doing this, the frame vendor went back with a feeling of loss, believing that he had given a deal that was too good, and he subsequently called back stating that his superior would not honor the deal. This led to protracted discussions that ultimately resulted in the vendor honoring the original terms, but left all parties embarrassed and with a significant loss of time. This taught my optical purchasing manager that no matter how good the deal is, you must always push for concessions so that the other party will feel that they also got the best deal possible.

Some basic ideas are inherent to negotiating. Never get unnerved by initial demands that may seem excessive. The longer you can keep the other party involved in the negotiations, the more likely they are to come around to your point of view. The longer negotiations take, the more flexible people become because they now have more invested in the deal. Never disclose your bottom line. Once disclosed, this now becomes the new starting point of negotiations for the other party. Always leave yourself room to negotiate.

In the beginning of a negotiation, you must master the skill of displaying surprise or astonishment before you ever get to making concessions. This can be done with physical gestures or verbal responses such as, “That seems really high to me.” These initial responses shouldn't be rude, but should definitely give the impression that the current offer is unacceptable. This response is usually followed by a concession from the other party. This tactic can be repeated: “Well, we are getting closer, but can't you sharpen your pencil a little more?” This may elicit more concessions. Continue this approach until the other party asks you for a concrete response: e.g., “Well, what do you need to get the deal done?”

At this point you need to start high. Your initial offer needs to be assertive but not ridiculous. This starting point will usually be constrained by whether something is a commodity provided by a sole source, or whether it is going to be a long-term relationship. Sometimes you are dealing with someone with whom you have a personal relationship. This usually makes the starting offers more realistic, but with less wiggle room. In these situations, sometimes it is better to have an uninvolved party do the negotiation.

Horse-trading

You have now entered the trade-off game, where you trade concessions in an effort to reach a deal. The hard part is learning not to say “No.” The Japanese have an ingenious way of declining an offer by accepting it but adding terms that are unacceptable to the other party. It is like stating that you are willing to pay full price for a phaco system, but you want them to throw in free phaco packs for the next five years. This approach allows for polite redirection, and you maintain control of the negotiations.

When offering concessions, always require one in return—don't give anything away for free. What is of no consequence to you may be of great value to the other party. Some of the newer companies in ophthalmology wish to develop a list of reference physicians to help build their credibility. Most practices would think nothing of—and ask nothing for—adding their name to a list, but that one thing may be the most valuable item to that particular company. Concessions don't need to be equal, and indeed logic isn't necessary. Learn to use the word “if” wisely. “If” grants you tremendous latitude and recourse. It can be used over and over, and seldom ties you down.

Your first concession should be your largest. The subsequent concessions should decrease in size and importance. Concessions should never be equally sized, as the other party will figure that every time they ask for a concession they will continue to get the same result. A decreasing scale allows the other side to know that your flexibility in the deal is winding down. Sometimes, parties reach a stalemate on certain issues. This can be avoided by always asking for more initially than you need. If stalemate does occur, set aside those issues and negotiate other aspects of the deal. Try settling minor issues first, as this builds momentum and also “sweat equity” in the deal—vendors will be reluctant to call off negotiations if substantial progress has already been made.

Always keep the negotiations as a package deal: all or nothing. That allows for flexibility if situations arise in other parts of the negotiations. It also prevents your counterpart from attempting to piecemeal the negotiations. In fact, rather than allowing the terms to get smaller, it may be advantageous to increase their scope. So if you feel that you have reached a deadlock in the negotiation, try adding other aspects to the deal. This can be seen when equipment manufacturers have no more room to move on a specific piece of equipment, but will be able to offer better terms if you are interested in a deal bundled with other equipment. True, irreconcilable deadlocks are very rare. They sometimes require a third-party mediator, as in practice acquisitions.

The Endgame

Sometimes you just have to be willing to walk away from the deal if it doesn't make financial sense, no matter how much time you have invested in it. The power of walking away can be enormous. The party with the most options has the most power. You gain walk-away power by developing alternatives and contingencies. Thankfully in ophthalmology, there always seems to be several vendors with similar, competing products. The key to walk-away power is being able to subtly convey to the other party that you are willing to walk away, should it come to that.

When you think the deal is done, it is really just getting into the next round of negotiation. This is usually where you have agreed to the price and the vendor is asking you to sign on the dotted line. This is what I like to call the “icing on the cake.” At this stage both parties feel the deal is a go, but you can still get a little more. This is where you ask for things like free shipping, free extended warranties or service contracts, and free future software upgrades. These are things that are usually of little value to the other party, but they are more than happy to give to get the deal finalized.

At the end of a negotiation, always let the other party know they did a good job negotiating—no matter how poorly they did. You always want the other party to feel like they won. This is important with the ever-changing corporate landscape in ophthalmology. You never know when you are going to find someone from a previous deal now working at a new company. This personal respect and trustworthiness will go a long way towards productive negotiations.

These tactics will help you not only hone your skills and save you money; they will also clue you into what tactics are being used on you. So practice, practice, practice—and embarrass your kids! OM

Farrell C. Tyson, MD, FACS, is a refractive cataract/glaucoma eye surgeon at the Cape Coral Eye Center in Florida. He may be reached at tysonfc@hotmail.com.