Payer Contracting: Preparing for Negot iat ions

By Maureen Waddle

There are plenty of articles and books about the art of negotiating. The specific tactics are often dictated by personal style, but there’s one effort common to all effective negotiation strategies: thorough preparation. To adequately prepare for payer contract discussions, negotiators must know their facility and their payers, then craft their tactics based on a clear understanding of both.

Know Your ASC

Before entering into any type of contract discussions, an ASC must first be clear on its negotiation position and goals. The following is a list of questions to consider prior to contacting payers. (Methods for answering some of these questions were presented in the first two articles in this series.)

What are acceptable reimbursement rates for the facility? Whether negotiating with a new payer or renegotiating an existing contract, the management team should have a clear understanding of the facility’s financial position and capacity.

What are the overall goals of the ASC? What are the goals for negotiating with this specific payer? Clear goals for the ASC will help determine the effort and energy to expend on the negotiating process. Likewise, the approach for each payer may be different depending on the anticipated outcome. The goal for one payer outcome may be to increase rates, while another payer goal is to improve timely payment. Conducting a payer analysis will identify goals for each payer.

What are the deal-breakers? The ASC must clearly understand administrative requirements or reimbursement rates that are unacceptable.

What is the impact of terminating the current contract and/or refusing to accept a proposed contract? A disciplined financial approach in an ASC includes the ability to run a feasibility or financial impact analysis. If the ASC is considering terminating an agreement for various reasons, the management team should assess the financial impact before making a final decision. The next step is to develop an action plan to restore revenue as a result of terminating an agreement.

Know Your Payers

Getting to know the payers is the next step in preparing for negotiation. This is a two-fold process. First, it is necessary to gain a general understanding of insurers and payers. Second, one must build relationships with payers on a local level.

Understand insurers and payers. Start by developing a broad overview of insurers, facility networks, self-insured companies and other potential payers. Regardless of payer type, most have some common needs. A successful negotiator prepares by asking, “What is important to the other party?” To think like a payer, consider the following questions, and then conduct a SWOT (strengths, weaknesses, opportunities and threats) analysis of the facility from the payer’s perspective.

What do payers want? Payers are in the business of managing risk. To do so, payers must spread the risk over a large population. Therefore, they look for large membership and preferably healthy members (which equate to lower healthcare costs). Some ASCs may have a geographic location or other features that attract potential members to the payer. If having a particular ASC on its list of providers helps the payer attract members, the facility’s negotiating position is improved. If, on the other hand, there is an overabundance of facilities already on the provider panel, then the facility’s negotiating strength is reduced.

How do payers make money? Insurance companies and subsets of payers make money by setting a premium that’s high enough to cover the costs paid to providers, cover administrative costs, and still turn a profit. Under the Affordable Care Act, some of that profitability is being limited. This means that payers will be looking to shift risk and perhaps some of their administrative costs. Furthermore, payers always need to attract large groups to enroll, so they need evidence of quality. Understanding the payer’s limitations will help the management team prepare negotiations. Perhaps the ASC has unique technology capabilities that reduce the administration burden for the payer. More importantly, perhaps there’s evidence of low complication, infection or re-admittance rates at the facility. This evidence is valuable since it demonstrates the ability to help the payer control expenses.

What requirements must this payer meet? All payers have federal or state regulations that they must meet. For example, many states have regulatory requirements on acceptable distances between providers or the accepted number of providers given a population density. Additionally, the payer has imposed requirements from its employer groups or healthcare beneficiaries. There are insurance rating websites and national quality groups that provide an understanding of how potential insurance “buyers” (usually employer groups) judge a potential payer. The National Committee on Quality Assurance (NCQA) has a set of quality metrics that helps rank various payers. If a payer is highly ranked, it helps the payer’s negotiating position with buyers. Understanding the Healthcare Effectiveness and Data Information Set (HEDIS) may help an ASC understand what is important to the payers. The ASC management team should look at these criteria not only from the ASC perspective but from the perspective of all of the physician providers performing surgery at the ASC. Perhaps the surgeon group gives the ASC a negotiating advantage. More information about the rankings and the criteria that determine the rankings is found on the NCQA website at http://www.ncqa.org/Home.aspx.

How does this payer differentiate itself from other insurers? In order to attract members, some insurers may have programs in which they offer traditionally non-covered services at a discount to its members. By having such benefits, they believe they can differentiate themselves from other payers in the market. For eye facilities, being able to package a discounted LASIK program may be attractive to a payer who is interested in offering discounted LASIK to its beneficiaries. ASCs that offer a LASIK program should use this fact to their advantage when negotiating payer agreements.

Know the local representatives. Building relationships is another important step in successful negotiations. Since payer groups are often multilayered and it’s unlikely that negotiations will be conducted at the top level, it’s best to start with the provider representatives employed by most payers. These representatives provide guidance on what type of information is relevant to the negotiation process. Cultivating relationships at a higher level of the payer organization is also beneficial. Medical directors who have relationships with medical professionals (or others) at the payer group can seek advice from those individuals, widening the ASC’s net of relationships to include multiple layers of the payer organization.

Craft Your Tactics

As relationships develop and research is completed, it’s possible to begin crafting tactics for negotiating. This process may include the following tasks:

Preparing materials. The SWOT analysis will likely reveal materials that help illustrate the benefits of working with the ASC. These materials can be compiled in a simple, clean provider directory. Including photos of the facility and its staff members will aid in telling a story that differentiates the facility. Graphs or simple reports on patient satisfaction are another consideration. Finally, graphs or reports that show quality performance (e.g., low complication rates) are also valuable.

Deciding on methods for negotiations. While face-to-face meetings are usually preferred, they’re not always necessary. As the management team prioritizes the payer list, it will become evident which payers may require more attention. Sometimes if relationships are in place, negotiations can successfully be completed via phone calls and emails.

Determining who should represent the ASC. This decision will also depend on the payer. The person/people with the best relationships and best understanding of that particular payer should represent the ASC. If the person with the best relationship has never experienced a contract negotiation, he’ll need a veteran manager or physician to work with during the process.

Build Momentum

Once the ASC has gathered information and prepared reports, it’s time to build momentum by taking advantage of that information. Negotiators shouldn’t let too much time pass before contacting the next payer on their list of priorities. Though contract evaluations should be done on a continuous basis, it’s most efficient to block a specific quarter of each year so the completed research, the prepared materials and reports, and the strategies are fresh in the minds of the managers, physicians, and other ASC representatives.

Improve Payer Contracts and Relations

Thorough preparation will provide ASC managers access to the information and relationships necessary for meaningful contract discussions at the negotiating table. The likely results are more favorable payer agreements and improved payer relationships. ◊