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5 Ways to Maximize Profitability in Contract Negotiations

Troy Roth, for HealthLeaders Media, March 16, 2011

Few healthcare providers would consider going into a critical negotiation process without a plan of action – in the form of extensive patient indexes, historical reimbursement rates and methods and competitive insights – yet numerous hospitals across the country are doing just that when it comes to negotiations with payers. In fact, many hospitals do not have a consistent or effective methodology for managing and negotiating complex contracts with managed care organizations. As a result, providers often enter into negotiations blind – not knowing the projected financial impact of their future contracts.

When providers are armed with the right information and resources, they can turn the negotiations process around to capture all revenue rightly owed to them by payer organizations. Below are five important steps to maximize revenue capture and maintain profitability by product lines when negotiating contracts.

1. Embrace Modeling Technology – Effective contract management systems should include modeling and analysis technology. Modeling helps contract negotiators consider “What if …?” scenarios before entering the negotiations process while allowing providers to create their own game plan – before they receive the first proposal from a payor. When modeling capabilities are in place negotiators can view current net revenue per day against cost information and quickly determine current utilization and profitability of services from a given payor. Negotiators can also compare the current contract inventories (not merely the payor under negotiation) against the proposal to understand the overall financial impact for their book of business, leveling the playing field with payers. It is important to always use scrubbed claims data in models as this provides an “apples to apples” comparison to the Healthcare Effectiveness Data and Information Set (HEDIS).

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1 comments on "5 Ways to Maximize Profitability in Contract Negotiations"


Stefani (3/16/2011 at 12:01 PM)
Another factor not mentioned is the contract language. House of economic negotiations can all go down the drain it the contract language regarding pre-certification, utilization review, and medical record access puts the hospital in a defensive position requiring investment of excessive resources to meet contract lanaguage requirements. In my experience, hospital contract negotiators fail to consider the hours expended by hospital staff members to meet payer demands. Contract addendums spelling out these processes must be negotiated along with financial considerations.