3 Skillful Payer Negotiation Strategies

Karen Minich-Pourshadi, April 25, 2011

It's unlikely that any courses taken in business and finance school ever fully prepared financial leaders for the shrewd rigors of healthcare payer contract negotiations. Nevertheless, it still falls on the CFO to ensure contracted payer reimbursements stay as favorable to the hospital or health system as possible.

Without a strong background in contract negotiations, however, financial leaders can make costly missteps, says Kyle Kobe, a principal at Equation, a Salt Lake City, UT-based healthcare consulting firm. To remedy this, he offers three strategies for to make this process a more fruitful one for the hospital and health system.

Strategy 1: Know Thy Current Value

Kobe says financial leaders should begin the contract negotiation process before the payer arrives. So, keep in mind that all three of these strategies are meant to be tackled prior to talking with your payers.

"You need to know the current value of your contracts within the hospital or health system," he says.

Healthcare leaders often take this to mean knowing the percent of profit for the overall charges with a payer, but Kobe recommends going beyond that and understanding the margins and how much every payer they work with is contributing to the overall bottom line.

"A negotiation should be predicated on creating a contract that supports the level of work the hospital does [for the payers]," he says. "Then they need to say, 'This contract is worth this much to us in terms of our bottom line, as well as what we are trying to accomplish as a hospital or health system.'"

Strategy 2: Know Thy Market

Kobe says it's important to understand how valuable the hospital, health system or physician practice is in the market and then discern whether the current or proposed contract reflects that position. First, for example, assess what services are offered at your hospital versus others in the area. Or factor in whether you are the sole provider for an offering, and then do a benchmark for your rates. While you may not be able to learn how much your competitor(s) are earning with the same payer's contract, you can take each of your existing payer contracts and benchmark the rates against one another.

Karen Minich-Pourshadi Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media. Twitter
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