Providers have ways to gain more leverage, but it includes being willing to walk away from a bad deal.
If it seems like contract negotiations between payers and providers are becoming more adversarial and playing out in public more often, that's not just perception—it's the reality in which the fragmented healthcare system currently operates.
Thanks to economic headwinds made up of record inflation and operational challenges, hospital and health system CFOs find themselves with their backs against the wall in negotiations with insurers. Operating margins may be slowly improving, but they remain razor thin for many, especially in comparison to the profits payers continue to reap.
As contracts agreed upon in a different financial climate reach their expiration, the two sides are being forced to come to the table and find new common ground during a new normal in healthcare.
"Those negotiations will be ferocious because once again hospitals have burned through their cash," Britt Berrett, managing director and teaching professor at Brigham Young University and former CEO with HCA, Texas Health Resources, and Scripps Health, told HealthLeaders. "Their biggest issues are salary, wages, and benefits. They don't see those going away. So this is going to be all-out battle between providers and payers."
CFOs could have more leverage in these talks than they think, but it requires willingness and preparation to pull levers that may be uncomfortable.
There's a reason so many contract negotiations play out in the media. It's a tactic that has been utilized repeatedly to garner public support and paint the other side as the villain.
With the financial chasm between payers and providers as wide as it's ever been, there's even more reason now for the latter party to convey that dynamic to the public.
"I think you're going to see an acceleration in the public town square, the competitiveness and the negotiating in the public opinion space," Berrett said. "I think moving forward, you're going to see a tremendous amount of public awareness on contract negotiations. Payers and providers are going to be arguing their cases in the town square."
One of the negotiations in the headlines right now is the one between Bon Secours Mercy Health and several regional Anthem Blue Cross Blue Shield plans. Bon Secours alleges that the insurer is not giving fair reimbursement for services and put out a statement directly speaking to the community, highlighting increases in its labor costs and operating expenses.
"Unfortunately, what Elevance Health (Anthem) pays our doctors, nurses and other caregivers is not sustainable or market competitive," the statement reads. "Their current reimbursement rates – which are substantially less than those we receive from other payer partners in the market – have not kept up with inflation or labor costs and are overwhelmingly inadequate to account for the cost of providing safe and quality care."
Making the media aware of contract impasses and providing your side of the story can be effective, but shaping the narrative through direct communication with the patients you serve puts the insurer on the opposite side in an undesirable position.
Consider vertical integration
Vertical integration isn't so much a negotiating tactic as it is a long-term plan to break free from complex negotiations, but providers can at least put themselves in a less desperate position in talks by weighing consolidation opportunities.
As more and more people get their health insurance from the individual and exchange market rather than from employers, providers can gain more flexibility by moving towards an integrated delivery system.
"I'm of the opinion that if you do not have a strong integrated delivery system and if you are really struggling with your cost control of salaries, wages, and benefits, you have very little leverage over the payers," Berrett said. "And that's just a real dynamic that's going on right now.
Hospitals can opt to partner with a health plan to share in the cost savings. Alternatively, they can choose to negotiate directly with employers who are self-insured or with payers representing large employers and use that as leverage in negotiations.
Focusing on high-end tertiary services rather than standard fare primary care can also make providers more appealing to insurers and reduce the competition.
If all else fails, providers should consider terminating a contract and stepping away from the negotiating table. It's not the ideal path to go down, but there is some truth to the axiom 'no deal is better than a bad deal' in this case.
Showing payers you're willing to detach if they don't meet you somewhere in the middle can create both immediate and future leverage. Sometimes just the threat will force payers to up their rates and relent.
However, an empty threat is just that. Providers need to have some willingness to walk the walk, which means assessing their out-of-network prospects before making that leap. Hospitals that rely on patient volume through their emergency department will be less affected by an out-of-network status, for example, because emergency services qualify for in-network rates.
This may cause providers to lose a segment of their patients, but that's where conveying your process and position to the public, as mentioned, can maintain trust.
It's an uncomfortable measure for hospitals and health systems to take, but with the playing field being what it is, gaining any kind of edge can make all the difference to the bottom line.
Jay Asser is the contributing editor for strategy at HealthLeaders.
CFOs have to be willing to get uncomfortable in negotiations to gain any edge they possibly can over payers.
Whether that means putting pressure on insurers through the public or threatening to go out-of-network, providers have to consider any and all options.