4 Ways to Gain Leverage in Payor Contract Negotiations

Hospitals are constantly faced with the challenge of negotiating contracts with insurers. The challenge primary lies in finalizing a payor contract that is cost-effective for both the hospital, its patients and the insurer. Here are four best practices for gaining leverage when it comes time to successfully negotiate contracts with third-party payors.

1. Demonstrate achievement in high quality metrics. As scrutiny on quality of care increases and quality measures become more transparent, it is increasingly important for hospitals to demonstrate not only that they have quality metrics in place but that they are achieving quality standards as well.

"Certain payors are placing more emphasis on quality of care, and if a hospital doesn't meet a certain standard a payor may not even want a contract with that hospital," says Janie Patterson, senior vice president at Conifer Health Solutions. "For example, one quality metric a hospital may want to demonstrate is low re-admission rates or mortality rates. Based on quality metrics reported from larger organizations, such as Tenet Healthcare or Hospital Corporation of America, hospitals can compare their quality metrics to others."

Jordan Battani, principal at CSC Health Services, adds that standardizing quality metrics by incorporating payors' metrics and requirements set by healthcare reform can give hospitals an added advantage in negotiations.

"Medicare and Medicaid are cutting back reimbursements and creating all kinds of new requirements that are tied to those reimbursements, including high quality of care," she says. "Health plans themselves are coming under fire from the government to implement these quality requirements, so hospitals should align themselves with the payors."

2. Work with payors to achieve operational efficiency on both sides. Ms. Patterson says a hospital may be able to create better leverage in contract negotiations if it shows it is willing to align itself with the payor to cut down costs on both sides.

"A hospital, for example, might implement electronic transactions so that registrars at hospitals do not have to spend 20 minutes on the phone trying to get an authorization on a claim," she says. "It's better for the payor too because it cuts down on time they spend on the phone handling the claim. All organizations are interested in reducing cost."

3. Consider alternate reimbursement methods. As healthcare reform continues to impact reimbursements to healthcare providers, alternate reimbursement methods such as bundled payments are one consideration for hospitals during contract negotiations.

"We'll see more bundled payments in the coming years when it comes to physician and hospital payments for services," Ms. Patterson says. "It wouldn't be open for all service lines, but they can come up with some other creative ideas around alternative reimbursement methods. For example, a hospital could negotiate a special price for cardiac cases that would be all-inclusive for physician and hospital fees based on the hospital's cardiac case volume. It could give a hospital a more competitive advantage."

4. Retrospectively analyze trends in case volume and payor coverage. Once a hospital comes to the end of a contract, it could look at trends in case volume between services lines and compare that to the business the payors promised to deliver during the contract's term. In doing so, hospitals can renegotiate terms of coverage and reimbursement rates.

"What a hospital would need to do is look at the type of business that has come from a specific plan," Ms. Patterson says. "Typically, there are rates based on service provided, such as outpatient services, inpatient services, emergency department services and so on. By looking retrospectively at volumes by service line and comparing that to what a payor indicated would be good business, a hospital can renegotiate for a better contract."

Learn more about Conifer Health Solutions.

Learn more about CSC Health Services.

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