Negotiating with payers is one of the necessary evils that independent physician practices must endure. Melissa Lucarelli, MD offers some advice to healthcare providers about negotiation.
Negotiating with payers is one of the necessary evils that independent physician practices must endure. Numerous books and articles have been published about successful physician-payer contract negotiations, including one in the August 10, 2015, issue of Medical Economics, “Improving practice-payer collaboration.”
Despite the useful information these sources offer, many doctors in solo and small practices continue to believe that they have no power when it comes to negotiating, and that they must accept whatever terms the payer offers. I disagree. Regardless of your practice size, you can get a fair-or at least livable-contract from even the largest payers, as long as you are prepared and go into the negotiation with the right attitude. I know, because I’ve done it.
I’ve owned and directed a solo family practice in the rural town of Randolph, Wisconsin since 2001. With the assistance of two other providers-a nurse practitioner and physician assistant-my clinic cares for a panel of about 6,000 patients. Just over half of our patients are covered by commercial insurers, and their reimbursements account for approximately 80% of our net collections. Apart from medical seminars and journal articles, I have no formal training in business or contracting. Nevertheless, our practice has managed to stay financially viable.
Earlier this year I negotiated a new contract for my practice with one of the five largest national health insurance payers. It was the third time I’d negotiated with that payer, and this was by far the most successful. Our new contract reimburses us about 10% more than our previous one, largely because of a higher Medicare multiplier for preventive health services, which account for the highest volume of services we provide. In addition, this contract includes a feature that neither of my previous contracts with this payer had, an “accelerator”-an annual cost-of-living raise.
What made this contract negotiation different? Like any other skill, negotiation gets better with practice, and I have learned some valuable lessons over time. Here are the basic strategies I use when approaching a payer negotiation:
Do your homework
Before I notified the payer that I wanted to renegotiate, I gathered meaningful data, including how much they were paying us as a percentage of our charges and how that compared to our other commercial payers.
Many of you probably have been told by a payer that the reimbursement increase you’ve requested is out of line, that “nobody gets that amount”-whatever it is. I looked at our charges and reimbursements and discovered that this payer was actually our lowest contracted payer, and I calculated by what percentage they were the lowest. Sharing this data with them gave me powerful ammunition, and the confidence to call their bluff.
Tell them what makes your practice special
To a giant commercial insurer, your small practice is just one of many they contract with. They are not going to know what makes you special-and why they should pay you more-unless you show them.
I told this payer about their sponsored quality initiatives in which we participate. I emphasized the specific recognitions we had received for quality care from their organization and the fact that we are the only family practice in a 15-mile radius that is an in-network provider for their product.
In addition, I took what may have been perceived as negotiating weaknesses-our size and location-and tried to turn them into advantages. I pointed out that small, rural practices like mine are important to employers outside of major metropolitan areas, and these employers often have strong loyalty to their community and local physician practices. Treating my clinic well creates a favorable impression among those employers and increases business for the payer.
Don’t be afraid to ask for what you need, or want
In my experience, most physicians are willing just to “go with the flow.” They want their professional relationships to be simple and non-confrontational. So when a payer presents them with a contract and tells them nothing in it is negotiable, they sign. This is a big mistake.
I recall a talk from a contract lawyer during the practice management part of my residency. He said there’s no such thing as a non-negotiable contract. You can always do an addendum or rider. It never hurts to ask. The worst they can say is no.
Incidentally, the same advice goes for any language that’s vague or that you don’t understand. A negotiating tactic many insurance network representatives use is to try to dazzle you with fancy terminology and legal-sounding language. Usually it’s just a lot of meaningless obfuscation. Ask the person you’re negotiating with to explain it and to give you specific examples of how that clause might be applied. If you are concerned that the language might be interpreted to your detriment or that it doesn’t really apply to you, ask them to take it out.
Be open to trade-offs and know when it is good enough
A payer may not be able to negotiate some items due to corporate policy or regulatory restrictions, but they might be able to make a change in another part of the contract that will make up for it. A negotiated agreement is seldom going to end up exactly the way you want it to. The trick is to know when it’s good enough, and how much the time spent in additional negotiation is worth to you.
Have a backup plan
Negotiating major payer contracts can be very anxiety-provoking. At times, I have felt that if I lost a contract my entire practice could fail. But there is nearly always an alternative, and if you haven’t discovered what it is, then you shouldn’t be negotiating yet.
When I bought my practice, a large regional HMO represented 40% of my business. I quickly realized I had to diversify the practice because if I lost that contract, I wouldn’t have been able to keep the lights on. By contrast, when I renegotiated this year with the commercial payer I knew I could walk away if absolutely necessary. I was bargaining from a stronger position.
Approach negotiations as a collaboration
A book I recommend highly is Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher and William Ury. It helped me a great deal with contract negotiations. The authors introduced me to the concept that negotiation doesn’t have to be a battle. The idea is to figure out what you really want and how you can demonstrate that it’s fair and reasonable and data-driven.
The book also talks about having a BATNA-a best alternative to a negotiated agreement. Taking the BATNA doesn’t mean you’re cutting and running; it means this particular negotiation isn’t going to be successful. You have to think creatively and ask yourself, “What can I do to get what I need without this particular negotiation?” Sometimes dropping the contract will turn out to be the best business decision.
Don’t make it personal; it’s just business (or should be)
I’m not friends with the provider network person I negotiated with, but our relationship was cordial and business-like. Negotiating shouldn’t be emotional, but removing emotion from the process takes practice.
When I was in medical school, a professor told me that if a patient causes you to feel anger or anxiety, that patient is either manipulating you or is mentally ill. Similarly, if someone you’re negotiating with causes you to feel those sorts of emotions, you need to step back and ask yourself, “Why is this personal? This person is only trying to get their goals met and make money for their employer, so why am I upset about this?”
As a corollary to this point, it’s a good idea to avoid burning your bridges by saying or doing something that’s personally offensive to the person you’re negotiating with. You never know when you may cross paths with that person again, either in a contract negotiation or in some other capacity. For example, a former commercial insurance representative is now my clinic’s contact at our Medicare regional extension center. It’s amazing how much more cordial our conversations are now.
Keep a sense of humor
The ability to laugh or make a joke can be important in defusing a tense negotiating situation and maybe even help forge a bond with your negotiating counterpart. I know that if I’m not in the mood to laugh, I should probably reschedule the meeting.
Having a sense of humor also helps you to maintain your perspective about negotiating a contract. As physicians, sometimes we are faced with life or death situations, and a contract isn’t one of those times. It’s just business, and sometimes you have to remind yourself about that.
It’s also OK to celebrate and be a little proud of yourself when you are done negotiating and able to walk away with a new contract that you’re happy with. Any physician should be able to manage patient care, but you are also managing a business. That is part of our identity as independent physicians and one of the reasons that our services are still valuable and relevant.
Melissa Lucarelli, MD, is a family physician, medical director and owner of Randolph Community Clinic, a rural primary care clinic in South Central Wisconsin. She is a member of the Medical Economics Editorial Advisory Board.