Contract Negotiations: Not Just About the Dollars

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Contract negotiations with payors formerly were a lengthy process. Not any more; they are concluded now in half the time because payors have stopped telling radiology groups to take it or leave it and, instead, are simply saying, “Take it.” Payors seem to hold all the cards in any bargaining over reimbursement rates. Mark Kleinschmidt, CEO of St Paul Radiology in St Paul, Minn, suggests it need not be that way. There are, he indicates, strategies that a radiology group can employ to strengthen its hand at the negotiating table. One is willingness to walk away from a bad deal. “Unfortunately, most of us don’t feel we can,” Kleinschmidt says. He also serves as president of Coeur D’Alene, Idaho-based NightHawk Business Services.

"We feel we've got to come away with a deal, any deal, just to be able to say a deal was made. I don't agree with that. A bad deal is a bad deal, and it's not going to help you in the long run to accept it."
— Mark Kleinschmidt

Knowledge is Power

Kleinschmidt believes in the win-win approach to negotiating. “Neither party should be completely satisfied when the negotiations are concluded,” he contends. “Both you and the other side should leave a little something on the table by not taking away too much.”

You will never know if you have left too much on the table, however, unless you have accurate information about your numbers and those of the payor. “The information that health plans share with you to support their reimbursement proposal needs to be evaluated carefully,” Kleinschmidt says. “If you have solid facts, you’ll be able either to substantiate or refute their numbers. You can’t do that if all you have are estimates and suppositions.” Some payors keep those numbers close to the vest, but most are relatively forthcoming. “They’ll give you the data you ask for, although they may not necessarily be in the format you want, so you’ve got to have the ability to evaluate and interpret properly whatever you receive. Large groups, more than small ones, usually have the administrative support to be able to do that,” he says.

Successful negotiating with payors requires attention to both strategy and tactics. Here are some pointers from Kleinschmidt.

Keep your emotions in check. All of your decisions need to be based in dispassionate logic, not good feelings. A tactic of the trained negotiators on the other side of the table is to push your buttons and get you to act out of fear. Once you slip into panic mode, odds are the choices you make will be uniformly poor.

Focus on more than hard dollars. An offer containing what, at first blush, may appear to be a disappointing rate of reimbursement could actually turn out to be a workable deal if other aspects of the proposal somehow give you an advantage. For example, a contract that grants you exclusivity as the radiology provider in certain geographic areas or service lines can solidify your revenue stream enough to compensate for a less-than-satisfying reimbursement rate.

Know your strengths. Be able to show why you are the best provider in the market for each type of service, and then explain how that leadership position of yours can translate into payor success.

Strengthen your strengths. Radiology-group leverage comes down to two things, according to Kleinschmidt: total or near-total exclusive coverage in a geographic area and breadth of subspecialty services. “Health plans want to know that you can provide quality services in all areas of radiology,” he says. “One of the things that has helped St Paul Radiology is that we cover the full spectrum of subspecialty areas—everything from interventional neuroradiology to pediatrics.”

Payor Craftiness

Knowing the mind of the payor before you sit down at the negotiating table can serve to neutralize some of your adversary’s advantages, much as forcing a card shark to reduce the number of aces up his sleeve can better your chances.

“Payors believe there is a lot of unnecessary imaging being done,” Kleinschmidt says. “As a result, here in the Twin Cities, what we’re finding this year is that the focus is more on reducing utilization than it is on getting the cost for services down with reimbursement rates set as low as possible. Payors understand that low reimbursements do not save money if providers can make up for that with volume. Besides, to them, reducing utilization is like low-hanging fruit—it’s just a little easier to try to go after that than it is to ratchet down pricing overall.”