June 2000 Bulletin

Keys to MCO negotiations

Your goal is to match your practice’s strengths with the goals and objectives of the MCO.

How to win favorable contracts

By Janice G. Cunningham

The keys to effective negotiation of a contract with a managed care organization are preparation, skill, and experience.

Few physicians know or appreciate the many commitments and obligations contained in their managed care contracts. Most sign every contract that crosses their desk. The practices that do review contracts before signing often do not look beyond the fee schedules.

Most physicians are unprepared to negotiate their contracts. MCOs have readily available resources: negotiating strategies, practice statistics, market data and skilled professional negotiators. Physicians generally do not. They lack the facts they need to make their points. They lack a negotiating strategy. They lack the patience, skills or experience they need.

Preparation is critical. Before you go up against any MCO, you must have the facts you need. You must also have a plan for how you will approach negotiations.

Generate or gather all the information you can about your practice. Specifically, you need to know your cost per case or procedure, patient volumes, referral sources, outcomes data, volume of surgical complications or redo’s and patient satisfaction. Compare your practice with industry benchmarks where possible. Note your strengths and correct any problems you identify.

Next, gather objective data on your experience with individual payers, including fee schedules, timeliness of payment, down-coding challenges, pre-authorization failures, claim denials (by type), administrative hassles and any other relevant factors. Your history with these payers may provide you with support during future negotiations with them.

Beyond that, get to know each current and prospective MCO in much greater depth, starting with its profitability, position and strategy. Know who the MCO’s leaders and owners are. Visit the MCO’s web site on the Internet. Most MCO web sites have valuable information on-line, including contact data for other useful materials that are not posted. Talk with reliable sources, such as other practices that have dealt with the MCO. Contact your specialty, subspecialty and state/regional medical societies. Visit the library. Contact a research firm. Find out, for each one:

Once you have an in-depth knowledge of the MCOs, you must develop an effective managed care negotiating strategy.

Your goal is to match your practice’s strengths with the goals and objectives of the MCO. Know what the MCOs want and how you can help them achieve those goals. Also, know what you want in return.

Start by prioritizing all the issues that are important to your practice. Prepare to negotiate them accordingly. Price is important, of course, but there are many more issues to negotiate, including, but by no means limited to changes in withholds, ancillary service rules, credentialling requirements, credentialling timelines, referrals, protocol compliance, pre-authorizations and clinical outcomes.

Before you enter any negotiation, be sure you know what you can accept and what is simply not negotiable to you. Perhaps the most important strategy your practice can make is to establish a "walk-away" position before you begin to negotiate. If, after negotiations, the MCO fails to meet your minimum requirements, say "no" to that contract offer and walk away.

Next, consider the MCO’s point of view and objectives. What benefits can you provide to the MCOs in return for getting what you want? Focus on exactly what to "sell" to MCOs.

For example, a major objective for most MCOs is to reduce costs. What you need to know first is that the MCO has both medical costs, measured by the "medical loss ratio," and administrative costs, measured by SG&A (selling, general and administrative expenses) percentage.

Physicians on their provider panels generate both types of costs for MCOs. If you can lower one or both of these costs as an impaneled physician, the MCO will want to contract with you and may be willing to negotiate terms that are more favorable to you than they are to another physician.

Consider the overall cost of what you do, in terms of the benefits the MCO will realize by contracting with you. Determine how you can cut the overall costs the payer experiences in your community. Do not focus on your physician costs. Instead, review your facility, pharmacy, ancillary and similar costs. If you do not have this information, ask the MCO for it.

For example, if you perform all surgery of a particular sort in the hospital, you should be able to "sell" the MCO the cost reduction of moving to an outpatient surgery center. Alternatively, if you currently do all your surgery in an ambulatory surgical center, the threat of moving to a hospital venue may be enough to earn a reward from the MCO.

Perform the same analysis with the other appropriate elements of cost, including what you prescribe, which devices or implants you use, to whom you refer for ancillary services, and so on.

Consider how aggressive your group is, in terms of your treatment regimens. If you are less aggressive than the competition, sell the MCO the savings that your group engenders. If you are more aggressive, promote the savings that aggressive treatment achieves, in terms of future savings. Given the rate of patient turnover in managed care plans, being more aggressive is not as convincing as being less aggressive, but remember that you must work with what you have.

It may also be advantageous to sell the MCO on your practice’s quality in terms of Health Plan Employer Data and Information Set (HEDIS) performance standards. MCOs are rated based in part on the HEDIS scores of their contracted providers. Helping the MCO demonstrate that it maintains or surpasses HEDIS benchmarks may be worth money to your practice.

The way to win a favorable managed care contract is to give the MCO what it wants and needs better than your competition does, and negotiate effectively for favorable terms in return.

Using piecework as a basis of negotiation, it is unlikely that your practice can achieve higher pay from an MCO than a similar practice competing against you in your local market. Instead, negotiate for "bonuses" or achievement awards, payable monthly or quarterly, based on overall results with the plan’s patients.

Do not negotiate away a permanent cost reduction for a one-time award. If you can reduce costs by $X permanently, negotiate for 50 percent of the savings in the first year, 40 percent in the second, 30 percent in the third and so on.

Do not hang your bonus or added compensation on something that only the MCO can measure. You must be able to verify the results to assure you are being paid properly. MCOs have been known to cheat.

Get the arrangements very clearly spelled out, in writing, including examples that describe the measurement yardsticks and the performance thresholds.

Choose the right negotiator for your practice, one who:

If your practice does not have a good negotiator, hire a "mouthpiece." The MCO will send well trained, experienced negotiators to the table against you. Nothing is preventing you from sending your own professional to face them.

Establish a reasonable bargaining position based on your local health care marketplace and your practice’s position in it. Do not base your bargaining position on your fees or on what you think your services are worth. A reasoned bargaining position includes what you are willing to trade for better treatment.

Be careful. Do not assume that the negotiators representing other side know their facts. Do not assume that the other side will tell you the truth. Be prepared to counter their data with data of your own. Do not volunteer information unless there is a strategic advantage to do so.

Take a team approach to in-person negotiations. Do not face the MCO’s negotiators alone. Instead, negotiate with a team of two or three. While one team member actually negotiates, have someone watch the other side’s body language for hints. Also, use silence as a weapon.

Negotiate only under the proper conditions. Refuse to negotiate when you are seeing patients. Negotiate in person whenever possible. If you must negotiate over the phone, prepare just as you would for a meeting. If you do receive an unexpected proposal, defer decision-making until you have a chance to study the proposal.

Take your time. Do not be in a hurry. Done properly, negotiation always takes time and patience. Do not expect the MCO to relent and concede to all your requests at the first meeting.

Know your "walk away" position. You have prioritized your negotiation objectives. Start negotiating with the issue that is least important to you, and negotiate incrementally. Be prepared to say no if necessary.

At some point, usually after substantial talking has taken place, each side has a well-developed idea of what the other side has to negotiate and what it wants in return. Further, as negotiations come to a close, the negotiators start to feel almost a psychological impulse to make a deal. This is when most concessions occur.

When you reach this point, make only reasoned concessions from your bargaining position. Hinge every concession you make on a concession from the other side. Be aware that the party making the first concession often expects multiple concessions in return.

The time to let the other side make the first concession is when you are reasonably certain that:

Further, by waiting for the MCO to make the first concession, you are ensured of receiving at least something that you want from the MCO. This may be important if the MCO has a history of conceding nothing during negotiations. In most negotiations with MCOs, it is most likely that the MCO will be willing to make a number of small concessions ("small" concessions from its point of view; these may be quite important to your practice) only if it perceives that your practice is providing it with something of importance.

The MCO will expect you to prove your point by making that all-important first concession. Do so, then make it clear to the other side that it must now make concessions to you that are of equal benefit. Convince the other side that it needs to make multiple concessions to you to balance the concession-to-benefit ratio for both sides.

Janice G. Cunningham, JD, is a health care consultant with The Health Care Group, Inc. and an attorney with Health Care Law Associates, P.C. based in Plymouth Meeting, PA.

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