Market volatility will likely continue in 2016, and this further highlights the importance of measuring opportunity and risk across financial classes, payors, and service lines. For hospital executives, this knowledge is essential to preserving net patient revenue and identifying strategic growth opportunities.
Understanding how well you are being paid – and how those payments compare to peer facilities begins with a thorough examination of the performance of managed care contracts – both individually and comparatively.
Invest a few hours early in the year to prepare and you’ll bring in additional revenue you need to continue serving your community. It may sound like a tall order but if you get organized and plan ahead, you will be well positioned to optimize the outcome of your contract negotiations.
Here’s How to Get Started
- Locate every one of your managed care contracts.
- Review the contract terms. Note the problem areas and prepare for the negotiation by crafting the desired language.
- Review the contract rates. Compare actual payment to expected payment. Quantify underpayments so you can include this in your discussion with the payor.
- Quantify any gaps between the contract rates and what your rates could have been by benchmarking to your other contracts and to payments like facilities are receiving.
- Using the findings from your analysis, set a new revenue goal for each contract, and for the major service lines within that contract. Develop your value proposition. Know why you deserve the increases you are requesting. What do you offer that is important to the payer?
- Gain support for your plan from all the affected parties – your medical staff, the major employers, your Board, and senior leadership.
- Note the date each contract comes up for renewal; or if that conversation is long overdue, note the date you will reach out to the payor and begin the discussion.
- Mark the calendar for six months after the new contract will go into effect so you are reminded to go back and monitor performance and understand variation.
Creating Mutually Beneficial Relationships with Payors
Step two above is particularly noteworthy in states where a single payor controls a large percentage of market share. While some large payors may not make it easy to engage in rate negotiation, you can leverage market data to discuss specific contract language which may weigh heavily in favor of the other payors in your marketplace.
One of our clients recently faced an upcoming negotiation with a payor but lacked clarity into its true market position and believed contract language related to volumes and rates placed it at a disadvantage. In order to zero-in on opportunities to better balance the contract and determine its market position, the hospital turned to an iVantage analytic solution designed to provide visibility into all aspects of patient revenue – all payors, all patients, all payments.
With this comprehensive view, hospital users could quickly identify below-market pricing, quantify revenue gaps, measure contract and service line pricing, and determine areas of risk and volatility. The results of the analysis (which went to the DRG level) revealed that the hospital’s rates were indeed below market and created an opening for the hospital to push the payor to revisit some of the contract language.
The hospital’s managed care director commented on her ability to secure a compromise suitable for both parties, “Possessing actual data points, and not simply relying on anecdotes was empowering. My counterpart for the negotiation was taken aback at first by how methodical our approach was but quickly became an advocate for the new rates and terms we were seeking.”
Make a commitment to yourself in the New Year to turn a powerful lens toward your contract performance and market position – you’ll expose previously obscured trends, secure greater clarity and open the door for opportunities to work with payors on more mutually beneficial terms.