An adversarial relationship between providers and payers is counterproductive to the purpose of healthcare – with patients being caught in the middle. Yet providers also need to protect their financial interests in the bargaining process, industry experts say, and the best way to do so is to go into negotiations armed with tangible data.
"The payer-provider relationship has been historically confrontational, with payers having the upper hand," said Janice Jacobs, director of regulatory compliance for Chadds Ford, Pa.-based IMA Consulting. "But in recent years, providers have gotten a better understanding about what a managed care plan is all about and the two sides are meeting more in the middle now. Managed care payers also need providers to sign on with them, so there is a mutual need for give and take and a sharing of ideas."
Still, whatever strides are being made in payer-provider relations, "a huge communication gap" remains between the sides, said Thomas R. Ferry, president and CEO of the Boston-based Curaspan Health Group.
"That communication gap is like a black hole that swallows up all the valuable information required to drive quality in clinical outcomes and profitability in financial results – it's a no-win situation," he said. "The good news is that there's a willingness among payers and providers to try something new. They know they have to since the current process isn't working."
As it is with everything else in healthcare, data is the lifeblood of payer-provider relations, said Taylor Moorehead, partner with Indianapolis-based Zotec Partners. By using data to quantify services, results and cost structures, providers can gain respect and leverage with payers, he said.
"You have to show your service volume, the benefits of services like mammography and how low reimbursement rates and denials are costing you money," he said. "You have to use data to show them where their system is wrong. If you don't have data, you might as well not even walk through the door."
Black to red
When it comes to comparing Medicare and private insurance, the tables have turned in the past couple of years, industry observers say. Where Medicare was long seen as the dependable payer that provided a consistent revenue stream for providers, the opposite is largely true now, said Kyle Kobe, principal at Salt Lake City, Utah-based Equation.
"When we look at the financial health of a hospital or practice, they are losing on Medicare and Medicaid and making some on commercial payers," he said. "We've seen Medicare move from black to red in the past five years. It has been a gradual process. We are seeing it more and more."
Indeed, Jacobs acknowledged that CMS' continual quest to lower reimbursements and add regulatory layers to its structure have made it more difficult for providers to earn a positive margin from the program, but added that they also need to look introspectively at why those revenues are falling.
"Providers have become very conservative with billing due to the advent of RAC audits," she said. "There is a fear that they will do something wrong to trigger a RAC review and are opting to err on the side of caution."
Yet even while "Medicare will never be what it was in the 1980s and '90s, provider shouldn't be losing money," Jacobs said. "Providers need to be on top of all the changes and educate themselves about every dollar they are entitled to."
Negotiating tips
Despite provider gains in bargaining leverage, the experts agree that payers still have the advantage in contract negotiations. The onus continues to be on providers to demonstrate their positions using concrete data when vying for better terms, they say.
"Providers need to understand that they must come to the negotiating table with real information," Kobe said. "They need to have three things: An understanding of the value of the current contract including the service mix, direct margins and profits from services provided to patients; knowing how the contract compares to other market rates; and knowing their goals and fallback positions. Know what terms are not viable to accept and stick to it."
Knowing the cost of services is critically important, and hospital managers need to huddle to put the information together, Jacobs added.
"If a hospital uses a new flexible stent, they have to know what it costs to use, what resources are spent to handle the patient and to manage the process," she said. "Providers need to get a team together for managed care negotiations to discuss these specifics well ahead of the negotiations and put everything in writing."
The ultimate strategy going into a negotiation, Jacobs says, is "Know what you want to get out of it – what you must have, what is nice to have and what you can live without."
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