In a session at the Becker's Hospital Review Annual Meeting on May 17 in Chicago, Gregg Leff, executive vice president of Med Metrix explained four key managed care negotiation strategies that hospitals can employ this year.
Essentially, there are three basic ways of dealing with negotiation differences: domination (only one side gets what it wants), compromise (neither side gets what it wants) and integration (creating a way for both sides to achieve what they really want). Finding that integration between hospitals and payors is always the hard part, and Mr. Leff said hospitals need to be proactive to avoid the other flawed negotiation results.
1. Understand the current and future market dynamics. In the age of healthcare reform, hospitals most likely will experience lower inpatient utilization rates and higher outpatient admissions. Hospitals have to monitor these metrics and others to avoid negotiating onerous contracts. "When it comes to your revenue, your managed care contracting is the only area you can control and have some influence," Mr. Leff said. "If you don't do some trend analysis and look at a five-year plan, payors will want to lock you in. And if you're going more than two years out, you're taking a huge gamble."
2. Analyze your existing situation. Mr. Leff pointed to an example in California of when hospitals may not truly understand their own situation and market. Over the past several years, hospitals in northern California cost 56 percent per day than those in southern California. However, the northern California economics changed over the past 10 years due to consolidation and closures, resulting in one hospital system representing 20 percent of the market, while independent hospitals cover roughly 50 percent of the southern California hospital market.
3. Open the lines of communication on both sides. Integration is the best type of managed care negotiation, Mr. Leff said, because it fosters a level of understanding between payor and hospital. In order to reach integration, constructive communication must be active on both sides.
Although the "domination" strategy may look good at face value, hospitals with a lot of leverage have to wonder if they fully analyzed the situation and if the market power is sustainable. Instead, it's in the best interest of dominant hospitals and others alike to communicate effectively to reach managed care contracts that benefit them, their populations and their future growth, he said.
4. Beware of a "myopic" view of your market. Managed care organizations have access to much better and more robust data and can therefore see some of the bigger trends. Hospitals have to dig far deep to find out who their competitors really are, Mr. Leff.
For example, freestanding imaging and radiology procedures have exploded from 1999 to 2009, and ambulatory surgery centers have also experience large growth. Consequently, those other avenues have absorbed a higher percentage of the managed care and commercially insured populations. Hospital managed care teams need to understand their markets are much more expansive than other hospital competition. "The hospital market has a 4-to-1 commercial to Medicaid mix. That doesn't sound terrible," Mr. Leff said. "ASCs are 13-to-1, though. It's a huge commercial mix. Hospitals are losing an opportunity to subsidize these costly, low-reimbursing entities."
Essentially, there are three basic ways of dealing with negotiation differences: domination (only one side gets what it wants), compromise (neither side gets what it wants) and integration (creating a way for both sides to achieve what they really want). Finding that integration between hospitals and payors is always the hard part, and Mr. Leff said hospitals need to be proactive to avoid the other flawed negotiation results.
1. Understand the current and future market dynamics. In the age of healthcare reform, hospitals most likely will experience lower inpatient utilization rates and higher outpatient admissions. Hospitals have to monitor these metrics and others to avoid negotiating onerous contracts. "When it comes to your revenue, your managed care contracting is the only area you can control and have some influence," Mr. Leff said. "If you don't do some trend analysis and look at a five-year plan, payors will want to lock you in. And if you're going more than two years out, you're taking a huge gamble."
2. Analyze your existing situation. Mr. Leff pointed to an example in California of when hospitals may not truly understand their own situation and market. Over the past several years, hospitals in northern California cost 56 percent per day than those in southern California. However, the northern California economics changed over the past 10 years due to consolidation and closures, resulting in one hospital system representing 20 percent of the market, while independent hospitals cover roughly 50 percent of the southern California hospital market.
3. Open the lines of communication on both sides. Integration is the best type of managed care negotiation, Mr. Leff said, because it fosters a level of understanding between payor and hospital. In order to reach integration, constructive communication must be active on both sides.
Although the "domination" strategy may look good at face value, hospitals with a lot of leverage have to wonder if they fully analyzed the situation and if the market power is sustainable. Instead, it's in the best interest of dominant hospitals and others alike to communicate effectively to reach managed care contracts that benefit them, their populations and their future growth, he said.
4. Beware of a "myopic" view of your market. Managed care organizations have access to much better and more robust data and can therefore see some of the bigger trends. Hospitals have to dig far deep to find out who their competitors really are, Mr. Leff.
For example, freestanding imaging and radiology procedures have exploded from 1999 to 2009, and ambulatory surgery centers have also experience large growth. Consequently, those other avenues have absorbed a higher percentage of the managed care and commercially insured populations. Hospital managed care teams need to understand their markets are much more expansive than other hospital competition. "The hospital market has a 4-to-1 commercial to Medicaid mix. That doesn't sound terrible," Mr. Leff said. "ASCs are 13-to-1, though. It's a huge commercial mix. Hospitals are losing an opportunity to subsidize these costly, low-reimbursing entities."
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