The Executive Suite: Conducting payer negotiations at your medical practice

When considering negotiations with payers, I look to the puffer fish for inspiration. Also called the blowfish or toadfish, the puffer fish is a slow little fish with undersized fins … more of an appetizer than main course for bigger fish. Remarkably, the species has survived for more than 90 million years. The puffer fish, although tiny and slow, knows how to use its limited strengths to its advantage.

Strengths? Yes, strengths. The puffer fish has three secret weapons.

It can expand to twice its normal size in an instant.
As it expands, its hidden barbs flare out. Imagine a balloon covered with rose thorns.
It is incredibly poisonous to predators.

Puffer fish know how to thrive in a sea of faster, bigger fish.

Private practice is a puffer fish. Payers are the predators. They are bigger and used to getting their way without a challenge. Payers define the playing field, using what they know about your practice to define the terms of engagement, always making the first move, and accepting your submission as a forgone conclusion. You need to understand your practice’s uniqueness to have leverage in the game of payer negotiations.

Before I start, I want to be crystal clear about one critical point: If you don’t ask for better rates or terms, you will never get them. Far too many practices just take what they are given; that’s a critical mistake.

LEVERAGE

Let’s find your leverage with some questions.

Does your practice have a backlog of patients? For example, is your first available new patient appointment more than a month off, or do you constantly overbook, yet never have enough appointments to meet the demand? If your answer is yes, you have leverage.
Do you know how many employees of each payer are your patients? Do you have senior executives or board members or their family members as patients? That’s leverage.You don’t need to name names and breach privacy to get that leverage; it’s enough to let the payer representative know these negotiations have broad implications.
Do you know if your practice cares for key leaders or large numbers of employees of local major employers? That’s leverage.
Which payers make life easier or harder for you and your staff? If it costs you more to work with payer A than payer B, payer A should be paying you more. There’s a tool I have used called the payer report card that can guide you. Another perk of the payer report card is that you will be asking your employees for their opinions. That’s a big deal because it helps with employee retention, especially when you go to bat with a payer for the things that are making your employees’ days miserable.
Have you ever terminated a payer agreement? Sometimes, it takes more than saber-rattling to effect positive change. I have found that terminating an agreement every five or so years reverberates in the payer community (oftentimes, a payer has declined to negotiate until I sent them a termination letter).
Fifth question: Do you know what each payer pays you relative to other payers? It’s appropriate to share variances without sharing names. If a payer is paying you less and is difficult to deal with, your margin with that payer is lower than what the fee schedule reflects.
Do you know your payer mix? How much of your pie does each payer represent? I have often pointed out to a payer that while it may consider itself a big fish, it’s a pretty small fish in my pond.
How are you better than your competition? Differentiation is critical to getting a payer’s attention. You should know your competition better than they know themselves and especially how you are better than them.

It is incumbent upon you to do your homework and find your leverage. You want to define the playing field to your advantage.

The leverage list can get pretty long. Other points to consider include the following:

Your practice may have much better screening rates than the norm.
It may get a lot of disgruntled patients who left other practices.
Your practice may count influential people as patients or fans.
You can terminate a payer agreement yet still have more patients than you can treat.
The practice may have better hours or walk-in clinics that keep patients out of the emergency room.
Your practice consistently uses lower cost testing and/or treatment options, whereas your competition uses higher cost alternatives.
Doctors, nurses and their families are your patients. There are a lot of ways to measure quality in health care, but my key measure remains where do those in the know go for their health care. Don’t name names, but let the payer know your practice is bigger (i.e., more influential) than it seems on the surface.
The administrative burden of the payer gets in the way of patient care and employee retention. Something has to give …
You — not the payer — define your leverage; remember that. Find strength in knowing your strengths in the marketplace.

Calmer heads prevail. Negotiations are a nuanced dance, so don’t bring hotheads to the meeting. I have seen negotiations blown off course by someone getting on their soapbox. Don’t let it happen.

In entering negotiations, know your “ask.” Know precisely what you are asking for, and why the payer should give it to you. Always include an annual inflation factor among your asks. Know your lines in the sand, both what you are willing to accept and when you will walk away if needed to protect your patients, your employees and your practice.

Puffer fish know themselves better than their predators do. For your practice to survive, it’s time to channel your inner puffer fish. Find your points of leverage, link them directly to your ask and refuse to be intimidated. It’s your ocean, they are your patients, and it’s your opportunity to define the playing field.