Ask the Experts: Contracting with Small Health Plans

April 24, 2017 2:05 pm

I am evaluating some smaller health plans in our market. We currently contract with a large health plan with whom we have favorable terms. Some of the smaller health plans want the same terms as the larger health plan, but I am wondering what areas of comparison I should look at to be sure I am getting the same levels of service from the small versus the large health plan?

Answer 1: I’m not a contract plan specialist but would recommend this approach:

  • Is there a provision for out-of-network providers?
  • Is there an early termination fee?
  • Are there contract amendments that are unilateral or do they have to be accepted by both parties?
  • For financial metrics, how much business and type of business does the health plan report for prior years?

This question was answered by: David A. Williams, FHFMA, CPA, partner, Horne LLP, and a member of HFMA’s Mississippi Chapter.

Answer 2: When we contracted with small health plans in the past, we would sometimes base the level of discount on volume. If the volume of patients grew to a certain amount, then the following year the discount would increase by a certain percentage.

This question was answered by: Ruth Landé, vice president, patient revenues, Memorial Sloan-Kettering Cancer Center, and a member of HFMA’s Metropolitan New York Chapter.

Answer 3: In addition to the previous answers, other key indicators would be payment turnaround, ease of authorization process, and claim edit denials.

This question was answered by: Michele Marcum, CHFP, senior network manager, Aetna, and a member of HFMA’s Idaho Chapter.

Answer 4: In general, providers with strong market shares, such as dominant hospital systems in given geographic areas, can demand and obtain very favorable terms from private health plans. This is because health plans would have great difficulty in getting and keeping subscribers if certain hospital systems were not included in networks of providers.

Less dominant hospital systems in the same area often have to settle for less favorable terms. This is because a private health plan might be willing to risk not having less dominant systems in their provider networks.

The marketplace works in a similar manner for private health plans. Dominant health plans can demand and obtain favorable terms from providers because providers do not want to risk being outside of health plans’ provider networks and thereby lose patient services to other providers.

In my experience, many providers frequently demand and obtain more favorable terms in contracts with private health plans that have relatively small market shares in certain providers’ geographic areas. Usually, the smaller the market share for private health plans, the more favorable the terms for providers.

Note that the national size of private health plans usually has no impact on the contract terms when plans have small market shares in given geographic areas.

It is important for hospital boards of directors, and in particular finance committees, to be informed about this. Board members sometimes respond favorably to announcements of health plan contracts, whatever the terms. Similarly, if contracts are not obtained because hospitals push hard for favorable terms, some board members might respond unfavorably, even if the terms favored by the private health plans would have been bad for the providers.

If a given provider wants to achieve its mission, it must be a wise negotiator of its contracts with private health plans. This includes a strategy of being firm negotiators with health plans that have small market shares.

Many providers have full-time staff devoted to the issue of resolving ongoing payment denials and “underpayments” by private health plans. The providers also often use outside contractors to load contract terms into specialized software products that are used by full-time staff to resolve denials and underpayments. Such staff and contractors should be consulted by staff who will negotiate contracts. This should be done before the negotiations begin and continue during the negotiation processes.

I recommend that providers not “give away the store” to private health plans that have small market shares in the providers’ geographic areas. Instead, negotiate the best possible terms and, from time-to-time, be willing to “walk away” from proposed contracts that do not have the desired terms.

This question was answered by: Robert J. Ellertsen, FHFMA, a former hospital CFO with more than 35 years experience in healthcare finance.

What do you think? Please share your thoughts on this question in the comments section below.  

The information provided through the Forum’s Ask the Expert service does not constitute legal advice, even when the advice is provided by lawyers. You need to obtain your own legal counsel for legal advice, and consider the laws and regulations that govern your state. The content and opinions expressed are those of the Forum experts, and not that of their employers or of HFMA. HFMA does not endorse the material or warrant or guarantee its accuracy. The responses are based only on the specific facts or circumstances provided. Forum experts cannot be held liable for outcomes related to any information provided.

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