Payment Reimbursement and Managed Care

How providers can optimize payer contract negotiations

When entering contract negotiations with payers, providers should make sure they are initiating the process from a position of strength, because it is the best way to lay the foundation for improved relationships with payers.

March 29, 2024 5:16 pm

Negotiating payer contracts can be both challenging and frustrating. Payers have significant leverage at the bargaining table, enhanced by payer consolidations and the emergence of dominant local, regional and national plans. But by adopting a transparent data-driven strategy in negotiations with a payer, a provider organization can create an opportunity for building a strong partnership with the payer based on mutual respect and understanding.

To achieve this outcome, it is imperative that the provider seek to enter negotiations from a position of strength. That starts, of course, with having a clear understanding of the payer’s mindset as discussed in the sidebar on page 30. Only with such an understanding can a provider begin to take steps to improve its position in the contract negotiations.

6 steps for establishing a strong negotiating position

The following steps can help ensure a provider’s contract negotiating team will achieve a favorable contract.

1 Start negotiating one year in advance. The provider should initiate the payer contract negotiation process well before the contract end date. Ideally, preparations should begin 12 months in advance to allow for ample time to conduct thorough research, identify key objectives and lay the groundwork for success.

By starting early, providers can position themselves to navigate potential challenges, explore various options and foster a constructive dialogue with payers, thereby enhancing their ability to secure favorable terms and outcomes.

If it becomes clear that the provider may need to go out of the payer’s network to deliver services the payer is unwilling to cover at rate the provider deems acceptable, the provider should make that decision and issue notice to the payer six months prior to the end of a contract, depending on contractual requirements. This window allows for the appropriate planning, notification and movement of patients to other payers. The window also maximizes leverage when managed to align with open enrollment.

2 Support contract proposals and requests with data. The provider’s contracting team should ensure their negotiation stance is backed by a foundation of accurate data and analytics. Every aspect of the proposal should be rooted in factual information, which requires leveraging comprehensive data to substantiate each assertion, whether it be advocating for parity among payers, aligning with industry standards or citing past performance and incremental increases. By grounding a position in objective data, providers not only bolster the credibility of their arguments but also demonstrate a commitment to transparency and informed decision-making. This evidence-based approach reinforces their negotiating position and strengthens the persuasiveness of their case, fostering a more collaborative and productive discussion.

Of course, the “big rock” of any negotiations is payment rates, and the provider should not broach this subject without first performing a thorough analysis of pertinent factors such as market trends, industry standards and performance metrics. The provider should allow the data to guide the rate request and avoid aiming unrealistically high.

By supporting a requested payment rate with data, a provider will not only present a grounded and rational approach but also provide a solid foundation for their negotiations. Further, defending a rate request publicly is easier to do when it is rooted in factual information.

Providers also should be prepared, however, for the possibility that payers will not fully accept their data, analytics and conclusions. Payers will come with their own set of data to support their position, and they may use that data to challenge the provider’s data. But by coming prepared with data and taking the lead in presenting their findings, providers can ensure they have a strong negotiating position from the start.

3 Make it about more than just rates. Contract negotiations should be about the entire relationship with the payer. Providers should not paint themselves as just wanting “more money,” as that can be used against them if negotiations become public. Instead, providers should put all payer issues on the table for negotiation, including, for example, concerns about:

  • Accounts receivable aged > 90 days
  • Unreasonable medical policies
  • Arbitrary and/or punitive special investigative unit investigations
  • Claim denials
  • Unwarranted/excessive down-coding
  • Low product margins/yields
  • Unnecessary administrative burden and cost

Establishing that the negotiations will address all the payer’s concerns sets the stage for a robust dialogue and enhances leverage and credibility.

Again, the provider should keep in mind that a key strategic objective should be to enhance the payer relationship. Although that relationship may be strained during most negotiations, having the discussions be about more than just rates facilitates engagement across all topics important to both the provider and the payer and sets the stage for a productive relationship going forward. Relationships take time to build and even longer to repair, but the “airing of all the dirty laundry” during the negotiation process is a critical starting point that can lead to a better relationship long term.

4 Escalate negotiations when necessary. As providers start contract negotiations, the goal is to quickly reach a point of either agreement or disagreement. If it’s the former, it’s a done deal. But in instances where the provider and the payer arrive at an impasse, the essential next step is to escalate negotiations to executive payer leadership.

Knowing who to engage within the payer’s organization, and when and how to engage them, is strategically critical for a provider. Payer contractors have a strong incentive to resolve all contract issues without escalation because when their leadership becomes engaged, the provider has a greater likelihood of enjoying concessions, which the payer executives may accept to avoid adverse publicity. Ultimately, providers should be open to raising contract negotiations to the level of a CEO-to-CEO dialogue. A benefit of encouraging such a dialogue is that it can open doors for future engagement and a collaborative commitment to work on removing barriers.

5 Understand your leverage. When a provider realizes that reaching acceptable contract terms by its established deadlines is not possible, only then should the provider begin to exercise any hard leverage it might have, such as the possibility of issuing a non-renewal notice for some or all product lines and effectively moving patients to other insurance options. This is not a step to be taken lightly and one that must be navigated only when all other options have been exhausted, given the regrettable impact it will have on patients, staff and the community. However, sometimes it is unavoidable in scenarios where the payer’s proposal is significantly short of what the provider requires to maintain financial solvency. What is most important is knowing exactly under what circumstances and how to time such a decision.

6 Ensure there is strategic alignment among executive leaders. The dynamics of payer negotiations can become intense, and it is vital to ensure that provider executive leadership, including the CEO and the board of directors, be firmly aligned to navigate through potential challenges. If a provider is forced to leave a payer’s network because the payer will not accede to a request the provider regards as essential,the provider must also accept that difficult challenges lie ahead. So success will depend on making sure everyone internally is on board and kept well informed.

A final takeaway: negotiate with integrity

Having provider leadership alignment also strengthens the provider’s negotiating position by enabling it to present a unified front, increasing the likelihood of favorable outcome in the contract negotiations. Providers also should be forthright in their message to payers, understanding that the goal is to form a successful partnership.

For that reason, providers should never leverage termination as a bluff. They should go into negotiations ready to make a good-faith effort to come to agreement, but with the full intent of going out of network if acceptable contract terms cannot be established. That requires ensuring alignment of all operations, public relations and contracting activities from the start, and furnishing leadership with regular updates all along the way. 

What providers should know about a payer’s mindset in contract negotiations

Understanding the mindset of payer contractors and anticipating their moves is essential to a successful negotiation. Payers enjoy an inherent advantage in contract negotiations because they hold the money. The payer contract team’s approach is often characterized by a tendency to play hardball, accompanied by an extensive list of reasons why they cannot accommodate provider requests. It’s important to understand that the payer contract team’s goals within this context are focused on the transactional nature of the negotiation, and they don’t always represent the broader view and perspective of the payer’s executive leaders and board members.

Among the elements that define a payer’s mindset, there are three that are particularly important for providers to understand.

Payer contracting teams have no strong incentive to initiate the contract negotiation process. As a result, providers tend to be in the position of having to start talks, which puts them at a disadvantage at the outset.

Payer contractors enjoy the advantage of knowing that timing is in their favor. And as the renewal/termination date approaches, their position only becomes stronger, which makes delays very much in their interest.

Payer contractors typically put their goals and objectives at the forefront in negotiations. Although different payers may have different motivations and objectives during contract negotiations, explicitly stating these points upfront is a common tactic payers use to control the process and narrative. Providers therefore should establish their own goals early in the process and come prepared to support their contract requests with clear, credible data and analytics.


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