Managed care contract negotiations provider prospective june 26 2008
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Managed Care Contract Negotiations Provider Prospective June 26, 2008. Overview of Topics. Payer, Provider Relations Payer, Provider Negotiations Managed Care Market Strategy Managed Care Market Modeling Examples Future Trends. Payer/Provider Relations.

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Managed Care Contract Negotiations Provider Prospective June 26, 2008

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Managed Care Contract NegotiationsProvider ProspectiveJune 26, 2008


Overview of Topics

  • Payer, Provider Relations

  • Payer, Provider Negotiations

    • Managed Care Market Strategy

    • Managed Care Market Modeling

  • Examples

  • Future Trends


Payer/Provider Relations


Payer/Provider Relations: Historical Context

  • Payers and Providers have historically had a somewhat contentious relationship with very little trust between them:

    • Some payers have taken advantage of hospitals/physicians using payment hierarchies, bundling policies, and misleading methodologies as well as arbitrary denials and audit take-backs

    • Some hospitals have taken advantage of payers using phantom or targeted chargemaster changes


Payer/Provider Relations: Climate of Most Negotiations

  • Historical relationship creates a atmosphere of distrust in every negotiation

  • Arbitrary mandates are set because of this history (for example)

    • % of charge contracts are bad for the payer and good for the hospital

    • Fixed fee contracts are bad for hospital and good for the payer

  • Atmosphere of distrust does not allow for the development of “creative solutions”

    • This ultimately hurts the employer/consumer/member


Payer, Provider Negotiations


Overview

  • Myths about Payer/Hospital Negotiations

  • Managed Care Strategy

  • Modeling for Negotiation

  • Market Based Modeling

  • An Example


Myths about Payer/Hospital Negotiations

  • Payers have access to more data than providers, therefore

    • Payers will always have the advantage of better data

    • Payers have many (more) actuaries and financial analysts, so Payers will always have a modeling advantage over Hospitals

    • Payers understand the market better than hospitals

  • You must get the public’s support

    • In a tough negotiation, whoever wins the public’s support first will have a huge advantage


Facts about Payer/Hospital Negotiations

  • Data is the most important tool in any negotiation

  • Market leverage is the second most important tool in any negotiation

  • A good negotiator must understand the data and its limitations in order to effectively use market leverage


Managed Care Strategy

  • Before beginning any negotiation, a hospital must have a data driven well-developed managed care strategy that:

    • Takes into account the local market realities

      • Key payers

      • Other hospital competitors

      • Major local employers

      • Changing plan designs

      • Premium rates

    • Fits in with hospitals long term financial plans

    • Is realistic and can be implemented


Modeling for NegotiationCost Based vs Market Based

  • Targets for negotiations are usually set based on contract profitability, not market rates

    • That is, the provider estimates cost and develops a cost plus margin to propose to managed care payers

      • Hospital has no idea if cost + margin is even reasonable in their market

      • An efficient provider may be making a profit, but could be making an even greater profit if they understood “market rates”

  • Most hospitals idea of identifying “market rates” is “what is the payer we’re about to negotiate with paying the other hospital(s) in town?”


Approach to Managed Care Contracting

  • Cost Basis

    • Understand your cost for providing services

    • Develop expected cost + margin

    • Calculate needed reimbursement rates

  • Market Basis

    • Understand market dynamics

    • Develop model of managed care market

    • Calculate rates that “market” can support


Market Based

  • Analyze the local managed care market

    • What are local market premiums?

    • What are providers being reimbursed?

      • Hospitals

      • Physicians

      • Ancillaries

  • Key questions to be answered from analysis:

    • What is the local market paying for the services we provide?

    • How much can we receive for our services and still be in line with the market?

    • What will be the effect on the local market of our rate requests?


General Approach

  • Collect managed care market data

    • Publicly available information

      • Hospital financial data

      • Rate filings

      • Consulting firms

      • Data services

    • Proprietary information

      • Hospital financial information

      • Negotiated provider contracts

      • Market knowledge

      • Consulting firms


General Approach (cont’d)

  • Develop an actuarial model of the local market

    • Process is much more difficult in a very large/diverse market

      • Manhattan/New York City

      • Los Angeles County, CA

    • Very easy in smaller/less diverse market

      • Indianapolis, IN

      • San Diego County, CA

      • Most Georgia markets

      • Greenville, SC


General Approach (cont’d)

  • Once the model is developed, all the key questions can be answered, and a managed care strategy can be developed

    • Target reimbursement rates (In general and by payor)

  • The actuarial model contains all the necessary information about the market


Modeling Markets


Market Hospital Data

  • Begin with financial (cost report) data for 3 major systems in the market

  • Adjust data for known market facts to produce known financial results

    • Client’s financial performance

    • Medicare reimbursement and market share

  • Make similar adjustments to unknown data

    • The key is to always be conservative

  • Produce expected average reimbursement for hospitals in market


Actuarial Model Development

  • Collect Client’s system utilization and reimbursement data

    • Inpatient and Outpatient

  • Estimate hospital market share and commercial membership

  • Develop actuarial model for market

    • “Gross up” Client’s data based on market share and membership to develop expected utilization per 1000

    • Use hospital utilization per 1000 to develop physician utilization per 1000

    • Apply expected physician reimbursement rates to complete PMPM cost projection


Actuarial Model Development (cont’d)

  • Compare results to market premiums

    • Rate filing information

    • Other data (Mercer surveys)

  • Adjust assumptions until actuarial model predicts market


Model Results


Baseline Hospital Data forMarket (All Data is Publicly Available)


Adjustments to Baseline Data

  • Baseline data must be adjusted to remove non-managed care payors

    • Medicare

    • Medicaid

    • Workers Compensation

    • Self Pay/Charity etc

    • Other


Adjusted Commercial Results


Projection to FY 2008 and Chargemaster Adjustments


Actuarial Model Assumptions


Premium Rate Development


Negotiation Basics

  • Never ask for “unrealistic” rates

    • They do not give you room to negotiate, they only make you look unprepared, uninformed and weak

  • All rate proposals have to be defensible to all constituencies

    • Hospital Board, Employers, Payers etc

  • Stick to your strategy, adjusting tactics throughout the negotiation

  • Expect the worst (because that’s probably what you’re going to get)


Finalizing Agreements

  • Never depend on payer’s data without some external verification

  • Don’t allow artificial payer deadlines to complete contract cloud your judgment

  • Pay attention to all details

  • Be careful of “insignificant” issues

    • If truly insignificant, they should be insignificant to both sides


Examples of Other Markets

  • The following examples are of two markets in the Midwest

  • The data used for this analysis is all publicly available

    • A complete analysis would use this information to develop an actuarial model

      • This is simply the hospital reimbursement portion of the analysis

      • This information would then be merged with physician reimbursement and client specific information to develop a premium build up actuarial model


Market A


Lessons from Market A

  • Hospital 5 clearly is below market

    • Although hospital 5 is not at the same prestige level as hospital 1, they could increase reimbursement significantly without a payer terminating their contract

      • Hospital 5 is subsidizing the market

      • Hospital 5 probably has know idea that they could increase managed care revenue 25-30%


Market B


Lessons from Market B

  • Hospital 1 clearly is paid out of line with the market

  • Hospital 1 probably would not be able to ask for a large increase

    • Payers would be able to put a much cheaper product in the market by avoiding Hospital 1


Some Examples in Georgia

Results Are All Based On Publicly Available Data Only


Future Trends

  • Consumerism

    • Tiered networks

      • All Providers

      • Physicians only

  • Price Transparency

    • Consumers are increasingly interested in the true cost of services

  • Employer Cost Shifting

    • Member out of pocket payments

      • Continually increasing

      • Create hospital bad debt


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