Dancing with the Devil

1. Dancing with the Devil How to Negotiate with Managed Care Companies Ron Howrigon – President, Fulcrum Strategies

2. Dancing With the Devil The Process, Tactics, and Techniques for Negotiating Contracts with Managed Care Companies

3. The Health Care Financial Landscape Has Changed over the last 10 years (1998 – 2008)

4. Percent Annual Increase in National Health Expenditures (NHE) per Capita vs. Increase in Consumer Price Index (CPI), 1980-2008 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 1960-2008; file nhegdp08.zip), and CPI data from Bureau of Labor Statistics at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt (All Urban Consumers, All Items, 1982-1984=100, Not Seasonally Adjusted, U.S. city average).

5. Distribution of National Health Expenditures, by Type of Service, 1998 and 2008 Hospital Care Physician/ Clinical Services Prescription Drugs Nursing Home Care Home Health Care Other Personal Health Care Other Health Spending Notes: Percentages may not total 100% due to rounding. Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc. Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc. Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health Expenditures by type of service and source of funds, CY 1960-2008; file nhe2008.zip).

6. Annual Percentage Change in National Spending for Selected Health Services, 1998-2008 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health Expenditures by type of service and source of funds, CY 1960-2008; file nhe2008.zip).

7. In the past three years (2006 – 2008), the five largest insurance companies (Wellpoint/Anthem, United, CIGNA, Humana and Aetna) have…

8. Insurance Companies Increased Revenue by 10% to $170.8 Billion

9. Insurance Companies Decreased Pre-tax Profits by 23% to $10.4 Billion

10. How about Physicians?

11. Physicians Over One Third of all Physicians report working more than 60 hours per week

12. Physicians The average Physician income has decreased by 5% when adjusted for inflation

13. Physicians All other Professional/Technical workers have experienced a 3.5% increase in income after inflation adjustments

14. Insurance Companies are growing but making less money Physicians are working harder and making less money

15. Do you have the skills and tools necessary for the next 5 years?

16. Agenda • Why are Managed Care negotiations critical to your business success • The negotiation process • Position evaluation • Goal setting • Strategy development and examples • Negotiation tactics and examples • Finalize agreement and contract language • Evaluate and measure results

17. Why Negotiate? • Health Care Reform means insurance companies are going to get more aggressive • Medicare is still going broke • Insurance companies profit declines • Managed Care is targeting physician expenses • Reverse the trend of the last 5 years • Protect your future

18. Why is the Fight Between Physicians and Managed Care? • Physicians – 30% • Hospitals – 30% • Pharmacy – 19% • Other – 7% • Administration – 11% • Profit – 3%

19. Profit Opportunity Example • Physician’s make up 30% of the total health care premium. • A 5% reduction in physician expense would equate to a 1.5% increase in profit for the managed care company. • This would be viewed by Wall Street as a 50% increase in total profits!

20. Managed Care vs. Physicians • Physicians are poorly organized • FTC support of IPA destruction • Competition among physicians • Physicians are typically not skilled negotiators • No marketing budget • Poor job of public relations

21. Negotiation Process

22. Evaluate your Position • Market position • Sub-Specialty expertise • Referral physician relationship • Payer mix • Payer fee schedules • Competitor capacity

23. Evaluate your Opposition • Market Share • Competition • Current Performance • Leverage • Weakness • Intangibles

24. Set Goals • Reimbursement • Contract Term & Termination • Language • Walk Away Points • Opening Position • Negotiation Points

25. Develop Strategy • Negotiation is all about leverage! • “Let us never negotiate out of fear. But let us never fear to negotiate.” John F. Kennedy

26. Strategies & Tactics - General • Use numbers to your advantage • Limit of authority • Good Cop – Bad Cop • Only respond to offers not questions • Never negotiate against yourself • If you can’t get the whole lunch at least get a sandwich

27. Strategies & Tactics - General • Split the difference • Negotiate the person in addition to the contract • The garage sale • Buy Low – Sell High • The ultimatum

28. Managed Care Strategies“A look inside the other side”

29. Managed Care Strategies • Delay – “our lady of perpetual negotiations” • Limit of authority – “corporate, legal, budget, etc.” • Two steps forward and three steps back • Funny math • The run around

30. Managed Care Strategies • Divide and conquer – hospital vs. physicians • All products or no products • Indifference • Employer communications • Termination language and dates

31. Strategies & TacticsPhysicians • Musical chairs • Health Plan report cards • Patient donation • Patient communication • Service location • Sell a termination • Termination

32. Negotiation – Points to Remember • “The best battle plan rarely survives the first contact with the enemy.” • Adapt, Adjust and Overcome • Everything is negotiable • I can’t vs. I won’t

33. Close the Deal • Be prepared to trade • Meet in the middle • Be creative • Don’t get hung up on small language issues • Understand which language issues are big

34. Contract Language Negotiations • If you don’t understand the language it will probably be used against you • These agreements are drafted by managed care companies, for managed care companies. Don’t expect fairness “The following examples and for illustrative purposes and do not constitute any legal advice. The presenter is not an attorney. When entering into any legal contract you should always consult your attorney.”

35. Contract Language Examples 3.1 Payments. Payments for Covered Services will be the lesser of the billed charge or the applicable fee under Exhibit C, subject to the Payment Policies and minus any applicable Copayments, Coinsurance and Deductibles. The rates in this Agreement will be payment in full for all services furnished to Participants under this Agreement. Group and its Represented Physicians shall submit claims for Covered Services at the location identified by CIGNA and in the manner and format specified in this Agreement and the Administrative Guidelines. Claims for Covered Services must be submitted within 180 days of the date of service or, if Payor is the secondary payor, within 180 days of the date of the explanation of payment from the primary payor. Claims received after this 180 day period may be denied except as provided in the Administrative Guidelines, and Group and its Represented Physicians shall not bill CIGNA, the Payor or the Participant for those denied services. Amounts due and owing under this Agreement with respect to complete claims for Covered Services will be payable within the timeframes required by applicable law.

36. Contract Language Examples 3.1 Payments. Payments for Covered Services will be the lesser of the billed charge or the applicable fee under Exhibit C, subject to the Payment Policies and minus any applicable Copayments, Coinsurance and Deductibles. The rates in this Agreement will be payment in full for all services furnished to Participants under this Agreement. Group and its Represented Physicians shall submit claims for Covered Services at the location identified by CIGNA and in the manner and format specified in this Agreement and the Administrative Guidelines. Claims for Covered Services must be submitted within 180 days of the date of service or, if Payor is the secondary payor, within 180 days of the date of the explanation of payment from the primary payor. Claims received after this 180 day period may be denied except as provided in the Administrative Guidelines, and Group and its Represented Physicians shall not bill CIGNA, the Payor or the Participant for those denied services. Amounts due and owing under this Agreement with respect to complete claims for Covered Services will be payable within the timeframes required by applicable law.

37. Contract Language Examples 3.13 Excluded Services. This Agreement excludes services that CIGNA has elected to obtain under an arrangement between CIGNA or a CIGNA Affiliate and a national or regional vendor or provider or a capitated provider, except as otherwise agreed by CIGNA. Group and its Represented Physicians will not be reimbursed and will not bill Participants for any such excluded services. If CIGNA notifies Group that it no longer chooses to exclude a particular service from this Agreement, that service will no longer be excluded and those services will be reimbursed as specified in Exhibit C.

38. Contract Language Examples Covered Services will be reimbursed at the lesser of billed charges or the CIGNA RBRVS allowable fee, less applicable Copayments, Deductibles and Coinsurance. The CIGNA RBRVS allowable fees are updated by CIGNA periodically to reflect new information regarding RVU’s, GPCI’s, conversion factor, and the addition of new codes and services. The GPCI locality used for this agreement is North Carolina.

39. Contract Language Examples Covered Services will be reimbursed at the lesser of billed charges or the CIGNA RBRVS allowable fee, less applicable Copayments, Deductibles and Coinsurance. The CIGNA RBRVS allowable fees are updated by CIGNA periodically to reflect new information regarding RVU’s, GPCI’s, conversion factor, and the addition of new codes and services. The GPCI locality used for this agreement is North Carolina.

40. Contract Language Example 9.2 This Agreement may be terminated by either party upon 90 days written notice effective at the end of the initial term or at the end of any renewal term.

41. Contract Language Example 9.2 This Agreement may be terminated by either party upon 90 days written notice effective at the end of the initial term or at the end of any renewal term.

43. Evaluate and Adjust • Postmortem • Surprises • Effectiveness of strategy and tactics • Adjustments for the next negotiation

44. Key Points • Negotiation is a process not an event! • You must effectively negotiate your managed care contracts to succeed. • Knowledge, analysis and planning are essential for a successful negotiation. • Contract language negotiations can be as critical as the rate negotiations. • Be prepared. Don’t go into a gun fight armed with a knife.