Over the last several years, hospitals and healthcare groups have been ravaged by pandemic-related revenue losses. According to the American Hospital Association, in 2021 alone, U.S. hospitals lost approximately $54B in net income. Despite that, hospital leaders strive to achieve an economic resurgence by reducing operating expenses, streamlining operations, and perhaps most importantly, restructuring payer proposals to maximize their returns.
Achieving the latter has historically proved difficult, as payers typically have access to robust tools and extensive staff through which they can analyze and strategize numerous “what if” scenarios. Today, hospitals can level the playing field by investing in revenue technology such as managed care software and advanced healthcare contract modeling solutions.
Fortunately, recent healthcare I.T. spending trends indicate that hospitals are investing billions in new technology. While many of these funds are focused on streamlining the delivery of care, some are undoubtedly allocated toward enhancing revenue cycle management and facilitating more accurate modeling. The latter will prove especially valuable as hospitals work to maximize their revenue via payer proposal terms.
Do Hospitals Understand the True Value of Pay Proposals?
Yes, generally speaking, hospital systems and their managed care personnel understand the value of pay proposals and the terms they contain. Whether we are discussing a standalone regional hospital or a huge, multi-state hospital system, that holds true.
However, hospital decision-makers are fighting an uphill battle when negotiating pay proposals. For years, payers have had access to highly sophisticated modeling technology they could use to estimate the impacts of every proposed contract term accurately. Today, adopting independent managed care contract modeling tools enables hospitals to negotiate on equal footing.
The second factor undermining hospitals’ pay proposal negotiations is federal legislation requiring hospital price transparency, according to the Centers for Medicare & Medicaid Services. Now that payers can see their hospital fee schedules, hospital leaders have few cards to play during negotiations.
According to Deloitte Insights, some payers are partnering with other providers and working with third-party vendors to deploy “as-a-service” solutions. As a result of these newly emerging trends, some hospitals may find that they are negotiating with fewer individual payers and more groups overall.
4 Factors Hospitals Must Consider When Negotiating
Although hospital decision-makers often start payer proposal negotiations at a disadvantage, they can put their organizations in a position to succeed by considering four key factors, which include the following:
1. Payer Performance
Analyzing payer performance will help decision-makers identify opportunities to improve profitability and support a stable cash flow. However, it is essential that they use a standardized system for assessing payer performance. Standardized scorecards and healthcare provider contract modeling systems can help drill down to the claim level and evaluate payer behavior accurately.
2. Policy Shifts
During each new negotiation period, decision-makers will undoubtedly encounter payer policy shifts, and even seemingly insignificant changes can considerably impact profitability and cash flow. That being said, hospital leaders must not only identify these shifts but also analyze how they will affect revenue. If a particular change has significant negative impacts on revenue, hospitals can lobby against it or work with the payer to find some common ground.
3. Negotiated Rate Transparency
Now that payers can see hospital fee schedules, negotiating proposals has become more complex than ever. Unfortunately, there is no real workaround through which hospital leaders can circumvent transparency mandates. As such, decision-makers must seek out other ways to prepare for negotiations. One of the most effective approaches involves creating their own models to explore the impact of contract terms and conditions.
4. Pricing Correlation
One of a hospital’s key goals during payer proposal negotiations is to achieve better net revenue alignment. To achieve this, decision-makers must ensure that negotiated rates and gross charges correlate with one another to promote healthy revenue. Failing to consider the relationship between gross charges and negotiated rates in conjunction with one another can lead to costly oversights during payer proposal negotiations.
Best Practices for Modeling Payer Proposals
The most pragmatic negotiation strategy involves replacing spreadsheets with powerful analytics and modeling technology. Major hospital systems already rely on healthcare contract modeling to secure stronger reimbursement terms; smaller systems must do the same to remain competitive.
Hospitals that lack practical modeling tools can take one of two approaches.
- The expedited solution involves utilizing pre-packaged reporting tools from a provider like PMMC. Health systems can implement these tools quickly and begin exploring the revenue cycle using comprehensive modeling. Organizational leaders can analyze numerous what-if situations and obtain actionable insights to guide negotiations.
- The alternative approach is to invest in custom solutions. Hospital decision-makers interested in managing their own modeling and reporting processes prefer this strategy. Still, both pathways significantly enhance hospital leaders’ ability to negotiate favorable terms when creating payer proposals.
Explore the Unknown with PMMC
In the COVID-ravaged world, your organization must maximize revenue through savvy payer proposal negotiating tactics. In order to do so, however, you need access to robust reporting solutions that provide detailed insights into a multitude of “what-if” scenarios.
PMMC levels the playing field by providing powerful contract modeling tools—from turnkey reporting solutions to full, self-managed managed care contract modeling systems. We empower hospitals to evaluate the implications of every term and negotiate with confidence.
