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Terminate to Negotiate

Ask 10 payor relations executives at the country’s largest health systems, and eight or nine of them will tell you that negotiating contracts with health plans was more challenging in 2016 than previous years.

Health systems face strong headwinds: Pressure from payors to drop rate increases, or to accept outright cuts; uncertainty from health plan mergers currently under regulatory challenge; potential volume loss from Exchange members if Obamacare is repealed without a replacement; and continued calls to embrace more risk through value-based contracts. All this, while the cost of delivering care continues to rise.

As the environment continues to toughen for health systems, there has been a curious pattern in many contentious contract negotiations that ReviveHealth has tracked across the country in the last 12 to 18 months, one that could make negotiations even more challenging.

We’ve dubbed this phenomenon “terminate to negotiate.” Health plans waiting until the 11th hour of contract negotiations—and sometimes even letting contracts expire—with little or no movement in their negotiating positions in order to pressure health systems into blinking first and caving in on contract terms. The payor’s delay in real engagement puts more and more pressure on health system board members and leadership, who view going out of network as an absolute last resort, and many reduce their demands just to avoid it. The payors’ inaction and inattention is the strategy, and many health systems end up negotiating against themselves because the dynamic is so unfamiliar.

While it’s too early to know whether this is a bona fide strategy being deployed by payors, it is significant enough for health systems to understand if they want to be better prepared for future negotiations.

Contract negotiations that go to the brink are not remarkable. They’ve been happening for years. What is remarkable, however, is that health plans seem unshaken by the prospect of going out of network, even with large, prominent health systems. Being out of network may last as short as a few weeks, or as long as 60 days or more, but there is a clear pattern we’ve seen in a handful of issues in different states.

In Texas, Blue Cross and Blue Shield never really moved from its position with a major system before coming to a new agreement. During its negotiation, Blue Cross relentlessly criticized the health system in an aggressive and public campaign. Yet, the two sides were only apart by two percent in their negotiating positions, a fact that Blue Cross itself publicized in the news media.  And Blue Cross only moved marginally at the very end, with less than 48 hours remaining.

And Humana, which doesn’t generally engage in confrontational negotiations, parted ways with one national health system in an uncharacteristically aggressive public dispute. During negotiations, Humana never budged in its demands. The health system has now been out of Humana’s network since Q3 of 2016, yet there is still no sign that Humana may be willing to compromise.

There is no shortage of other examples. UnitedHealthcare pushed Piedmont Healthcare out of its network for two months before the two sides came to a deal, as widely reported in Atlanta media. Anthem initiated a termination and didn’t budge against Yale Medicine until two days before their contract expired, finally arriving at a new physician enterprise. The list goes on and on, mostly with UnitedHealthcare and independent state Blues plans.

It’s too early to tell whether the pattern of holding a hard line until close to or past the brink suggests that payors are deploying a new, more aggressive negotiation strategy. But if health systems want to adapt to increasingly tougher negotiations, they need to start preparing for it now. Their business, negotiation, and communication strategies must be in sync 150 to 180 days prior to the contract’s end date.

Successful negotiations will require even more diligence and resolve, as well as a succinct communication strategy that clearly signals resolve both internally across a health system’s entire organization and externally to the market. Messages cannot communicate hope or optimism for resolution, but rather determination for a fair deal.

Payors may be putting on a tough show, but make no mistake, they have a lot to lose. Patients want convenient access to a wide network of providers. A restricted network creates a competitive disadvantage payors can’t afford. Health systems that learn to hold the line—and more importantly, show the market that they are committed to holding that line, however long it takes—will be in a much better position to get what they seek in contract negotiations.

August 8, 2017
Providers must prepare for payor negotiations in 2019 and beyond.
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