Contract Negotiations: Not Just About the Dollars

Contract negotiations with payors formerly were a lengthy process. Not any more; they are concluded now in half the time because payors have stopped telling radiology groups to take it or leave it and, instead, are simply saying, “Take it.” Payors seem to hold all the cards in any bargaining over reimbursement rates. Mark Kleinschmidt, CEO of St Paul Radiology in St Paul, Minn, suggests it need not be that way. There are, he indicates, strategies that a radiology group can employ to strengthen its hand at the negotiating table. One is willingness to walk away from a bad deal. “Unfortunately, most of us don’t feel we can,” Kleinschmidt says. He also serves as president of Coeur D’Alene, Idaho-based NightHawk Business Services.

"We feel we've got to come away with a deal, any deal, just to be able to say a deal was made. I don't agree with that. A bad deal is a bad deal, and it's not going to help you in the long run to accept it." — Mark Kleinschmidt

Knowledge is Power Kleinschmidt believes in the win-win approach to negotiating. “Neither party should be completely satisfied when the negotiations are concluded,” he contends. “Both you and the other side should leave a little something on the table by not taking away too much.” You will never know if you have left too much on the table, however, unless you have accurate information about your numbers and those of the payor. “The information that health plans share with you to support their reimbursement proposal needs to be evaluated carefully,” Kleinschmidt says. “If you have solid facts, you’ll be able either to substantiate or refute their numbers. You can’t do that if all you have are estimates and suppositions.” Some payors keep those numbers close to the vest, but most are relatively forthcoming. “They’ll give you the data you ask for, although they may not necessarily be in the format you want, so you’ve got to have the ability to evaluate and interpret properly whatever you receive. Large groups, more than small ones, usually have the administrative support to be able to do that,” he says. Successful negotiating with payors requires attention to both strategy and tactics. Here are some pointers from Kleinschmidt. Keep your emotions in check. All of your decisions need to be based in dispassionate logic, not good feelings. A tactic of the trained negotiators on the other side of the table is to push your buttons and get you to act out of fear. Once you slip into panic mode, odds are the choices you make will be uniformly poor. Focus on more than hard dollars. An offer containing what, at first blush, may appear to be a disappointing rate of reimbursement could actually turn out to be a workable deal if other aspects of the proposal somehow give you an advantage. For example, a contract that grants you exclusivity as the radiology provider in certain geographic areas or service lines can solidify your revenue stream enough to compensate for a less-than-satisfying reimbursement rate. Know your strengths. Be able to show why you are the best provider in the market for each type of service, and then explain how that leadership position of yours can translate into payor success. Strengthen your strengths. Radiology-group leverage comes down to two things, according to Kleinschmidt: total or near-total exclusive coverage in a geographic area and breadth of subspecialty services. “Health plans want to know that you can provide quality services in all areas of radiology,” he says. “One of the things that has helped St Paul Radiology is that we cover the full spectrum of subspecialty areas—everything from interventional neuroradiology to pediatrics.” Payor Craftiness Knowing the mind of the payor before you sit down at the negotiating table can serve to neutralize some of your adversary’s advantages, much as forcing a card shark to reduce the number of aces up his sleeve can better your chances. “Payors believe there is a lot of unnecessary imaging being done,” Kleinschmidt says. “As a result, here in the Twin Cities, what we’re finding this year is that the focus is more on reducing utilization than it is on getting the cost for services down with reimbursement rates set as low as possible. Payors understand that low reimbursements do not save money if providers can make up for that with volume. Besides, to them, reducing utilization is like low-hanging fruit—it’s just a little easier to try to go after that than it is to ratchet down pricing overall.” Utilization caps are most likely to be demanded by payors in those pockets of the nation with the largest concentrations of the elderly, Kleinschmidt adds. “The reason is, of course, that seniors tend to need and use health care services, imaging in particular, more than a younger population,” he says. Lately, payors have become enthusiastic about contracts that call for radiology providers to be assigned to service and cost tiers. “Payors want to do this so that they can publish which tier you’re in,” Kleinschmidt explains. “That information is shared with the payor’s subscribers and beneficiaries so that they can decide whether they want to go to you or to someone else for an imaging study. This is happening because payors are beginning to warm up to the consumer-driven health care movement and see it as helpful. Early on, they wanted to stay away from it in the hope that it would go away. Now that it’s reached a certain level in the marketplace, they recognize it’s going to be a factor. Health savings accounts, for example, are now, in the eyes of some payors, viewed as a business opportunity.” Payors also sense opportunity in persuading radiology providers to participate in contingency funding schemes. “This is something that’s been around before,” Kleinschmidt says. In case you missed it the first time, contingency funds entail the payor withholding from you a portion of the reimbursement dollars to which you are entitled; the money is returned to you after a certain amount of time—typically one year—and only if the payor meets certain economic goals. “It’s a reverse incentive: In order for the withheld funds to be released, the burden is on you to make the payor successful,” Kleinschmidt says. Other demands that you can expect to see at the negotiating table, Kleinschmidt reports, are prior authorization/prior notification for high-tech imaging studies and, as a prerequisite for a contract, facility accreditation. Future Shock Next year, or the year after that, payors might, in droves, begin adopting contract language mimicking that of Medicare with regard to teleradiology billings, in a shift that could prove to be a problematic, Kleinschmidt suspects. “Medicare’s national determination for teleradiology reading requires that the professional fee now be billed to the Medicare carrier where the read occurred, instead of to the Medicare carrier where the exam was performed,” he notes. “The problem is that it makes the billing process potentially very complicated, not to mention convoluted.” Conceivably, a group could have to bill—and first negotiate contracts with—multiple Medicare carriers, one at a time, and with no expectation of harmonized results. “Up until now, most groups have only had contracts with the one Medicare carrier in the region where they have their practice,” Kleinschmidt says. Of even greater concern is Medicare’s pilot program, slated to begin later this year, in which hospitals will be paid a global fee for a particular episode of care. “Radiology fees would be included in the global reimbursement, and it would be left to the hospital to pay the radiology group,” Kleinschmidt says, “which means the radiology group would have to negotiate with the hospital to determine what the radiology group will be paid for its services.” If this pilot program expands and goes universal, Kleinschmidt worries that it could destabilize relationships between radiology groups and the hospitals they cover, turning allies and business partners into adversaries. “It potentially represents a huge step backward,” he says, adding that radiology groups should just say no to this kind of deal. “The concern I have is that forfeiture of independence will be the price groups pay to affiliate directly with a hospital. We’ve already seen instances where hospital systems are choosing to hire their radiologists rather than contract with them. I think, eventually, radiologists will be left with only two choices: either accept hospital employment or join a bigger group,” he says. Bigger groups there probably will be, for it is among such organizations that the greatest degree of bargaining power naturally resides. “I think we can expect to see more mergers among groups, and more consolidation,” Kleinschmidt predicts. On the surface, the rise of size might seem like a good thing, given that large groups have the means to acquire the personnel, technology, and equipment necessary to achieve (or at least push toward) market dominance. At a deeper level, though, radiologists in large groups are inherently less independent that those in small groups, and less so than those in solo practice. Still, regardless of group size and the amount of independence relative to that, success in radiology begins with a good contract. To obtain one, these days, requires an ability to press for every advantage at the negotiating table. Strive for a better understanding of how the game is played and, by extension, you will strengthen your hand.