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The Four Key Components of Contracting

Part Four – Strategize Your Proactive Negotiation


Previous: Three - Establish Your Expectations


Transcribed Video Content Below

Susan: So we'll look at a couple of things strategy-wise so that your preparation pays off and we're thinking through options. You won't be surprised to see this, many of you, but it's really important to not only know what timeframe you should start this negotiation so you have every confidence of resolving it, being successful, and bringing a new deal to the table without putting the patients in the middle. But you also need to be prepared to walk away. If you're so sure you're never going to leave that contract it will exude right through your negotiation that anything fine as long as a contract doesn't term. Knowing what is a deal breaker. Knowing what your walk away point is, is really important. That actually has the opposite effect, and I don't mean threatening. I mean knowing it yourself that you don't lose sight of it in how you share information, how you broach the contract, how you set your various proposals. Your success level will increase because you know where that threshold is. That's internal discussion that’s often hard to have. There's not always leadership support for getting close to the edge of a termination, but it always is a reality for these contracts. And again, many of you have much experience more often than not even if you get across the threshold, it just exacerbates the relationship to the point that you can repair that before it does impact patients, but you have to know what the deal breaker is for you organization. Have that difficult discussion up front.

Also we don't have enough time today to get too much detail into this, is knowing if the entire contract needs to change in its nature. We've designed this to be a little bit generic of a presentation that could fit a lot of different contract models. But if you're in a traditional piece or service model, now is the time because if you're negotiating an amendment to a contract to look at whether you should introduce dramatic changes. Should you introduce incentives? Should you move to a risk-based structure whether it's modest risk or full risk? Should you move to a narrow-network offering? Should you look for a new product to be designed for you? So maybe you can't make reductions in your rate, but maybe you could if you knew you were having a narrow network built for you alongside a PPO network where you're participating among many others. This is a time to see what the interest level is of the payer in designing something that you don't have now but could very well change your future. Even the tiered offerings to say, "This is what I would do if I had an inner tier offering, or benefits directed toward my organization and they were wrapped with the rest of the organization." No doubt the payers have been thinking it through even before you are. If you open that discussion you may end up with an entirely different contract than just increase to current rates. You'd end up with a new collaboration. If you're excluded from the collaboration, because they've done this with others, you'll want to know that too.

Measuring internally to your tolerance for that risk is important. You know, fee-for-service has traditionally been very predictable, but it's not going to remain predictable in the market. It has already changed dramatically. What is the tolerance and the capability of your organization in converting a portion of the contract to guaranteed earnings versus incentive-based earnings where you have to perform and meet certain measure, quality measures and others, to get the rest of that contract increased? It's time to think about that in the back room, assess that with the payer, and start to convert the contract.

So there it is. The page wasn't going to turn. This is a tradeoff, as you might imagine. I covered a lot of different ways to look at this. They're all not going to move forward at the same pace, so you'll need to rank order, much like you asked me to rank order in the question, which of these issues is most important? So that when you can only take something that covers 15 desires and 10 are really important that you know how to rank order the 10, and you know how to stage that negotiation so you don't lose sight of the top three. If you don't know, you're not going to know how to present in your project. If they're all equal, you want to present it in your proposals in a way that features the ones that are “absolutes” versus those that could sway either way in the negotiation, really important. Picture your team at the table trying to write that at a whiteboard, and if that your team can't decide, how are you going to know the contract was successful if you don't even know what you want and you haven't involved the other party yet? So really important to spend some time on that recognizing that.

The other matter I referenced earlier has to do with anchoring. So if you know what you need, and you've targeted that, and that's what you're striving to achieve all throughout of the negotiation, you're going to go back to that original anchor. If you don't have an anchor, the tendency is human nature is to keep meeting in the middle. If you take in the last proposal and left out a proposal and finding something that's a compromise, but it’s all dependent on where the other party started. What matters to you is that you had that marker out there. You know what you were trying to achieve, and everything should be tied back to how close you are to that marker. You'll make some tradeoffs. You won't achieve all of it, but you'll go back to measuring against your marker for success not just the play back and forth between proposals being exchanged. That could be rather dangerous.

And then finally, I just wanted to stress again about the empirical data. the more you studied this, the more the data is going to really focus you on how to go about the negotiation which is more so a dance than anything else. It's really reacting to each other. The data will guide you. The dance will be how you start to craft the speed and the nature in which you're going to achieve those goals. Your comparisons that you create in that contract modeling is a fabulous investment. It will help you always go back to a baseline to see where I am, where I intend to be and where is my negotiation now. And you can measure that in increments. You'll know each tradeoff you make. Everything I've said here could be said on the opposite side of the table. The payer has their needs and their increments. But you want to see when they demand and must have a certain thing what's it worth? And then trade off something you can tolerate because you achieved one of your goals. But you need a way to measure really important. And then finally just keeping in mind it's all about that relationship both near term and long term with the provider. What is it you want to do with it so that you know two years out that you’ve actually improved the relationship and not just have done a financial transaction on rates? You want to be valuable to them more valuable in the future than you are even now. Greg?

Greg: Thanks, Susan. So as we started the session nearly an hour ago, we noted there were four key components to successful contract governance. And today, we've really focused on that point number one. And really for an efficient and effective contract governance process, it should include several key things. First and foremost, it needs to have the ability to model all variety of payer contractual arrangements. Without that on the front end, the second, third or fourth component of contract governance really starts to break down. You need to identify your benchmarks. Susan has highlighted several of those benchmarks on the call today. There should be an understanding of your organization's risk tolerance and your willingness to push the envelope in the payer negotiation process and that starts with the contract modeling piece. An effective and efficient contract governance process should also incorporate others.

I really need to commend Susan and her team in how they've developed a really close working relationship in that Dr. Boutros Metro Health's present CEO is very involved in the negotiation process. They know the payers. They know the market, and it's a real team effort. And that goes a long ways when you sit down at the negotiating table because we're dealing with other people, and really understanding what their needs are and where we want to end up is a real critical piece to successful contract modeling.

The fifth item would be really understanding the contractual terms and arrangements before you sign it, and this allows you to understand both the upside and the downside, value and risk that you're putting your organization up for, and then lastly, incorporating payer scorecards in the process. That's something that gets a lot of comments around, but obviously, as we heard and so on the one of the poll questions it really is still an area for process improvement, I think from a greater industry perspective. I work with someone very closely that always uses to comment, "What gets measured gets done." And I think that scorecard process and the benchmark is something that obviously our industry needs to continue to embrace as we try to improve the payer contract governance process.