Managed Care Contract Negotiations Provider Prospective June 26, 2008 - PowerPoint PPT Presentation

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Managed Care Contract Negotiations Provider Prospective June 26, 2008

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Market leverage is the second most important tool in any negotiation ... Hospital has no idea if cost margin is even reasonable in their market ... – PowerPoint PPT presentation

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Title: Managed Care Contract Negotiations Provider Prospective June 26, 2008


1
Managed Care Contract Negotiations Provider
Prospective June 26, 2008
2
Overview of Topics
  • Payer, Provider Relations
  • Payer, Provider Negotiations
  • Managed Care Market Strategy
  • Managed Care Market Modeling
  • Examples
  • Future Trends

3
Payer/Provider Relations
4
Payer/Provider Relations Historical Context
  • Payers and Providers have historically had a
    somewhat contentious relationship with very
    little trust between them
  • Some payers have taken advantage of
    hospitals/physicians using payment hierarchies,
    bundling policies, and misleading methodologies
    as well as arbitrary denials and audit take-backs
  • Some hospitals have taken advantage of payers
    using phantom or targeted chargemaster changes

5
Payer/Provider Relations Climate of Most
Negotiations
  • Historical relationship creates a atmosphere of
    distrust in every negotiation
  • Arbitrary mandates are set because of this
    history (for example)
  • of charge contracts are bad for the payer and
    good for the hospital
  • Fixed fee contracts are bad for hospital and good
    for the payer
  • Atmosphere of distrust does not allow for the
    development of creative solutions
  • This ultimately hurts the employer/consumer/member

6
Payer, Provider Negotiations
7
Overview
  • Myths about Payer/Hospital Negotiations
  • Managed Care Strategy
  • Modeling for Negotiation
  • Market Based Modeling
  • An Example

8
Myths about Payer/Hospital Negotiations
  • Payers have access to more data than providers,
    therefore
  • Payers will always have the advantage of better
    data
  • Payers have many (more) actuaries and financial
    analysts, so Payers will always have a modeling
    advantage over Hospitals
  • Payers understand the market better than
    hospitals
  • You must get the publics support
  • In a tough negotiation, whoever wins the publics
    support first will have a huge advantage

9
Facts about Payer/Hospital Negotiations
  • Data is the most important tool in any
    negotiation
  • Market leverage is the second most important tool
    in any negotiation
  • A good negotiator must understand the data and
    its limitations in order to effectively use
    market leverage

10
Managed Care Strategy
  • Before beginning any negotiation, a hospital must
    have a data driven well-developed managed care
    strategy that
  • Takes into account the local market realities
  • Key payers
  • Other hospital competitors
  • Major local employers
  • Changing plan designs
  • Premium rates
  • Fits in with hospitals long term financial plans
  • Is realistic and can be implemented

11
Modeling for Negotiation Cost Based vs Market
Based
  • Targets for negotiations are usually set based on
    contract profitability, not market rates
  • That is, the provider estimates cost and develops
    a cost plus margin to propose to managed care
    payers
  • Hospital has no idea if cost margin is even
    reasonable in their market
  • An efficient provider may be making a profit, but
    could be making an even greater profit if they
    understood market rates
  • Most hospitals idea of identifying market rates
    is what is the payer were about to negotiate
    with paying the other hospital(s) in town?

12
Approach to Managed Care Contracting
  • Cost Basis
  • Understand your cost for providing services
  • Develop expected cost margin
  • Calculate needed reimbursement rates
  • Market Basis
  • Understand market dynamics
  • Develop model of managed care market
  • Calculate rates that market can support

13
Market Based
  • Analyze the local managed care market
  • What are local market premiums?
  • What are providers being reimbursed?
  • Hospitals
  • Physicians
  • Ancillaries
  • Key questions to be answered from analysis
  • What is the local market paying for the services
    we provide?
  • How much can we receive for our services and
    still be in line with the market?
  • What will be the effect on the local market of
    our rate requests?

14
General Approach
  • Collect managed care market data
  • Publicly available information
  • Hospital financial data
  • Rate filings
  • Consulting firms
  • Data services
  • Proprietary information
  • Hospital financial information
  • Negotiated provider contracts
  • Market knowledge
  • Consulting firms

15
General Approach (contd)
  • Develop an actuarial model of the local market
  • Process is much more difficult in a very
    large/diverse market
  • Manhattan/New York City
  • Los Angeles County, CA
  • Very easy in smaller/less diverse market
  • Indianapolis, IN
  • San Diego County, CA
  • Most Georgia markets
  • Greenville, SC

16
General Approach (contd)
  • Once the model is developed, all the key
    questions can be answered, and a managed care
    strategy can be developed
  • Target reimbursement rates (In general and by
    payor)
  • The actuarial model contains all the necessary
    information about the market

17
Modeling Markets
18
Market Hospital Data
  • Begin with financial (cost report) data for 3
    major systems in the market
  • Adjust data for known market facts to produce
    known financial results
  • Clients financial performance
  • Medicare reimbursement and market share
  • Make similar adjustments to unknown data
  • The key is to always be conservative
  • Produce expected average reimbursement for
    hospitals in market

19
Actuarial Model Development
  • Collect Clients system utilization and
    reimbursement data
  • Inpatient and Outpatient
  • Estimate hospital market share and commercial
    membership
  • Develop actuarial model for market
  • Gross up Clients data based on market share
    and membership to develop expected utilization
    per 1000
  • Use hospital utilization per 1000 to develop
    physician utilization per 1000
  • Apply expected physician reimbursement rates to
    complete PMPM cost projection

20
Actuarial Model Development (contd)
  • Compare results to market premiums
  • Rate filing information
  • Other data (Mercer surveys)
  • Adjust assumptions until actuarial model predicts
    market

21
Model Results
22
Baseline Hospital Data for Market (All Data is
Publicly Available)
23
Adjustments to Baseline Data
  • Baseline data must be adjusted to remove
    non-managed care payors
  • Medicare
  • Medicaid
  • Workers Compensation
  • Self Pay/Charity etc
  • Other

24
Adjusted Commercial Results
25
Projection to FY 2008 and Chargemaster Adjustments
26
Actuarial Model Assumptions
27
Premium Rate Development
28
Negotiation Basics
  • Never ask for unrealistic rates
  • They do not give you room to negotiate, they only
    make you look unprepared, uninformed and weak
  • All rate proposals have to be defensible to all
    constituencies
  • Hospital Board, Employers, Payers etc
  • Stick to your strategy, adjusting tactics
    throughout the negotiation
  • Expect the worst (because thats probably what
    youre going to get)

29
Finalizing Agreements
  • Never depend on payers data without some
    external verification
  • Dont allow artificial payer deadlines to
    complete contract cloud your judgment
  • Pay attention to all details
  • Be careful of insignificant issues
  • If truly insignificant, they should be
    insignificant to both sides

30
Examples of Other Markets
  • The following examples are of two markets in the
    Midwest
  • The data used for this analysis is all publicly
    available
  • A complete analysis would use this information to
    develop an actuarial model
  • This is simply the hospital reimbursement portion
    of the analysis
  • This information would then be merged with
    physician reimbursement and client specific
    information to develop a premium build up
    actuarial model

31
Market A
32
Lessons from Market A
  • Hospital 5 clearly is below market
  • Although hospital 5 is not at the same prestige
    level as hospital 1, they could increase
    reimbursement significantly without a payer
    terminating their contract
  • Hospital 5 is subsidizing the market
  • Hospital 5 probably has know idea that they could
    increase managed care revenue 25-30

33
Market B
34
Lessons from Market B
  • Hospital 1 clearly is paid out of line with the
    market
  • Hospital 1 probably would not be able to ask for
    a large increase
  • Payers would be able to put a much cheaper
    product in the market by avoiding Hospital 1

35
Some Examples in Georgia
  • Results Are All Based On Publicly Available Data
    Only

36
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37
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38
Future Trends
  • Consumerism
  • Tiered networks
  • All Providers
  • Physicians only
  • Price Transparency
  • Consumers are increasingly interested in the true
    cost of services
  • Employer Cost Shifting
  • Member out of pocket payments
  • Continually increasing
  • Create hospital bad debt
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