Building Payor Negotiation Strategies through Market Rate Analysis Models
By Daniel J. Marino, Damon Morse
Healthcare providers have never been at more of a disadvantage when it comes to negotiating payor contracts. With hospitals and provider organizations experiencing inflationary cost pressures driving down margins, it falls onto chief financial officers and managed care leaders to be deeply involved in payor strategies and managed care negotiations. By building sound payor strategies, leaders ensure provider organizations negotiate market-driven rates and ensure accuracy of reimbursement against their negotiated rates. This allows providers to unlock their top-line revenue and meet organizational financial goals.
Building the strategy is the hard part as there are so many parts to payor contract negotiations. As healthcare providers meet the clinical needs of the community and/or expand services, negotiating the appropriate reimbursement rates is critical to funding the service(s). Yet, reimbursement structures should be fair for all parties, which creates a precarious balancing act between payors and providers.
What’s a hospital, health system or medical group to do to level the playing field? The answer lies in knowing where your organization’s reimbursement rates fall compared to the market and creating leveraging points to guide the negotiations. However, many healthcare leaders don’t know where to find their market rate information and how to create approaches to drive productive payor negotiations.
The answer lies in market rate analysis models.
The Benefits of Market Rate Analysis Models
Market rate analysis is a matter of understanding the following:
- How are commercial payors reimbursing in your market?
- How do your rates compare to the market?
- Where do you land as a percentile of the market?
- How do market-based reimbursement rates support clinical services?
By performing a market analysis, healthcare leaders come to the negotiation table better prepared with data to leverage their organization’s services, along with the intrinsic value of such services, compared to competitors. Today, payors have better access to claims data and market intelligence so it only makes sense for providers to seek out this information and use it to drive productive discussions. A market rate analysis serves as the foundation for negotiating suitable reimbursement rates and updating payer contract terms to ensure they are fair and current. It's just good business.
Understanding current market rates and the trends influencing reimbursement changes enables providers to better serve their community. So, where does a provider organization start to build a market rate analysis?
Initiating a Market Rate Analysis
Given the sensitivity of this information, it is important for providers to perform this analysis within a confidential analysis structure or “black box”. Many healthcare provider organizations lack internal expertise and/or access to claims data, hence, engaging a third party who has access to market-driven commercial payor claims data is the first step. Reputable advisory firms that specialize in payor contract negotiations have access to claims data sources, and can perform market rate analysis that provide leaders insightful information and potential leverage points for payor negotiations.
What do provider organizations need to start?
- Data integrity. Providers must have a sufficient amount of claims data by market, by specialty, and by service categories, to furnish statistical relevance in the analysis model.
- Alignment. Healthcare provider leaders should partner with third-party advisory firms to ensure that the market rate analysis delivers accurate and reliable information to support negotiations and maintain data integrity.
- Confidentiality: Throughout the process, the provider organization and advisory firm must uphold confidentiality, considering the sensitivity of the market rate analysis and insights that may inform negotiation strategies with payors.
For additional insights, listen to our episode of Value-Based Care Insights on “market rate analysis models” to learn more about leveraging data to guide discussions on provider-payor contracts.