Navigating toward successful contract negotiations with health plans

Strong managed care contracts are more critical than ever for health systems. As financial struggles lead hospitals across the country to close their doors or eliminate services, negotiating fair rate increases with payers is increasingly essential.^[1] [2]

Hospitals that have traditionally just taken whatever rates payers will give them can no longer afford inaction. The typical health system needs a rate increase of 5% to 8% each year across all payers to break even by 2027.^[3]

Unfortunately, successfully negotiating with payers for a common-sense rate increase can be challenging for many providers, who typically only see 1% to 3% increases over multi-year contracts.

Bolstered by new transparency rules and data-based insights, hospitals and health systems have more tools at their disposal to effectively negotiate with payers — but choosing and wielding the right strategy for each payer and each community remains challenging.

Ensemble Health Partners recently brought together healthcare leaders to discuss various tactics they are using to negotiate better rates with payers and ensure payers’ commitment to accurate, timely payment. Below is a synopsis of that discussion.

What data do you rely on to prepare for a rate renegotiation?

Richard T. Nagy: We look not only at our own data, but also at the payer’s data. We look at the run rate we’re seeing within our facilities, and compare the expected payment versus actual payment, levels of denials, delayed payments, length of stay and observation. We look at utilization and areas that are giving us problems, as well as expected inflation over the coming year.

Brad Gingerich: The price transparency data that is now available is a new tool to use. There are limitations and it can be subjective if we’re looking at competitors and trying to standardize the data. But price transparency allows us to actually have these conversations and speak with payers about competing providers’ rates. It allows us to achieve more rate parity across the industry when you see competitors’ rates and then leverage that in your negotiation.

Camie Patterson: It’s important to be able to understand the total cost, such as the cost of providing free care as well as the ever-increasing expenses we face in terms of workforce and supplies. It’s important for our payers to understand our cost structure and how important their support is.

Billie Jean Mounts: We’re starting to do termination analysis upfront, [and we are] preparing everybody that it possibly could come to that. We’re also forecasting parity. We’ve done a lot of negotiating in the last 18 months, and we’re building in what those multi-year increases are, and then seeing where we’ll be with the payer if we don’t keep pace with the other increases we’re getting.

Stephen Forney: The whole revenue cycle background has become a big focus for us. Our last three negotiations have been driven not just by rate, but by whether the payer is a good partner. Can they process claims? Are they creating problems for us? That’s been a major issue for us in negotiations, and it’s provided us [with] some good leverage to be able to go back and point those things out.

Have you considered terminating, or have you successfully terminated, a payer contract (i.e., going out of network) when agreement on rate increases couldn’t be reached? If so, what have you learned throughout the process?

Forney: We terminated one last summer when we couldn’t get the rates, and we’re considering that action again with another payer. It got us to a good place with the previous payer after about a month. If you’ve got discreet service line or product line contracts and have things broken out, you can take out one piece that might have the highest leverage. You can keep the rest of the contract whole and use that piece for leverage across the whole portfolio.

Gingerich: In my career, I’ve had the opportunity to terminate and go out of network with payers, experience an out-of-network period, and then re-contract and go back in network. Things have changed, particularly under the
No Surprises Act. That has really changed how we approach out of network as a tool with the payers, and we need to somewhat reinvent that tactic. Payers prioritize membership. And with Medicare or Medicaid products, your consumer is going to choose that product, so you can market directly to your patients and have a different way to compel the payers to come back to the table.

Ruth Johnson: In my prior job at the Louisiana Department of Health, providers would sometimes contact us when contract negotiations were floundering. We couldn’t tell managed care companies that they had to contract with someone, but we could tell them they’re required to maintain an adequate network. If a large provider of, say, mental health services was to come off contract, or a hospital like ours, which is the premier birthing hospital in our state, were to come off contract, that would put in jeopardy their managed care contract. So that’s a tactic that can be used.

Erik B. Hemingway: We’re in anesthesia only, and we basically have payers telling us to go out of network. We go to the table and try to negotiate and ask for reasonable increases, and they are either not responsive or are telling us to go out of network. The [independent dispute resolution] IDR process is costly and results in payments well below market value, so we really don’t feel like that is a viable alternative in our position.

The payers don’t seem to understand that we don’t set market compensation rates for the anesthesia providers, so if they don’t support market rates, we will just have to get the funds from the health system. Either way, the payers will have to subsidize the work, but this strategy results in unfair competition and will drive more independently owned practices to either partner with health systems or sell out to large national groups owned by private equity. Both of these options ultimately reduce competition and drive up the cost of healthcare.

Bridget Morehouse: Despite every attempt to negotiate fair rate increases, the threat of terminating is often required to get the payers’ attention. Without the threat, we are not seeing proactive efforts to adjust rates to meet the increased cost of providing services. We’ve gone out of network with a couple plans. We have limited capacity, so we’ve had to be more judicious about how we use that capacity.

Also, because termination has become more routine, more time has been required to internally educate our providers and practice owners on what to expect. We have developed an out-of-network playbook, which essentially sequences the events with all of the teams that you have to coordinate.

Ethel Hoffman: We recently terminated an agreement, and it’s been very painful from a financial perspective and from an overall organizational readiness standpoint. The payer pulled an offer off the table at the last minute, right after open enrollment closed. We were not operationally prepared to handle the termination. Despite several internal communications, our frontline staff did not know how to handle the newly out-of-network members and turned away those that had out-of-network benefits. Lots of damage control needed to be done, as health plan members were not well notified by the payer. And the payer was not forthcoming on how both patient and provider needed to handle ongoing care needs. The health system looked like the bad guy.

What success or barriers have you encountered when trying to escalate and resolve issues with payers?

Patterson: I’ve come into a number of hospitals that have never fought with the payers in the past; they’ve just taken whatever the payers offered. For them, education is so critical. You have to make sure the board, physicians, staff and the community all understand what you’re doing and why you are insisting on higher rates. It’s important that you have a great story to tell. In fact, we actually brought on a crisis communication firm the last time we terminated a contract to help us manage the message.

We learned it’s important to make sure that you’re telling your story before the payer. You have to educate people about why you’re doing what you are doing, and you have to understand the process that takes place once you give termination notice to a payer. As soon as you give that termination, the clock starts ticking and you need to know the steps, the sequence and the timing to follow.

Laurie Holtsford: Sometimes it’s not about canceling the contracts but just not going into contract. We’ve got a lot of managed care that come into the area, and we refuse to go in network with them because of the administrative burden and what we see with others. Unless they can prove that they’re different, we really don’t want to bring more in.

Mounts: When we went through a termination, Ensemble set up an ombudsman program on our behalf. It helped [us] to think about the call to action to provide patients, and where to direct them. We mapped what that looked like, and it was helpful to have a dedicated line and scripts for frontline staff, so they could give the patient resources and options. I think that went a long way with the trust of the community. We could rally their support around our why because we had those resources ready.

Gingerich: You have to have this all orchestrated before sending the termination letter. When you send the letter, you may still have months, but you have to be far in front of it. There are a lot of decisions that need to be made. A patient ombudsman can address patient concerns and issues with the termination and educate the patient on how they can do a just cause transfer mid-year, outside of open enrollment, and actually change their carrier. When the payer starts to see their actual membership numbers change, they approach the negotiation differently. You’re appeasing your community and putting out fires, but you’re also leveraging that patient and providing information. You retain the patient, and then it hits the payer. All of this takes planning, and it should be a very systematic approach.

What do you wish the public knew about the payment and rate disputes that occur between providers and payers?

Christine L. Masotti: I wish people knew that the payers have all the control. We can’t compete against the billions of dollars they invest in data analytics and benefit plan designs. 

Morehouse: When a patient discovers their benefits have shifted from in network to out of network, the experience often feels punitive to them. I wish patients understood there are many layers prompting this change. Our dedication to maintaining the highest standards of care for our patients means we are unwilling to compromise on the quality of care due to inadequate reimbursement rates. This stance, while challenging, underscores our responsibility to both our patients and the integrity of our healthcare services.

Johnson: We just keep hammering our messages that we’re here to give you the right care at the right time in the right place, and to do that we have to have the ability to cover our costs. And we also provide other services that are critical to the overall community’s needs. Not only do we care about you as an individual, but we care about your community at large.

James Heffernan: I started producing annual reports that listed benefit reductions, and we focused on the benefits that a patient had that were not being paid by their insurance company. We moved the conversation from whether a denial was our mistake to the fact that the insurance company was withholding benefits that you paid for, or the employer paid for. And that actually worked really well.

In addition to rate negotiation, where are you focusing your managed care strategy efforts?

Forney: We’re focusing on reducing administrative burden and increasing throughput. We’re trying to find ways to simplify administrative processes, so we don’t have as many front-end denials, make sure we’re clearing [accounts receivable] AR and have effective ways of communicating to get through inevitable issues.

Gingerich: That’s all accomplished through the language. If you’re not focusing effort on the language, there’s going to be a loophole in there for them to erode those rates. You’ve really got to put even weight on both rates and language.

Heffernan: We quantified rate realization. We’d negotiate a rate and then [afterwards] all these different changes and new programs would come up, and we didn’t realize the rate. As part of the annual review with the plans, we would say we actually didn’t recover our rate. If specialist rates were based on the Medicare rate, and it dropped, their rates would drop. So, we negotiated contracts that said we had to realize the rate increase, regardless of Medicare changes.

Health systems are already facing declining patient volumes, increased labor costs and other financial challenges. When it comes to offering common-sense rate increases, payers should act as their partners, not as a roadblock.

Leveraging in-house price transparency and payer performance data can help healthcare leaders prepare for successful contract negotiations with health plans. If these negotiations aren’t successful, providers can — and increasingly do — consider going out of network to avoid inadequate rates or poor payer performance. Successful negotiation strategies require adequate planning, internal preparation, stakeholder education and strong communication plans — but the end benefits of accurate, timely payment are worth it.  

Panelists

STEPHEN FORNEY
Senior vice president and CFO, Covenant Health, Andover, Mass.

BRAD GINGERICH
Sponsor participant, vice president of payor strategy for Ensemble Health Partners in Cleveland

JAMES HEFFERNAN
CFO emeritus, Massachusetts General Physicians Organization, Boston

ERIK B. HEMINGWAY
CFO for Metropolitan Anesthesia, LLP in Dallas

ETHEL HOFFMAN
FHFMA, MBA, vice president, managed care for Tower Health in Reading, Pa.

LAURIE HOLTSFORD
MBA, assistant vice president, Patient financial services, Baptist Health-Central Alabama, Montgomery

RUTH JOHNSON
CHFP, vice president, public revenue integrity for Woman’s Hospital in Baton Rouge, La.

CHRISTINE L. MASOTTI
MPA, assistant vice president, payer negotiations and network development for UConn Health in Hartford, Conn.

BRIDGET MOREHOUSE
MBA, chief strategy officer for Confluent Health in Plainfield, Ill.

BILLIE JEAN MOUNTS
FHFMA, CRCR, CSMC, chief revenue officer, Bon Secours Mercy Health in Cincinnati

RICHARD T. NAGY
FHFMA, vice president of managed care for Allegheny Health Network in Beaver Falls, Pa.

CAMIE PATTERSON
FHFMA, MHA, interim CFO for a Northeast healthcare system

About Ensemble Health Partners

Ensemble Health Partners is a full-service revenue cycle management company, delivering holistic financial health for hundreds of healthcare organizations across the country. Through a combination of 10,000+ certified revenue cycle operators, data-rich intelligence and AI-infused decisioning, Ensemble helps healthcare organizations sustain best-practice revenue cycle operations and maximize their current technology, so providers can focus on delivering exceptional care in their communities. For more information, visit EnsembleHP.com.

_{This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.}

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^[1]. Ashley, M., Condon, A., “The reasons behind 14 hospital closures,” Becker’s Hospital CFO Report, Dec. 14, 2023.

^[2]. Cass, A., “72 hospitals closing departments or ending services,” Becker’s Hospital CFO Report, Nov. 22, 2023.

^[3]. Geng, S., et al., “The existential threat to U.S. hospitals,” BCG, Feb. 9, 2023.