What You Should Know When You Negotiate a Managed Care Contract


I really enjoy your Legal Forum column,” complimented a reader who introduced himself to me at a health care seminar where I was speaking. “I especially enjoy your ideas about negotiating with managed care plans.”

“But,” continued the reader, “much of it is pie-in-the-sky material for us, as well as for most of the small providers in my city. Managed care plans just won’t negotiate with us. They say, ‘Take it or leave it.'”

Translation (six choices):

  • “The managed care plan gave us a pre-printed contract and said, ‘This is our deal.’ We assumed we could not negotiate.”
  • “The agent didn’t seem receptive to getting into negotiations.”
  • “They didn’t want to talk about pricing.”
  • “They got tired of talking about pricing before I was finished talking about pricing.”
  • “This is too adversarial for me. I’ll fix any problems down the line, after I sign it.”
  • “Negotiation makes me nervous.”
  • Contracts: garbage in, garbage out

Hearing anyone say that negotiation is impossible confuses and frustrates me. Managed care contracting is an important and growing part of medicine for virtually all health care providers. For a physician or group practice to accept bad contracts, or contracts that aren’t as mutually beneficial as they might be, is foolish, especially when this is due merely to one’s own discomfort or lack of expertise with the negotiation process.

If a contractual relationship is not shaped so that both parties can perform efficiently and collaboratively, there is little long-term opportunity for a physician or provider group to increase profitability, market share or the quality of patient services within the managed care relationship. This lack of efficiency becomes magnified with multiple managed care contracts, each with their own procedures and policies, definitions and demands.

Make it work for you

To health care professionals, I suggest that you take the time to develop managed care relationships that draw on your strengths, and negotiate contracts that encourage synergistic interaction with the health plans. Otherwise, you will be unable to develop the internal clinical and operational systems needed to implement any sort of detailed management information structure, outcomes management or benchmarking systems, or other protocol development and management. This, in turn, can make it extremely difficult to accept financial risks under capitation or global budgets—at least with any expectation of profitability.

If a you cannot differentiate yourself by virtue of risk-taking, scope of services, better outcomes, enhanced patient satisfaction or some other means, then you will be relegated to the bottom of the deep, deep pool of fungible, good-quality caregivers who are told what they will be paid, what services are included in that payment and what administrative and reporting quotas they must satisfy. Conversely, careful negotiation can help you establish working relationships that will make you valuable to managed care companies by offering them enhanced services, prompt availability, a minimum of problems in the relationship and/or higher patient satisfaction. Clear, practical managed care contracts can help you build valuable partnerships with managed care companies.

A how-to

There are several secrets to successful managed care negotiation. First and foremost: For maximum success, both parties must have the right attitude. While there are bad managed care contracts because of arrogance or incompetence on the part of managed care organizations, often the problem stems from the way health care professionals conduct themselves in the contracting process. A hasty “sign first, negotiate later” mentality does you no favors and may ultimately hurt you. Instead, the opportunity to shape and implement contracts must be seen as an opportunity for a health care service provider and a risk coordinator to collaborate.

The correct attitude for successful negotiation is one of mutual value and mutual respect. Remember, managed care organizations are businesses. They must give value in order to find willing purchasers and participants. But it is also important to remember that you are in the business of providing medical services—and the more you conduct your dealings with managed care organizations like a business-savvy professional, the more valuable you will be to them.

The best approach for successful negotiation is to seek long-term relationships only with managed care organizations you respect, and only with managed care organizations that have respect for you.

That means that you must find something of particular value to offer to plans—perhaps cost, or, even better, a willingness to demonstrate superior quality, to provide highly satisfying services, to provide enhanced services or to take on financial risks, to name a few. That also means that you should insist on value from the managed care plan. Why offer a discount or assume financial risk, unless the plan is giving you quick payment, new market penetration, high volume, simpler administrative rules or some other benefits? Once you identify those items of value, make sure the contract clearly and unequivocally offers them.

There is nothing wrong with businesses negotiating aggressively, as long as it is done with mutual respect and an eye toward a long-term relationship that will benefit both sides. If you approach every negotiation as The Little Engine Who Couldn’t, your result will be poorer contracts. You will be viewed by managed care companies as a mere cog in their machinery.

On the other hand, if you approach negotiation professionally, with preparation and the right attitude, your efforts will produce better contracts. Moreover, your professionalism will demonstrate that you should be treated by the managed care organization as a peer, a partner—not just another provider number.

The rules of negotiation

There are three cardinal rules that all competent managed care organizations follow when negotiating contracts with health care service providers:

  • If you don’t ask for it, you won’t get it.
  • If you don’t deserve it, you won’t get it.
  • If you do deserve it, you must explain—or, even more important, demonstrate — why you should get it. This is where your negotiating prowess will serve you.

We will discuss specific techniques for negotiating with managed care companies in future columns.

Neil Caesar is president of The Health Law Center (Neil B. Caesar Law Associates, PA), a national health law consulting practice in Greenville, S.C.

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