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Provider-payer rate negotiations changing as care models evolve

Value-based care initiatives and growth in the individual insurance market are changing contract negotiations between payers and providers.

Changes caused by the ACA and growth in the Medicare Advantage market have led to a rise in provider-sponsored health plans and more opportunities for bonus payments based on quality measurements. These industry changes to payer-provider relations are moving slowly, however, and significant changes aren’t likely any time soon. Two executives talked to Healthcare Dive about how rate negotiations are evolving.

It all starts with a simple letter

Negotiations usually begin with a simple letter from a provider to a payer stating their desire to be in that payer’s network or to request an increase in reimbursement, according to Steve Selbst, CEO of Healthcents, a contracting and consulting firm in Salinas, CA. In this letter, providers should advertise the value they offer to the payer. This could be a unique service or technology that they offer, services in demand in certain geographic area or referrals they receive from other providers.

Depending on who is writing and what they want reimbursed, a specific rate may not be mentioned right off the bat, Selbst said. For instance, a medical device manufacturer trying to gain a foothold in the market might not ask for a specific rate. On the other hand, a urologist who is the only provider offering robotic-assisted prostatectomies in a rural area might have a clear idea of what the service is worth and be in a strong position to ask for it.

In some instances, payers do prompt rate negotiations. This often occurs when a provider is trying to build out its network, according to Selbst. For instance, a payer trying to expand its network of skilled nursing organizations in a certain region will seek those providers out and ask them to join the network.

The devil is in the details

How long negotiations last “depends on a whole variety of factors,” Selbst said. Are you already in the network? Are you in a unique position within the network? Do you have referrals? Is there going to be a lot of back and forth? It depends.

While the exact length of time will vary, providers should generally expect a four to six month process from the time they send a proposal to the time they reach an agreement. In some instances, a payer might respond and agree to a proposal within a month or so. In others, the actuarial department might need more time to crunch numbers.

Some negotiations can go back and forth for some time. If a payer responds to proposed rates with an offer that leaves a lot to be desired, “you have to decide whether you’re going to escalate with the payer or accept the results,” Selbst said. Providers should be prepared for a significant amount of back and forth if they escalate and executive-level employees on the payer side may get involved.

While value-based care is on the rise, few payer-provider contracts are truly value-based. “Value-based contracts have evolved as an adjunct to fee-for-service contracts,” Selbst said. Through the value-based component of a contract, payers will typically offer a bonus payment, usually around 5%, for meeting certain quality measurements. Providers can and should negotiate the terms of value-based bonus payments. These offer opportunities for providers and payers to turn negotiations into “win-win” situations, Selbst wrote for a March 2016 LinkedIn post.

Turning negotiations into partnerships

Expansion of the Affordable Care Act, as well as growth in the Medicare Advantage (MA) market, has presented new opportunities to providers and payers. For instance, it led to a rise in provider-sponsored health plans, according to a 2015 analysis from Deloitte. It also enabled Bright Health to introduce a unique business model.

Payers generally contract with multiple providers in a given area, which can lead to “negotiations often fraught with animosity,” Dr. Tom Valdivia, co-founder and chief medical officer of Bright Health, a startup health insurance company, told Healthcare Dive. “Every dollar [providers] give up is, in a way, a dollar they are giving to a competitor.”

Bright Health intends to partner with a single delivery system in every market where it operates. The startup launched its first health plan in Colorado in partnership with Centura Health, which offers access to 30 hospitals and more than 100 clinics. There are concrete plans to expand to two additional markets in the near future, although details have not been disclosed.

Interest grew in provider-sponsored health plans because it offered health systems a tool to improve population health management. Bright Health offers something similar to providers, but without many of the risks. For instance Bright Health can take care of pricing and marketing, and offers the technological backbone for analytics. It can also include more flexibility to value-based components of contracts based on a delivery system’s readiness for such initiatives.

“These are not negotiations, they are partnership discussions,” Valdivia said. 

Not all payers can adopt the Bright Health model. Most existing payers are active in group insurance markets, which require large provider networks, and they cannot just end relationships with a majority of providers in those networks. Additionally, the Bright Health model inherently limits the number of health providers that can participate.

The negotiation process between providers and payers is unlikely to change significantly in the near future. However, as value-based initiatives gain traction, companies like Bright Health  and its success with new models will be a trend to watch.

Filed Under: Payer Hospital Administration