Payer contract negotiations are often ugly, but they don't have to be

Centura Center For Rehab in Pueblo, Colorado, is part of the Centura group. The organization prefers to call negotiations between payers and providers as "conversations that are collaborative."

Centura Health's contract with Anthem Blue Cross Blue Shield of Colorado was falling apart because of an impasse over reimbursement rates. Anxiety was running high after the insurer sent out notices to its beneficiaries stating that a deal would likely not be reached.

The issue was that the terms had not been reached in the specified time required by the Colorado Department of Insurance, so the notices were required to go out.

"It created a little anxiety and sensationalism," said Mark Carley, vice president of managed care and payer relations at Centura Health, Colorado's largest health system. However, he said, "There were no burning bridges, so it wasn't unsalvageable." 

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In fact, the parties did manage to salvage the relationship and strike a new contract, but their saga highlights how tricky these contract negotiations can be.

Payer and provider contracts generally hinge on three factors: the financial terms including reimbursement rates; the operational components of working together around such areas as case management and accounts receivables; and strategic initiatives such as value-based agreements.

It's not always easy, especially when it comes to what is usually the biggest sticking point: reimbursement.

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"There are hundreds of millions of dollars in a relationship," Carley said. "Often times the area for the most challenging conversations come from the reimbursement area."

Areas to consider include reimbursement rates by service category, location and provider type.

"We spent six months working through the nuances of contract," Carley said.

While Carley could not go into specifics of the contract, when they started, provider and payer were far apart before coming to an agreement on terms.

Janet Pogar, Regional vice president of Provider Solutions for Anthem Blue Cross and Blue Shield in Colorado said the two organizations have a long history and she was optimistic that they would come to an agreement.

"Colorado law requires that we notify members 60 days in advance of any potential change in the provider network that could limit access to care in certain areas of the state," Pogar said. "So while we were optimistic, we had an obligation to provide a status update to our members."

Within two weeks of the notices going out, both sides had come to terms on new three-year agreement for Centura's 17 hospitals in Colorado and western Kansas. 

Centura enters contracts with over 50 payers, according to Carley, who spent 15 years as a health plan executive.

"The relationship between payers and providers can ebb and flow depending on where they are in their relationship," Carley said. "In Centura Health we negotiate with on an annual basis. In any year, it's more intense or less intense."

Centura, a faith-based organization, prefers to call the negotiations "conversations that are collaborative."

"That's the best way to have a relationship," he said. "We consider payers our partners."

Pogar agreed that collaboration is key. 

"While there are always many details to be negotiated in any contract, at Anthem we negotiate with our members at the forefront. Ultimately, they expect us to provide them with a good value for their healthcare dollars," Pogar said. "These negotiations were successful for a couple of reasons. First, Anthem Blue Cross and Blue Shield's provider contracting is handled locally. We have a leadership team based in Colorado, and decisions are made at the local level. We understand the state's unique healthcare market, and we've built strong relationships with the provider community."

Centura provides support for another 12 affiliate rural  hospitals that were not part of that contract negotiation.

In the smaller, rural markets, the challenge is that the hospitals are not large enough to have much negotiating power, but in these smaller markets the primary coverage comes from a Blues plan, Carley said.

It helps to have clout. Especially because a significant component of healthcare organizations' revenue frequently comes from health plan contracts, according to Dave Koford, vice president of health plan contracting for Community Hospital Corp. in Plano, Texas. 

CHC is a nonprofit organization that helps smaller community hospital that don't have the big corporate management support, including in the area of contract negotiations. 

"They don't have that clout," Koford said. "You just don't have a lot of leverage, sometimes it's hard to get (insurers') attention." 

Contract negotions for rural hospitals

One area where smaller hospitals have the advantage is by being the less expensive alternative to larger hospitals that have higher rates of 20, 30 and even 40 percent more.

In contract negotiations, Koford tells insurers, "'Hey, if we keep patients in town, you'll pay less.' For the payer, it's worth it to them to keep the hospital open. Otherwise all that business goes to the big regional."

Koford negotiates contracts with commercial payers such as the Blues, UnitedHealth, Aetna and Cigna on behalf of the 24 hospitals it manages. 

By the time most of the hospitals have reached out to CHC for help, they are already financially distressed, Koford said. CHC starts the turn-around with an operational assessment. 

Right at the top is a look at the chargemaster, which is usually out-of-date. 

"I'll find contracts in place but they're old," Koford said. "If they're from five to seven years ago, there's been no rate increase. We can't catch up to that in one contract."

The chargemaster is a list of items billable to the patient or to the patient's insurer and is the retail price of supplies and services at a hospital. 

Many contracts include percent-of-charge reimbursement methodologies, in which payments are based on a percentage of the chargemaster. 

Each provider has one chargemaster for all services, but because providers have multiple contracts, not every insurer will pay the same price, according to Patrick Drewry, senior director of technology for The Advisory Board. 

There are two prices, the retail and then the discounted rate, which could be 80 cents on the dollar, the allowable amount contracted with the insurer.

The Advisory Board also first looks at chargemaster optimization in helping clients. Sometimes, because of dated contracts, this rate is lower than what was negotiated with the payer, according to senior consultant Seve Gaskin.

"This is where contracting begins," Gaskin said. "We focus on managed-care contracts and in thinking about the way chargemaster reacts with contracts. Contracting is part art and part science."

Value-based reimbursement affects negotiations as payers try to get some portion of their population into a value-based arrangement, Drewry said.

"What's important to remember in value-based contracts, it's no longer about maximizing profit," he said.

Koford said not many of the contracts at CHC are value-based. 

"We do have a couple of client hospitals in a bigger market that are in some Medicare mandated value-based contracts," Koford said. "On the commercial side, we haven't gotten there yet."

In updating contracts, Koford recommends providers unearth internal claims data and review the claims history before negotiating with an existing payer. 

"Study how much revenue the payer brings to your hospital by service line," he said. "This reimbursement data could significantly influence the negotiation process since patient care and service lines are always changing."

He also recommends evaluating fixed rates in health plan contracts. 

While providing stability, fixed rates aren't always the hospital's best reimbursement option and should be adjusted up each year due to inflation and supply costs.

And finally, he said, look beyond rates to assess and nurture long-term payer-provider partnerships.

Twitter: @SusanJMorse