Leverage – The main key to physician contracting success

Leverage is a major pathway to successful negotiation of a managed care contract.  The ability to negotiate or renegotiate a managed care contract is often determined by the amount of leverage a particular practice or provider has in the marketplace. Consider the following scenario: A major managed care payer you contract with has decided to reduce the amount it will reimburse physicians for their services.  (Sound familiar?) Now answer this question: If you were to approach the payer in an attempt to renegotiate their proposed rate change, how do you think the payer would react to you? Would they listen to what you have to say or, as in most cases, would the payer simply tell you this is their policy-- take it or leave it? If the payer or payers in your service area adopt a take it or leave it stance in respect to your practice, the result may very well be future reduced physician compensation. 

Success in changing the terms of a managed care contract usually varies from locale to locale. However, success can be achieved only if the practice has the LEVERAGE to negotiate or renegotiate favorable contract rates and terms. This is the same type of negotiation that occurs when professional athletes negotiate their own contracts or in any other type of negotiation scenario. The party with the “upper hand,” whether perceived or real, will usually be the party who gets the most out of the negotiation. If a practice does not have leverage, it likely will have to accept whatever is offered by the managed care plan. More often than not, this offer will negatively impact the finances of the practice.

Define your leverage

Most physicians come to the negotiation table without a defined contract strategy.  This strategy must be developed before the negotiation process even begins. The core of the strategy is to define up front what leverage your practice or your delivery system. The failure to define leverage before negotiating has soured many physicians on the contracting process. Often this is because leverage did not exist in the first place, and the physician or physicians wasted time and resources trying to negotiate a contract they had no chance of winning. In other cases, they had leverage but nobody recognized it, resulting in a failed or unfavorable negotiation. Payers certainly are not going to bring up missed points of leverage with you.

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.