Recently, while developing a negotiation unit for a health insurance client, we were prompted to think about what makes an effective negotiation program. We were also reminded of the elements critical to the success of such a program.

Why and What?
For health insurers, negotiation of financial terms is an integral part of day-to-day medical management operations. The number of services that either require or lend themselves to individual negotiations, however, depends on various factors. The need for individual negotiation is largely created by benefit plans and provider contracts that are: vague, include perverse incentives, lack payment benchmarks, feature discount-off-charges reimbursement agreements, and lack a hold harmless clause. A provider network which is marginal for numbers and distribution of providers, results in a significant number of services being provided outside of the network structure. It is another major contributor to the need for negotiation.

Out-of-network inpatient hospital confinements, air ambulance transport, unique durable medical equipment (DME) requests, and itemized provider bills are prime targets for review and negotiation. A review of itemized bills frequently reveals errors and/or inappropriate charges, such as duplicate charges for hardware or hospital services, physician charges above allowable reimbursement levels, drug charges exceeding the average wholesale price (AWP), and DME charges in excess of a discounted Medicare reimbursement schedule.

Critical Success Factors
One word sums it up: people. Namely, those who will be reviewing bills, analyzing requests for DME, reviewing claim charges, and subsequently performing the direct negotiation. These people are, by any measure, the most important element of any negotiation program. Lacking people who have the right attitude and temperament and who are receptive to coaching and mentoring makes the rest of it hardly matter. A broad knowledge of health care benefits, claim payment policy, and medical management is required. Negotiators must be analytic, persistent, willing to give and take during the negotiation process, able to process information quickly so as to respond effectively to information received, and able to not take insults personally. These are the attributes that allow one to not only effectively engage in, but to succeed in, the negotiation process.

Goals and Benchmarks
The ultimate goal is to achieve an agreement for a reimbursement level that meets an industry benchmark. Examples of such benchmarks are Medicare’s Resource-Based Relative Value Scale (RBRVS) fee schedule and DME reimbursement, or a manufacturer’s wholesale price for implantable devices. Web sites such as can provide hospital inpatient charge benchmarks. Using such benchmarks conveys a level of knowledge to the other party and sets expectations; in some instances, it establishes the level of insurer liability. Asking for or accepting a percentage discount from some mythical fee will not result in reimbursement that has appropriate relevance to the value of the good or service. It leads only to a false sense of accomplishment on the part of the negotiator.

Nuts and Bolts
The techniques and operational aspects of the negotiation process are critical. First, it is important to realize that providers recognize and understand both the present value of money and the fact that a large receivable that becomes the primary responsibility of the insured may be difficult to collect, resulting in a significant delay in receiving payment.

When analyzing the case to be negotiated, identify the points of leverage that can be used to your advantage. Likewise, it is just as important to anticipate the leverage the other party is likely to apply and be prepared to rebut or negate its effect.

The initial provider contact may not be empowered with the latitude and authority to conclude a satisfactory agreement. In that instance, request the name and phone number of a person who can actually negotiate and consummate an agreement. Developing a database of these secondary provider contacts will facilitate future negotiations with the same provider organization.

When negotiations stall, or it becomes apparent that a favorable agreement is not in the offing, it might be necessary to defer to a higher authority. A different negotiator who brings a change in dynamic and technique may be able to salvage a favorable agreement.

During the negotiation, it is helpful to stress that you wish to reach an agreement in which the insured, the provider, and the insurer all gain. Make it clear that upon reaching such an agreement, payment will be quickly delivered. The goal is to achieve high-quality, cost-effective care for the insured within the constraints of your liability while avoiding an undue financial burden for the insured.

Negotiation is both an art and a science. It is not just asking, “What can you do for me?” (The answer to that approach is usually “not much.”) By reducing the overall cost of care, the approach described has resulted, and will continue to result, in superior savings.

We would be pleased to help create such a unit that exemplifies the art and science of negotiation and generates significant savings for your company. ▪