Why Your Payers Know More About Your Rates Than You Do

For decades, healthcare negotiations occured largely in the dark. Providers negotiated contracts one payer at a time and each renewal was treated as an individual, unique event. A rate concession made during one negotiation rarely had any visible or measurable impact outside of that specific contract (future inflators aside). Payers, on the other hand, negotiate hundreds of contracts simultaneously. They typically know the distribution of what providers will and won't accept.

Rate proposals from payers were never really arbitrary as a result. Those proposals were anchored to internal benchmarks, Coordination of Benefits analyses, and claims data built on years of contract history and negotiation background. The opening offer would typically be calibrated to what a provider expected you to largely accept instead of what the service may be worth to their members, ASO contracts, or the market.

An extreme example of this is the recent litigation filed by the State of Arizona against Multiplan. Allegedly, insurers fed payment and contract data into a shared algorithm managed by Multiplan (now Claritev) that produced a "target price" - which happened to match the lowest negotiated price a provider accepted. Every insurer in the lawsuit - Aetna, Cigna, United, and the like - then used the same output. Competition disappeared while Multiplan took a cut of every dollar saved from the algorithm.

Transparency in Coverage data has started to change that. Providers can increasingly see what payers are paying competitors. Consultants, employers, you name it. The information asymmetry is narrowing.

What is Price Discipline?

When we talk about price discipline, there's an important distinction:

The goal is not identical reimbursement from every payer.

That is neither realistic nor necessarily desirable.

Pricing discipline also isn't refusing every payer proposal, blindly insisting on substantially above-market increases, or assuming your rates are fine because you went through a renewal cycle last year.

Price discipline is moving intentionally towards reimbursement that reflects the value of the service provided and your position in the market.

When a payer proposal arrives, a more-than-typical response sequence looks like this:

• Managed Care team reviews the offered rates
• Creates a comparison against current contracted rates
• Calculates revenue impact
• Decision Point on whether the change in revenue is acceptable

Historically there has been a real lack in comparison against what the same payer is paying comparable organizations for comparable services. Your current rates are your history with your various payers - they reflect every concession you've made, every renewal you've let slide, and every year where you didn't execute a fully-priced chargemaster increase. Using only your current rates as your benchmark is how below-market rates compound over time.

Price discipline means having that external reference point before the payer calls - or before you approach a renewal timeline. It's easy to to believe the payer's story when each payer brings different:

• Volumes
• Patient populations
• Employer/ASO arrangements
• Network dynamics
• Strategic value

Some of those will be difficult to validate. Employer/ASO arrangements can always change as can market dynamics with provider consolidation. Understanding how a payer approaches the market from a reimbursement standpoint can help to clarify some of these before negotiations begin.

The Problem with Contract-by-Contract Negotiations

Many providers are still approaching payer negotiations independently. The mindset of "What is the best deal we can get from this payer during this cycle?" can create issues in both future renewal cycles as well as with other payers. An evergreen clause or a rate concession may seem harmless in isolation - but these can create long-term challenges when viewed in the context of the broader reimbursement portfolio.

Three things that erode pricing discipline over time

• Evergreen clauses and automatic renewals: Contracts that roll forward without renegotiation can often lock-in below-market rates indefinitely. No payer has any incentive to flag low rates while the autorenewal may slip through the managed care team's calendar of key dates.

• Accepting the first proposal under time pressure: A two-week response window, a desire to not issue a notice of nonrenewal, and looming budget seasons can all create a false sense of urgency that reduces necessary due diligence.

• Negotiating without peer benchmarks: If you don't know what comparable organizations are getting paid, you're anchoring to your own history that may itself already be below-market.

As an example, the above represents current physician rates for a mid-sized multispecialty physician practice in New England. The two National agreements had not been renegotiated in seven and nine years, respectively. The regional plans were historically renegotiated every three years. It didn't take long for the autorenewing agreements to begin to slip relative to other payers.

Which is an issue in and of itself...

Your Lowest Rate becomes your Most Important Rate

When negotiating in a vacuum, questions like "What did we get from Cigna this cycle?" and "What is UHC offering?" become the norm. Each negotiation then feels discrete.

In reality, they aren't. Your lowest accepted rates for a given service don't stay contained to the contract where you accepted it. It becomes a reference point, whether it be through most-favored-nation clauses that entitle other payers to match your best rate or through the same Transparency in Coverage data that providers are now using to benchmark payers.

Payers query TiC data too. Your lowest rate may then exert more influense than your highest rate. A payer negotiating a renewal today may be far more interested in Understanding why another payer is reimbursing the same services at materially lower levels than in discussing your highest-performing agreement.

This becomes a compounding problem with contract-by-contract negotiations. A rate concession made under time pressure in one renewal cycle then sets the anchor for both the next renewal cycle with that payer - and with the other payers you with whom you still need to negotiate.

The Hidden Risk of Legacy Contracts

One of the most common sources of pricing inconsistency is the legacy contract.

Many provider organizations maintain agreements that were negotiated:

• years algo
• under different leadership and negotiation teams
• under different market conditions
• before transparency existed

Those contracts often contain reimbursement structures that no longer align with organizational strategy. Yet they remain in force because they are rarely examined holistically (and likely because they had one of thise previously mentioned evergreen clauses). The result is a contract portfolio that evolved through historical happenstance rather than intentional design.

Transparency Changes the Equation

For decades, price discipline was difficult because providers lacked access to market benchmarks. Negotiations were conductd laregly in isolation and reimbrsement decisions were evaluated against historical norms rather than current market realities. Transparency itself does not eliminare the need for negotations but rather gives providers access to information historically available only to payers. The organizations that use this information effectively will be better positioned to understand where their rates site today -- and where they should sit tomorrow.

Part Two of this series will examine what the data actually shows and what price discipline looks like in practice. Interested in hearing when it drops? Join our mailing list below.