If hospitals' hardball negotiating tactics with managed-care plans seem scripted, they have been since 1995, when the Advisory Board Company issued an exhaustive report to its hospital members on how to put the squeeze on insurers, including when and how to threaten cutting off services to plan enrollees. Earlier this month, the Washington-based custom research organization, better known as the Health Care Advisory Board, handed its hospitals an updated script with a new report on medical technology and how to get managed-care plans to pay for it.
"One of the challenges facing hospitals is that much of their business is driven by technological advances, such as new devices, implants and expensive capital equipment," said Advisory Board Managing Director Chas Roades. "And frequently contracts with payers have not reflected the high cost of these innovations in the reimbursements they receive for procedures that use those devices."
The 250-page report, unabashedly called Profiting From Innovation: Managing the Impact of New Clinical Technologies, includes a list of 20 of what it calls "best practices" for securing fair reimbursements for surgeries that use new medical devices as well as ways to construct contract terms that pay for new technologies.
The Advisory Board considers the information sent to members proprietary and refused to provide copies of the book or excerpts from it. However, Modern Healthcare obtained a copy last week.
The new report, for example, recommends that hospitals bombard payers with clinical and financial data supporting the need for the new technology and enlist the help of technology vendors to make their case. It also recommends that hospitals offer payers an opportunity to present their own data, knowing that most payers don't have any (See quote at left).
The Advisory Board sent the new report to its 2,100 hospital members, or roughly 43% of the nation's 4,908 community hospitals, according to the most recent American Hospital Association statistics. Many of these members have been using the organization's earlier recommendations on negotiating tactics since its 1995 publication. That 460-page tome, Emerging From Shadow: Resurgence to Prosperity Under Managed Care, has not been the favorite reading material of managed-care executives. It walks hospitals through such strategies as threatening contract terminations, marketing directly to consumers, coalescing community and employer support around the hospital and against the managed-care company, and taking the contract dispute public through the media.
Widespread use alleged
Blue Cross of California spokesman Michael Chee said Blues plans across the country saw the increased use of the so-called provider playbook beginning in his state in 2000.
"Everybody was using this thing," Chee said. "I have no doubt about it. Whether they'll admit it or not, that's another thing. But those who used it went down the same predictable path of issuing notices of termination and we saved their ads. The messages in the ads were always the same, down to the words used."
Healthcare consultant William DeMarco, who contributed to both the original report and now the follow-up report, agreed the first book was widely used. DeMarco, a Rockford, Ill.-based consultant to the Advisory Board and a principal in DeMarco & Associates, said Emerging From Shadow had a large following and he saw it widely used in California and Atlanta.
"Some systems used some of it, and others little or none of it. It not only offered a soup-to-nuts strategy for negotiating managed-care contracts, but members could develop an entire managed-care policy based on it," DeMarco said. "This book needed to be written. And hospitals don't spend the kind of money they do on Advisory Board memberships to just toss these things away. It continues to be read by managed-care directors. If they didn't read it, their CEOs or CFOs did."
The product is one of more than 3,000 studies and customized research briefs published annually by the Advisory Board, a publicly traded membership research and consulting organization founded in 1979 by entrepreneur David Bradley. Membership fees, dues and other financial information are proprietary, Roades said.
He said the Advisory Board expects to print 10,000 to 15,000 copies of the new members-only publication on getting reimbursed for new medical technologies.
However, other contract negotiators, healthcare researchers and hospital executives dismissed the impact of the first managed-care guide to negotiating.
Linda Brewster, a research consultant with the Washington-based Center for Studying Health System Change, a not-for-profit organization that studies healthcare markets and issues reports on their research findings, said she remembered the report from her days as a Maryland physician hospital organization director.
"And I recall it was shoved in a packing box where it gathered dust for some time," Brewster said. "It had little application at the time (1995-2000) because the market was so fraught with turmoil and hospitals didn't have a lot of negotiating leverage." Brewster conceded that the book's idea of branding a hospital and marketing to consumers did catch on and predated the decline of selective contracting. Brewster said if the playbook is being discussed now, it's because of the dramatic swing in favor of hospitals.
"I think hospitals have gotten smarter in contracting," said Brewster, who is based in Milford, Conn. "We've seen an increasing degree of sophistication that was not present in the mid-'90s."
Caroline Steinberg, vice president of health trends and analysis for the AHA, said the association doesn't get involved in the inner workings of negotiations between hospitals and managed-care companies and would not comment on the Advisory Board's managed-care playbook.
Nathan Kaufman, a San Diego-based senior vice president with Superior Consultant, dismissed the role that the provider playbook had in recent hospital victories at the managed-care negotiating table, but he said the tactics the guide suggested are valid. A hospital's success is determined by several factors before it sits down at the table: the size of its market share, how indispensable the facility is to a health plan selling quality and the willingness of the hospital board and management to terminate the contract.
"But (the Advisory Board) didn't invent those tactics, and I've never heard of the playbook being used," he said.
Neither did a random sampling of more than a dozen hospital managed-care directors and chief executive officers, who attributed the changes in contract successes more to an evolution of the hospital market.
But not all hospitals using the hardball negotiating tactics have won favorable contracts. In Michigan, at least, size still matters. Joseph Damore, president and CEO of four-hospital Sparrow Health System in Lansing, Mich., said his system recently battled to a bloody draw in a negotiation with Blue Cross and Blue Shield of Michigan, the state's largest health plan with a 70% market share. Damore said his system, like many urban Michigan hospitals, is struggling with a depressed economy, big job losses, growing numbers of uninsured patients and high uncompensated-care costs that nearly doubled to $35 million last year compared with 2001.
"Our negotiations had to do with our financial survival," said Damore, who added that while Sparrow is an Advisory Board member, he doesn't recall the playbook, and it played no role in the negotiations. "We asked for 9.4% increases and they were offering 3%. But they are so big and dominant. It's a difficult environment for hospitals."
The Center for Studying Health System Change's Brewster said the "healthcare chicken" tactics enumerated in the Advisory Board playbook don't play the same way in every market. "Sometimes it works, sometimes it doesn't," she said. "It might have worked in 2000 in California, but it didn't in Lansing."
Bracing for new tactics
Either way, health insurers are prepping for the tactics outlined in the new report on medical technologies.
Blue Cross of California's Chee said if the follow-up is used as extensively as the first report, he wouldn't be surprised to see another consistent pattern of behavior manifest itself in contentious negotiations. "I would call the timing of this extremely interesting," Chee said, "given that the tactics and strategies espoused in the first book are subsiding in California but are escalating in the Midwest and the East. We'll have to see what kind of impact this has."
Cheryl Randolph, a spokeswoman for Santa Ana, Calif.-based HMO PacifiCare Health Systems, said she's never seen the playbook but said her company negotiators are familiar with it.
"We've seen a lot of contract showdowns the last few years," said Randolph, whose employer covers 3 million members in eight states. "With employers demanding lower premiums, both health plans and providers are struggling to keep costs down. Technology is already an issue and some providers are already seeking reimbursement for that. Whether hospitals try to get more after this book, I guess we'll just have to wait and see."
The Advisory Board's Roades said the logic behind per diem managed-care contracts is increasingly irrelevant and doesn't take into account the costs of the technology. The costs of care are not driven only by nurse staffing and length of stay but by technology used, he said.
"It's less about the overall challenges of managed-care contracting and more about the specific costs of innovation and how to keep up with those demands," he said. "The reimbursement cycle doesn't move fast enough to keep pace with clinical innovations. This book will help hospitals figure out which technologies are likely to have an impact on their operations so they can incorporate a higher level of intelligence into their contract negotiations. They'll also see ways to work with vendors to obtain better prices and make more efficient purchasing decisions."
"I expect we haven't heard the last of this," PacifiCare's Randolph said.
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