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How do managed care companies get you to buy sand in the desert?

A note from our President, Sam Donio

May 2021

Managed care companies convince hospitals to offer discounts to them to supposedly bring additional volume or to protect the volume they have.  But unlike retail or commodities businesses, healthcare does not have a real price elasticity curve, (see that, I used something from ECON 101!).

When a managed care company knocks on your door they come bearing the supposed gift of volume, but do they really? Do you know where their volume is coming from, because they do.

Here is a sampling of the volume-related questions you need to know before you enter into negotiations:

  • How much of their volume comes through the ED and therefore cannot be directed?
  • How much of their volume that is not ED-related revolves around services that only you offer? If you are the only baby hospital in your area, why are you discounting rates?
  • How extensive is their provider network and how does it match up to your physician staff? If they have a small number of the specialists under contract, what are they really offering?people-2591942_1920-1.jpg

With a little know-how, you can find out where the rest of their business is going and you can also figure out how much of it is directable.  Now you know what they are really offering and, in many cases, it is sand in the desert.

Once you have gathered this information you can enter negotiations knowing what they can do for you and what you want to achieve with their contracts.  It has always been our position, that too many providers look at the negotiating process as one of tactics, i.e., rates, while the winners look at it as one of strategy, i.e., how it supports your overall strategic plan and direction for your facility.

So, before you even begin the negotiation process you need to know what the managed care company can really offer you, how strong your market position is and based on that, how strongly can you push back. If you do not know that, then they are really selling you sand in the desert.

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