Negotiating with Health Funds: The Top Three Mistakes I see Hospitals Making

Negotiating with health funds is no small feat. For many hospital providers, you will be up against trained, dedicated negotiators who are supported by systems, data, and analytics to give them the best opportunity to minimise increases for the health insurers.

For small hospital providers, it is unlikely you can afford a dedicated role solely to negotiate health fund agreements. Instead, this unenviable task will likely be assigned to someone in your management team, in addition to their full-time duties, and they will try to juggle multiple complex, time-critical health fund negotiations with their normal role.

In essence, the deck is already stacked against you.

Over the years, I have learned that avoiding these three common mistakes can make all the difference to your outcomes in negotiation. While it won’t balance the scales entirely, it will at the very least help you improve the negotiation process.

Effective negotiation strategies for hospitals

Mistake 1: Poor Negotiation Discipline

Successful negotiation requires a clear strategy, a well-developed plan to achieve the desired outcome and, most importantly, the discipline to execute the plan.

One of the biggest mistakes I see from hospital providers is poor negotiation discipline. In fact, while training new negotiators over the years, negotiation discipline has been one of the best indicators to me of how good an individual could be as a contract negotiator.

So what does good negotiation discipline look like and how can you improve it? There are some simple habits you can form that will get you 80% of the way there.

Planning: Take some time to map out the next 18 months of health fund contract end dates. Work out how you want to approach these, identify overlaps, and try to deconflict negotiations where possible.

Set Goals: Understand what you want to achieve (see Mistake 3) before you even start negotiating. Having clarity on what success looks like is critical.

Initiate the Negotiation: Don’t wait for the fund. Most funds will set engagement windows that are likely too aggressive for you to easily manage, leaving you feeling rushed, under pressure to agree, and with no time to fully understand changes.

Be Responsive: Try to respond with the shortest possible delay to health funds on questions and issues. Long response times drag out negotiations and place more pressure on you as the end date nears.

Ultimately, this will become your negotiation playbook. This playbook should clearly define your strategies, backup plans, and acceptable limits. When you stick to your plan, you set yourself up for the best possible outcome.

Mistake 2: Neglecting Training Investment

When you sit one of your team members down in front of a health fund contract negotiator, there are some simple truths to consider. First, this individual is fully dedicated to negotiation. They are either a seasoned negotiator with years of experience or under active training, development, and mentorship by someone like this. They have dedicated analytics and modelling tools and dashboards, and a team of other negotiators to leverage for advice and guidance when things get complex.

By not investing in the right development, support, and advice for your team, it becomes impossible to reach an optimal outcome. Providing some basic negotiation training can make a significant difference to how your negotiation runs and, more importantly, can empower your team with better confidence to achieve the desired outcome.

Adding support and advisor services on top of this training can further improve your odds. Hospital Provider Purchase Agreements are heavily driven by complex legislation. Having resources your team can draw on to understand potential business rule or contractual clause changes ensures they have the right advice to protect your hospital from negative impacts hidden in these clauses.

Balancing these scales gives your team the best chance of matching the other side's negotiation tactics and ultimately ensures you get the best outcome while running your negotiation. Given the value of improved outcomes in negotiations with your primary revenue sources, the investment in training and advisory services is one that pays for itself.

Mistake 3: Insufficient Price Benchmarking

As an industry, I see far too many providers fixated on the wrong things. First and foremost is this obsession with rate indexation. Too often, I find myself engaged by providers asking for advice on how to improve their indexation rates with health funds.

While this is not an unreasonable request or desire, it fails to address the core issue. A good indexation on a bad rate rarely results in a good rate. For most small providers, health funds have successfully capped increases in indexation well below what larger provider groups have been achieving with their dedicated negotiation teams. This has now resulted in significant price variations between day and independent hospitals and these large groups. As I tell many providers on this issue, I would much prefer a 1.5% increase on Ramsay’s rates than a 10% increase on what your rates likely are.

Ultimately, setting indexation targets in the absence of good price benchmarking for your services is going to set you up for failure. You may walk away from the negotiation feeling good about an indexation outcome, yet still find yourself stressed and financially marginal in running your services.

With appropriate price benchmarking, using publicly available data, you provide yourself and your team with a far better understanding of the revenue opportunity for your hospital or group, and you will understand which negotiations you should invest more time and focus on to improve outcomes. In the end, your ability to run a high-quality service and maintain excellent patient outcomes requires reasonable and fair reimbursements.

Leveraging data for effective negotiations

Final Thoughts

Negotiating with health funds is a vital process for hospitals, but it comes with its own set of challenges. By addressing the common mistakes of poor negotiation discipline, neglecting staff training, and failing to utilise data effectively, you set your hospital up for greater success.

With a disciplined mindset, a commitment to continuous learning, and a strong focus on data-driven strategies, your negotiations can result in better contracts and stronger financial health for your institution. Ultimately, these improvements will allow your hospital to provide superior care for the communities you serve.

Remember, negotiation is an ongoing process that demands thorough preparation and a clear strategy. Approach your negotiations with the diligence they deserve, and you will see greater success in working with health funds.