Negotiation support boosts faculty practice reimbursement rates by 30%

Challenge

A faculty practice plan affiliated with a major U.S. academic medical center on the East Coast was being reimbursed at below-average rates for its top four Tier 1 payer contracts, which failed to account for its specialized expertise and complex care services. In-force contracts didn’t allow for year-over-year rate increases, leaving reimbursement unable to keep pace with rising operating costs following the COVID-19 pandemic.

Newly installed leaders recognized the significant impact this was having on the faculty practice plan’s margins. They engaged Guidehouse to help them develop payer-specific pricing targets, strengthen negotiation strategies, enhance financial modeling, and provide direct negotiation support to strategically re-position the physician group for a more sustainable future. 

Approach

Our team developed and executed a payer portfolio strategy based on Guidehouse’s “Pay Me Right” strategy approach, which starts with the pre-negotiation process to develop a reliable, detailed, credible fact base covering:

• Market and payer research: Assessed each payer’s current reimbursement position, contract posture, network dynamics, and likely negotiating leverage.
• Redefined negotiation team roles: Aligned negotiation team responsibilities and decision rights with best practices so that finance, managed care, clinical, legal, communications, and executive leaders had a clear structure for strategy development, payer engagement, escalation, and approval.
• Coalition strategy framework: Helped administrative and clinical leaders across care settings align on the case for improved reimbursement, the value of the physician group’s complex specialty services, and the messages needed to support payer conversations. 
• Price transparency and rate benchmarking analytics: Compared existing commercial payer reimbursement against market indicators and established a credible basis for payer-specific rate targets.
• Contract review: Reviewed existing contracts, modeled rate scenarios, and developed payer term sheets that translated target reimbursement levels into specific proposed contract terms and financial impacts by payer.
• Contract termination scenarios: Modeled potential contract termination scenarios to help leadership understand revenue exposure, operational implications, patient access considerations, and the financial tradeoffs of moving toward or beyond termination notices. 
• Negotiation strategy development: Created payer-specific negotiation strategies, tactics, and financial plans by line of business, including target increases, fallback positions, proposal sequencing, and supporting rationale for each commercial payer.  

Our payer strategy experts participated in discussions, supported the client’s negotiating team, and helped draft initial and counter proposals that included options for fee-for-service rates only, pay-for-performance, and lump sum cash payments. Our proprietary approach gave the faculty practice plan’s financial and managed care leadership a detailed view of how their rates compared with market benchmarks, helping them enter payer negotiations with clear, defensible rate targets. 

Two of the practice’s four Tier 1 payer contracts and rate resolutions were finalized within just a week of their contract termination dates. When negotiations with the two remaining payers reached an impasse, we helped the practice create a contingency plan for out-of-network billing and compliance with the No Surprises Act, including operational changes that could be needed in connection with applicable independent dispute resolution processes. We also engaged strategic communications experts to support internal and external stakeholder messaging, preparing patients, clinicians, and staff for the possibility that the payers could go out of network. 

Ultimately, an agreement was reached with all four payers, and we provided support for finalizing contracts and implementing agreed-upon terms. The entire process took only two years to complete. 

Impact

We delivered substantial, enduring reimbursement rate improvements and helped the organization reach reimbursement parity across its major commercial payers. Across the four Tier 1 payers, renewed contract terms represented $120 million in combined annualized net revenue run-rate improvement over three years, including $91 million in annualized run-rate improvement from the health system’s largest payer and $29 million across the remaining three contracts.  

This base patient revenue increase was a critical strategic priority, establishing the financial foundation needed before the practice could pursue broader enterprise growth initiatives