One of the key factors in any successful contract negotiation is preparation. There’s no exception in the negotiation of a contract between a provider and a payer. It consists of determining the real objectives of the contract based on the knowledge of the party’s organization, the other party, and the marketplace.

From the provider’s perspective, is important to analyze its ability to deliver healthcare services under a health plan contract, especially from the economic point of view. The healthcare delivery system had been suffered from changes since the beginning of the 1990s, and payment models stimulated directly or indirectly by the Affordable Care Act, have created new challenges and opportunities for providers. Looking for alternatives to save money and make their operations more profitable, the health plans insist to share some of the financial risks for health care services with the provider through various mechanisms, including per dies, per discharge case rates, captivated payments, shared savings/ risk, or some other form of risk-based pricing.

While the fee-for-service payment methodology that prevailed in the industry for decades tended to reward providers that focused on the volume of services provided, under other payment mechanisms, a provider’s success depends in large part on the provider’s ability to (i) identify key drivers of medical costs and implement programs targeted at managing those costs; (ii) manage the provision of services across the continuum of care; and (iii) institute early-warning processes to identify problem areas. All of this must be done within the contract’s payment constraints.

From the payer’s perspective traditionally, a payer’s bargaining power relative to other payers was determined by the number of patients that the payer could steer to a given provider.

While payers’ awareness of their bargaining power, against providers, has not changed, healthcare markets have become more fragmented, forcing payers to carefully review their position in the market in which the provider negotiation is taking place.

In conclusion, the essence of health plan contracting lies in the mutual give and take that ultimately results in agreement to terms that inevitably are less than ideal from each party’s point of view but that are at least mutually satisfactory overall and establish the best possible framework for a productive long-term relationship.