Preparing for Payer Contract Negotiations

Negotiating contracts with payers can be intimidating, especially when the stakes are high. The payer may assert that they do not negotiate, or otherwise seek ways to maintain the upper hand. Before your organization enters into contract negotiations with payers, it is best to invest time and resources into determining what elements are within your control, and what elements are not in your control. After thorough research, preparation, and analysis of relevant data, you may find your organization in a strong position for negotiations, and that you have plenty of elements to control in these talks.

Know Your Organization

Independent of any upcoming negotiations, a well-run healthcare organization is one that knows itself inside and out. This includes not just data about historic performance, but also having a strategic vision for the future and a plan for how those goals will be met. This includes knowledge found in financial reporting and quality measurements as well as conclusions from market research and plans for growth or change in anticipation of industry trends.

When you understand how your organization functions and how it will need to change in upcoming years, you will be in a better position to know what you will need payers to agree to. Understand the needs of your patients, the source of your patients, and how their bills are being paid. Look at your payer mix to identify ways minimize risk and lower the stakes of any one contract transaction. Review your performance data to highlight strengths, as well as to identify improvements necessary to win favorable contracts down the line.

Know Your Goals

When you have a clear sense of your organization’s identity, values, and needs, you will then be in a position to outline acceptable and unacceptable terms of a payer contract. Each negotiable element should be assigned a predetermined goal based on your organization’s needs: an optimum, a target, a minimum, and a best alternative to a negotiated agreement (BATNA).

Know Your Marketplace

It’s important to keep in mind the way in which your organization is independent as well as the ways in which it functions as one entity in a connected marketplace. Competitors may agree to contract terms your organization finds objectionable: this may not be a sign you have to relent to the same poor terms, because in the long term these competitors may not survive if they are not negotiating for financial health.

But you also are part of an ecosystem. Who is referring patients to you, and how are those patients paying? If you drop a payer, will these streams of referrals also dry up?


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Know Your Payers

You won’t be able to identify where you have leverage if you don’t understand what the payer’s needs are. For example, a small rural practice may initially seem to be at a disadvantage, but can flex muscle when the only alternative is patient transport to a more expensive and distant option. Payers are also shifting from fee-for-service models to value-based care. Identify the ways you meet these needs now, and set goals for meeting these needs in the future. Organizations that do not anticipate the needs of future negotiations will be at a disadvantage down the road.


When the preparation is over and it’s time to negotiate, it is best to use experienced professionals who understand the ins and outs of the terms and agreements and can identify pitfalls even in pressured situations. Each negotiation is just one transaction, one plot of many. For the health of your organization, play the long game: negotiate relationships, not transactions.