The CFA Perspective

The Importance of Effective Hospital-Physician Negotiation - Part I

Posted by Peter J. Spiers

6/8/18 7:53 AM

Negotiation blog image 6-6-18

Last year CFA posted a cardiovascular physician-oriented blog entitled “6 Keys to Successful Hospital - Physician Negotiation” (https://www.charlesfrancassociates.com/blog/six-keys-to-successful-negotiation-with-your-hospital.)  The premise of that 2017 blog was this: All physicians, including cardiovascular physicians, whether in private practice or employed, should consider becoming better skilled in the art and science of hospital negotiation.  The motivation behind crafting that blog was due, in part, to the significant growth occurring in the capital markets in late 2016 and into 2017.  Many reputable financial publications, including in the healthcare space, were documenting improved capital positions and expressing a positive outlook for improved capital formation across many business sectors including hospitals and healthcare organizations. Recent numbers continue to affirm this notion, and we believe, the environment for cardiovascular physicians to negotiate more advantageous operating positions is favorable. 

Convincing Evidence: Capital Investment on The Rise

Healthcare investment and research data demonstrates the upside value of investing in healthcare facilities is becoming more and more attractive1. In addition to the emerging, positive trends in the financial landscape, CFA has been seeing, for more than a year, an uptick in the growth and expansion of cardiac services in selected U.S. markets2.  Last year’s blog post highlighted the need for many cardiovascular physicians to improve their negotiating skills to take advantage of improving hospital and healthcare financial portfolios and best position themselves to leverage potential growth opportunities for their practices.

We believe a little more than one year later the premise of that previous blog carries even more significance today and, quite likely, into the near-term planning horizon for hospitals and physicians.  In an article posted February 27th, 2018 in the Washington Examiner, Jessica Goldstone, a senior VP and healthcare sector analyst with Moody’s stated “Improving capital formation and access will drive expansion and growth initiatives. Hospitals are a very capital-intensive industry,” Gladstone said, “and 2018 is going to be a big capital-expenditures year for a bunch of hospitals and healthcare companies” In the same article, HCA CFO Bill Rutherford stated “We are boosting our three-year capital-spending plan by about 28 percent to $10.5 billion”.  CEO Milton Johnson said “most of the new tax savings would be channeled into expansion, improvement of the company’s medical facilities and technological upgrades”.

Our internal research indicates the early evidence is in and shows that improved capital positions are allowing many small-sized to medium-sized “for profit” and some “not for profit” health systems, including many freestanding hospitals, to join the “expansion” trend. This is driving health services organizations and physician groups across the country to come together to plan and/or build new outpatient facilities, ambulatory services centers  and add new clinical services and technology, in an effort to improve their financial health, address regulatory changes, launch overdue infrastructure/capital projects, provide new patient care capacity, enter new and emerging markets, expand ambulatory strategy and, yes, more closely align with their physician partners. Physicians who are adept at negotiation are well positioned to take advantage of this current and, potentially, longer term market dynamic.

Effective Negotiation: A Critical Success Factor

What is the essence of negotiation? Negotiation, in its simplest form, seeks to maximize value or benefit and minimize loss or risk between one or more parties.  A key factor in successful negotiation for physicians is to acquire, develop and deploy effective business negotiation skill-sets -- something that was not likely part of their medical training.  Obviously, physicians are experts in assessing complex problems and making appropriate, effective decisions. However, in our experience, when physicians need or want to strike a deal with hospital administration it can often result in” cognitive dissonance” when attempting to negotiate mutual value or workable agreements with hospital administration.  Frequently, this can be quite vexing for physicians to be sure!

So, what are the “critical success factors” that drive effective negotiation with hospital leadership? Here are six foundational keys:

  1. Know Thyself:  Front-load for Success. Assess your negotiation strengths and weaknesses.  You need, at a minimum, to prepare yourself through studying successful negotiation methodology and producing a thorough, best case presentation for your target audience. If you’re a novice at this or have not been as successful as you would have liked to have been in the past, seek subject matter experts to assist you.

  2. Know Your Hospital Administrators’ Negotiating Position:  Maximize Your Leverage.  Assess the operating strengths and weaknesses of your hospital, including market share, level of quality, profitability, and competitive position in your specialty and current state of their operational/clinical capabilities. Finding the strongest position for you and leveraging their weaknesses or adding new strengths to the hospital’s position in the marketplace is the goal.

  3. Understand Barriers Upfront:  Assess the Landscape.  Assess the “value proposition” from the hospital’s perspective -- does it put them at moderate to significant risk legally, strategically, and/or operationally?  If yes, you will need to craft or adjust your plan to address those issues; create attainable, mutual value; and decrease/mitigate risk.

  4. Use Data in Your Deal Presentation:  Use Visual Aids to Describe the Proposal.  Like physicians, highly performing hospital managers are trained to use data to drive decisions.  Presenting your concept and proposal with supporting data, such as incidence/prevalence data, growth projections, financial/operational impact, or evidence-based quality improvement research is effective. Again, this is an area that may be new or unfamiliar to physicians; seek subject matter experts to assist you.
  1. Employ Effective Interpersonal Skills:  What You Say and How You Say It Matters. 
    The manner in which you communicate with one another and negotiate deals is positively or negatively impacted by the way you speak and interact.  Employing interpersonal techniques that share information clearly, build trust and seek to positively mold and shape negotiations is very important.  The goal is to decrease stakeholder risk and increase mutual reward. 
  1. Think Outside the Box:  Always Assess Alternatives.  Sometimes the best thing to do when considering negotiating a deal with a hospital or health system is to not negotiate at all!  On occasion, the best way to maximize value for you and/or your practice is to develop something on your own or with others. We often counsel CV medical groups to conduct a feasibility assessment when considering alternatives to developing and negotiating hospital deals.  With current trends in capital access, patient care reimbursement, maximizing practice/operational growth, efficiency and convenience; improving financial metrics; and creating greater leverage in the healthcare marketplace may best be accomplished through joining with other medical specialties or other non-hospital capital partners. 

Summary 

For CV physicians, the ability to craft and negotiate the best business deal (s) possible, regardless of their particular practice operating model, whether employed or unaffiliated, increasingly requires a level of deal-making sophistication many cardiovascular physicians have not been trained to use, had the time to develop or have not been as successful in previous hospital negotiations as they would have liked to have been. CFA believes, given the improved hospital capital formation landscape and the steady move to outpatient care, the opportunity for negotiating new and/or more favorable alignment strategies between hospital and physicians are quite good at present. Successfully employing the six keys to effective negotiation outlined herein will help CV physicians improve their ability to secure value-added practice agreements, create strategic advantage and /or joint business ventures with or without hospital administrators. Working to better understand, develop and leverage your strategic position is a skill many cardiovascular physicians would do well to develop. 

In part 2 of this blog we will address proposed new regulatory changes on the horizon that may make physician - owned health services an attractive option for some cardiovascular medical groups and physicians.  We will also highlight a CFA case study between a health system and a cardiothoracic surgery group that resulted in forming and executing a new professional services agreement that significantly benefited both parties. 

For additional detail, see CFA’s white paper, “Six Keys to Successful Hospital Negotiations.” via the link provided above. 

As always, CFA welcomes your comments or suggestions. 


Footnotes:

  1. https://www.investopedia.com/articles/investing/093013/investing-healthcare-facilities.asp
  2. CFA - Definitive Healthcare National Database Hospital Profile Review 2017 - 2018