Detailed contracted provider reimbursement rates, largely unknown until price transparency data was initially published in 2021, are changing negotiation dynamics.

Background

The contracted prices for medical services between a health insurer (payer) and healthcare providers like physicians, hospitals, and health systems (provider) are a critical element of the payer’s medical expenses and the provider’s revenue. Both parties strive to maintain competitive reimbursement rates across a spectrum of applicable services to obtain their desired financial outcomes. Agreeing upon the terms of these contracts is a substantial effort for all parties, involving material staff resources establishing targets, performing analytics, developing strategies, and engaging in negotiations. Understanding the relative price position of an organization to its competitors is a crucial step in anchoring the negotiation around the best possible outcome. The Transparency in Coverage (TiC) and Hospital Price Transparency (HPT) data reveal the actual contracted rates across all services and competitors and can be used to establish targets and develop strategy in preparation for contract negotiations. Milliman Transparent¹ is a solution that enhances and organizes TiC and HPT data to optimize support for contract negotiations in a more robust, timely, and detailed manner than other market data solutions. In this paper, we will examine how Milliman Transparent can be used to perform a market analysis and a portfolio analysis and then combine those findings to inform overall targets and strategy for contract negotiations.

Market analysis

Benchmarking rates against competitors will provide insights to inform negotiation targets and form the foundation of a negotiation strategy.

Overall price position

Comparing overall weighted average prices relative to others in the market shows which payers and providers have the highest and lowest reimbursement rates in a market. This view can be used to determine whether reimbursement rates are competitive, outpacing, or lagging others in the market.

Milliman Transparent uses GlobalRVUs (GRVUs)² to estimate a nationwide all-payer Medicare amount³ called GRVU Medicare for each code and at aggregated service lines like inpatient medical, maternity, and outpatient radiology. These standardized prices are applied consistently with the codes used in each contract, so overall relativity comparisons can be made for contracts using different code bases such as Medicare severity diagnosis-related groups (MS-DRGs) versus all-patient refined diagnosis-related groups (APR-DRGs) versus revenue codes. Expressing rates as a percentage of Milliman’s GRVU Medicare is a way to evaluate relative market price position using a standard metric.

Figure 1 is a table that shows the GRVU Medicare price positions by hospital, service category, and payer for several peer hospitals in the St. Louis Metropolitan Area. The color gradient is a visualization of the overall price position of an array of providers and payers in a market, with light blue representing lower unit price and dark blue representing higher unit price.

This type of comparison can be used to identify each provider’s overall relative price position among its peers. Observations from this sample include:

• Hospital A rates are typically higher than other market hospitals in this sample, ranging from 221% to 319% of GRVU Medicare across Payers 1-4.
• Hospitals B-D prices are reasonably aligned overall, with exceptions by payer and service category.

Observations identifying price variation by inpatient, outpatient, and total services among the selected payers include:

• Payer 2 inpatient rates are often highest among the four-payer sample, ranging from 231% of GRVU Medicare at Hospital C to 319% at Hospital A.
• Hospital B outpatient rates for Payer 4 are slightly higher than 100% of GRVU Medicare, which may be artificially low due to data quality or other factors.

More detailed comparisons, defined next, will reveal additional insights into the volatility underneath this overall average.

Service line summary

A service line analysis is used to dig deeper to identify specific areas of price opportunity and risk and can guide proposal development tactics. The service line analysis is best suited for “one-to-many” scenarios, supporting providers by comparing rates for one payer at multiple facilities or supporting payers by comparing rates for multiple payers at one facility. Both configurations are readily available in Milliman Transparent.

A service line summary can answer the following questions:

• Will across-the-board reimbursement rate changes be sufficient for this contract cycle or are there specific services that need to be better aligned with the market?
• Is any provider or payer deviating materially from their peers?
• Are frequently shopped service rates, like radiology and surgery, in line with market or is there evidence to support a price freeze or decrease?

Using this comparison, a provider can learn how its own rates compare to other providers in the market for the same payer. For example:

• Hospital A rates for Payer 3 are the highest in the market. Hospital A inpatient prices surpass other providers by more than 40%. Hospital C inpatient rates are highest among the remaining three providers in the sample.
• Payer 3 inpatient medical and surgical prices as a percentage of GRVU Medicare are consistent within three of the four providers, which could suggest a similar fee schedule contract. This could be explored further by comparing contract structures like in Figure 4 below.

Payers and providers can use a comparison like Figure 2 to identify specific service lines that offer price risks or opportunities:

• Radiology rates at Hospital A and Hospital D are the highest in the market.
• Hospital A outpatient surgery rates are much higher than the market, offering a potential price risk for this provider.
• Outpatient pharmacy prices are well-aligned between 99% and 124% of GRVU Medicare for all providers.
• Hospital D rates are higher than Hospital B for radiology while inpatient rates are typically lowest in the market. Lowering radiology rates may offer an opportunity to better align inpatient rates with the market.

Using the comparison shown in Figure 3, a payer can learn how its own rates compare to other payers for a single provider:

• Inpatient maternity and most outpatient service rates vary across payers and services at Hospital A, offering a possible opportunity for each payer to better align rates with the market by service line. Medical and surgical inpatient rates are better aligned, so focusing on outpatient services could be prudent.
• Payer 2 rates are higher than other payers for inpatient maternity services and outpatient surgery while outpatient radiology rates are lowest in the market.

Portfolio analysis

A portfolio is the set of all contracts for a payer or provider. A holistic view of a portfolio can be used to identify outlier contracts and opportunities. For example, a payer or provider can use views like Figures 2 and 3 above to learn how competitors price services with different organizations in their portfolios. Intentional decisions about how to position each entity in a portfolio can influence short-term rate choices and longer-term market share and competition strategies. Milliman Transparent presents the TiC and HPT data to be leveraged as a component of a robust portfolio analysis and create value with the detailed data to shine light on competitors’ portfolio strategy.

Figures 2 and 3 also serve as examples of a portfolio analysis and can answer key questions like these:

• Are my competitors offering different rates to the largest payers/providers or pricing all payers within a narrow range?
• How are commercial segments, like group and individual rates, priced differently across payers and providers?
• How does each payer and provider line up in the portfolio and does that positioning align with my strategy?
• How do competitors price a specific payer, provider, or segment within their portfolio?

Data to answer these and other related questions were largely not available until price transparency as most other price benchmark data does not offer payer- and provider-specific rate comparisons.

Contract structure comparisons

The structure of a contract is the specific method of reimbursement for each service and can vary within and across payers and providers. For example, some reimbursement methods for facility inpatient services are a percentage of the billed charges, a fixed amount per day, or a diagnosis-related group (DRG) case rate. A contract could use one or multiple methods across all services. Milliman Transparent analyzes each contracted service and identifies the reimbursement method. Summarizing contract structure findings from Milliman Transparent can offer insights that extend beyond just unit prices.

This could be used to answer questions like:

• Do competitors have percentage of billed charges or fee schedules for each service category?
• Are inpatient services typically MS-DRG case rates, per diems, or percentage of billed charges?
• Are outpatient services like lab, radiology, and surgery typically paid on a fee schedule or as a percentage of charges?

Figure 4 is an example of Payer 3’s preferred provider organization (PPO) network inpatient reimbursement in the St. Louis Metropolitan Area.

As shown in Figure 4, most inpatient services in this metropolitan statistical area (MSA) are paid on a per case basis for MS-DRGs while the rest are paid per diem. Hospital A and Hospital D are entirely paid on a per case basis.

This information could be used to evaluate a proposal and compare it to the typical structure for a market. Knowledge of market contract structures can enable a negotiation team to consider different contract structures when developing or responding to proposals.

Using price transparency data at the negotiation table

Other considerations when using the TiC and HPT data as part of a contract negotiation include:

Evaluating the reliability of the results

Evaluating the reliability of results that rely on TiC and HPT data is a critical step prior to developing targets and strategy. The availability of new data with payer- and provider-specific contract information yields many insights that were previously unavailable. However, the data can still be still difficult to use and understand and may have material gaps in some areas. Milliman Transparent includes reliability metrics⁴ to evaluate the completeness and accuracy of the data, which can prevent a negotiator from relying on incomplete data as a key part of its strategy and assist it in disputing results presented by a counterparty.

Aligning multiple benchmarks

Depending on completeness, this data can be a primary part of a negotiation strategy, or an additional data point that supplements coordination of benefits, financial statements or Medicare cost reports, and other information. Triangulating multiple data sources is a powerful approach in solidifying arguments in a negotiation.

Effective analysis

Strong analytic resources will help payers and providers to get the most value out of Milliman Transparent and the TiC and HPT data for contract negotiations. The figures in this paper illustrate some of the ways this data can be used directly. In practice, a process is needed to review the reliability and dig into the code-level detail to identify and maximize opportunities that are best suited to specific needs.

Conclusion

Compiling all key findings provides guidance for negotiation target setting, goals, and strategy.

Milliman Transparent enhances and organizes the TiC and HPT data to optimize support for contract negotiations and market insights, enabling knowledge about reimbursement rates for specific providers and payers in applicable markets.

Using price transparency data to determine how negotiated rates and contract structures compare to competitors and how each payer, provider, or segment is positioned in the portfolio are key quantitative analyses to serve as the foundation of negotiation target decisions and strategy. These analyses can be compiled with other quantitative metrics, as well as qualitative findings about the relationship between payers and providers and current market trends, to inform overall targets, key tactics, and priorities for any negotiation.

¹ Reijula, E., Smith, C., Ochsner, A., & Hall, E. (September 2023). Price Transparency in 2023. Milliman Transparent. Retrieved December 16, 2024, from https://www.milliman.com/en/insight/price-transparency-in-2023.

² Milliman. GlobalRVUs. Healthcare Cost Modeling. Retrieved December 16, 2024, from https://www.milliman.com/en/products/globalrvus.

³ Price Transparency in 2023, op cit.

⁴ Price Transparency in 2023, op cit.