Healthcare Economics: Strategies for Service-Delivery Contracts

This report delves into the unique challenges hospitals and physicians face in healthcare economics, particularly concerning service contract negotiations with third-party payers. It examines methods to maximize physician reimbursement, integrate new practices, and evaluate fee schedules. The paper analyzes negotiation strategies, including SWOT analysis, and contrasts the fee-for-service (FFS) and managed care models, highlighting the transition from FFS to a system requiring diverse information sources for payer negotiations. It identifies risk avoidance measures in contract negotiations and offers recommendations to improve contract negotiation strategies, such as determining the necessity of negotiation, avoiding adversarial attitudes, and thorough preparation. The report concludes that payer contracts are essential for reviewing fee schedules and altering net revenue, and that the shift to managed care reduces negotiation risks, emphasizing the importance of strategic improvements for better service-delivery contracts. Desklib offers a wide range of study tools and resources to support students.

Running head: HEALTHCARE ECONOMICS
HEALTHCARE ECONOMICS
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Hospitals and physicians have to deal with care contacting challenges that are unique in
nature. There is often a need to maximise the reimbursement of the physicians across the various
specialities. This helps to integrate new ways of practise into the medical system of the hospitals and
evaluation of the fee schedules. Additionally claims are made for troubleshooting the timely payments
and promoting marketing practices to more number of patients (Francalanza, Gauci & Pace, 2013).
This paper aims to analyse the methods of negotiation of the service contracts between the
physicians and the hospitals with the third party payers. Additionally the paper illustrates the
strategies are identified with helps to reduce the risks of contract negotiations along with suggestions
of recommendations to improve the service-delivery contracts.
With the aim of sustaining viable revenue, it is required for the physicians and the hospitals to
come to a negotiating with the third party payers regarding the payer contracts. Clarity should be
present in the understanding of the principles of business and the recent market trends along with the
delivery cost of high quality healthcare (Klein, 2017). The physicians and the hospitals, who are
involved in negotiation review the legal documents carefully before proceeding with the contract
negotiation. While negotiation a demonstration of the values is conducted in terms of the data along
with cost effectiveness and the quality of care. In addition the long term goals are also considered that
tend to benefit the team as a whole. Prior to the negotiation process, the organization primarily
conducts a SWOT analysis in order to identify the strengths, the weaknesses along with the threats
and opportunities that are related to the practise (Francalanza, Gauci & Pace, 2013). Such strengths
might be recognised by reviewing the patient number involved in the plan, revenue utilization and
quality measurements. Additionally utilization reports are created. For negotiation, the hospitals and
the physicians meet with the representatives of the third party payers.
Under the fee-for-service system (FFS), there is a provision to visit the physician whenever
it is necessary whereas under the managed care model, a heavy financial incentive has to be met to
see the physicians, only if the physician is affiliated with the plan. There are several other differences
within the two systems in terms of methods of payments like in the FFS system after paying the yearly
deductible, there will be a need to pay the physician's bill up front (Schroeder & Frist, 2013). A claim
of reimbursement will be needed to submit for a certain percentage of the amount. Whereas in
managed care charge of co-payment will be required while seeing a doctor. In the recent scenario of
healthcare, there is a transition from the fee-for-service where the hospitals requires the information

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from a more various steady sources in order to negotiate with payers (Owen, 2014). The organization
predicted the amount of money they wanted where the expected income was estimated over the life
of the contract. However the new system has contributed to risk avoidance in contract negotiations in
terms that the managed care model and reimbursement system constitutes the aspects of weighted
averages for calculating reimbursements, avoiding the “lesser of billed charges” or contracted rate
problem and focusing more on the important codes (Shirley, 2016).
For improvement of three contract negotiation strategies, the following recommendations
can be suggested which includes firstly the determination of whether the negotiation solution is
required or not. In certain situations, often the issues can be resolved with hep of customer or
technical support while there is no requirement of a contractual relationship. Therefore assessments
must be made to identify situations where contracts can be advantageous (Lewis & Pflum, 2015).
Secondly adversarial attitudes must be avoided by approaching the negotiation in terms of finding
opportunities for recognising the common grounds and shared interests with the third party payers.
Thirdly there is an essentiality of good preparation prior to the negotiation process. There is also a
need for share of selective information only where prices should be revealed only partially and should
not be used to support the case of negotiation. Finally there should be a consideration to make the
first offer since it has been perceived that negotiators who are involved in making the first move, tend
to come out ahead (O’Donnell, Williams & Kilbourne, 2013).
Form the above discussions it was concluded that payer contracts are essential for reviewing
the fee schedules and the opportunities that tend to alter the net revenue that is generated by
practise. Change from the FFS system to the managed care model and reimbursement has been able
to reduce the risk of contract negotiation. Recommendations have been made to improve the
strategies of better service-delivery contract negotiations.

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References
Francalanza, A., Gauci, A., & Pace, G. J. (2013). Distributed system contract monitoring. J.
Log. Algebr. Program., 82(5-7), 186-215. Retrieved from:
https://arxiv.org/abs/1109.2655
Klein, B. (2017). PRACTICE NEGOTIATIONS-A STEP BY STEP GUIDE. Retrieved
from: http://www.upandrunningnetworks.com/files/C102_1.pdf
Lewis, M. S., & Pflum, K. E. (2015). Diagnosing hospital system bargaining power in
managed care networks. American Economic Journal: Economic Policy, 7(1), 243-74.
Retrieved from: https://www.aeaweb.org/articles?id=10.1257/pol.20130009
O’Donnell, A. N., Williams, M., & Kilbourne, A. M. (2013). Overcoming roadblocks:
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Owen, J. A. (2014). Medicare star ratings: Stakeholder proceedings on community pharmacy
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https://www.sciencedirect.com/science/article/pii/S1544319115301801
Schroeder, S. A., & Frist, W. (2013). Phasing out fee-for-service payment. Retrieved from:
https://www.nejm.org/doi/full/10.1056/NEJMsb1302322
Shirley, D. (2016). Project management for healthcare. CRC Press. Retrieved from:
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