Context:
A community health system was concerned about its price position relative to key competitors and had a critical negotiation with the largest commercial health plan in the market approaching. Historically, negotiations between the two organizations have been particularly challenging in part because the community health system also owned its own health plan. The organization’s leadership requested support in developing its pricing strategy and leading the negotiation with this health plan.
Approach:
Ridgeline partnered with the organization’s executive leadership and managed care team to develop a sound understanding of market and negotiation dynamics. To inform our negotiation strategy, we completed a robust out-of-network scenario analysis to model the expected financial impact of not coming to agreement on both organizations including potential enrollment deterioration for the health plan. Then Ridgeline completed a market price benchmarking analysis to understand the organization’s price position in aggregate, by facility, service line and sub-service line. Informed by this comprehensive analysis, we developed the organization’s pricing strategy including overall positioning and pricing guidance for various service lines. Ridgeline developed and successfully executed the negotiation strategy informed by market dynamics, the organization’s pricing strategy and the a thorough understanding of the organization's relative negotiating positions.
Results:
The pricing strategy identified the opportunity for a 20-30% rate increase over three years to achieve the organization's optimal price position relative to market competitors. Further, the pricing strategy identified important adjustments to pricing at the service line level requiring a variety of targeted rate increases and decreases to certain service lines to optimize service level price position. The negotiation with the health plan was completed on schedule and resulted in a 25% rate increase over three years and several key contract terms to enhance the organization’s strategic position.