Three Keys to Pricing Guard Rails

Copyright 9.23.2014: Scientific Cowboys – Author: Nancy C Everitt, PMP

You may be wondering what a pricing guard rail is or shaking your head in agreement about the value of guard rails. When used effectively the impact of guard rails to the organization is significant.

In this article we’ll explore:

1) the value of creating financial guard rails for negotiation

2) provide some high level strategy and lastly

3) provide sample illustrations for both payors and providers.

 

Why Create Financial Guard Rails for Negotiation?

The best reason for creating guard rails (parameters)  is to empower your negotiators to get the right deals done.

FACT: Financial leadership has a responsibility to understand profitability of the organization and contractual impact.

FACT: Financial leadership cannot physically negotiate all agreements for the organization.

FACT: Financial leadership DOES need to review and model outliers and non standard agreements to assess financial risk.

FACT: Financial leadership DOES NOT  need to review all deals that meet certain predefined parameters.

 

The opportunity exists to create predefined parameters (guard rails) that the contracting team can utilize for 80% or greater of all deals. This will enhance compliance to terms, speed the process and lower the administrative cost of contracting.

 

High Level Strategy for Creating Guard Rails

Depending upon the sophistication of your organization and access to financial analytics,  guard rails can be complex or simple. Below are three strategic thoughts for creating guard rails:

  1. Iteration. Think of this as an iterative process. Establish goals and limits. Each iteration will improve. Do not hold on for perfection.
  2. Document Assumptions and Risks. Guard rails without assumptions and risks is like a navigator without a compass. Assumptions and Risks will help validate effectiveness and identify cautionary points.
  3. Reality Testing. Ensure that adequate training and expectations are placed upon the use and management of guard rails or this will evolve into chaos. Write things down! Often we hear about meetings with no Agenda, Minutes or formal implementation and someone wonders why there is no alignment and control. Involve your Project Manager.

 

Guard Rails for Payors and Providers

Organizational processes will vary; effective guard rails may include but not be limited to the following:

Payor

  • Rationale and Pricing Strategy
  • Claims System Capability and Limitations
    • Known failure points
  • Rate Limits
    Approval Process for Contracts within Limits
    Approval process for Contracts outside of Limits

Provider

  • Rationale and Pricing Strategy
  • Billing System Capability and Limitations
    • Known failure points
  • Cost of Care Provision – Rate Limits
    Approval Process for Contracts within Limits
    Approval process for Contracts outside of Limits

 

Summary:

Guard rails demystify the financial aspects of contracting, and harness the effectiveness of your contracting team.

A key caution is to always understand your system capability. Contracts and systems that do not align lead to disastrous results.

  • Compliance will increase, target rates can often more easily be attained and cooperation organizationally will improve.
  • Start simply and enhance complexity with iteration.
  • Optimally you can simplify the pricing and reimbursement process overall so that one offs are minimized.

The investment and documentation of guard rails can be a game changer for both payors and providers.

 

About the Author:

Nancy C. Everitt, MBA, PMP is the President and CEO of HEOPS, Inc. and Editor in Chief of Scientific Cowboys. She is a recognized expert in managed care, expedited network development and a thought leader in transforming care delivery systems. Questions on this article may be addressed directly to neveritt@heops.com.

 

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