The Importance of Network Development

Providers, this article is for you. It’s time to empower yourself to take control of your networks. This goal is accomplished by understanding the insurance market. Network Development is a broad term for building and/or scaling a market. This is used to describe various functions, all with the common goal to grow. The term is broadly utilized to describe a multitude of components that drive revenue, yield better ebidta, and expand member utilization. For a provider, this is essential. In simple terms, it is a way to make money and produce better results. 

Network Development is the foundation of the business that most providers overlook. 

These business skills are not widely taught in medical school. In fact, there is limited educational programs that focus on network development. I can personally attest. We will discuss later in the article the disadvantage of the educational gap in this field. The art of negotiation is learned on the job. That’s right the financial viability is in the hands of an employee without a degree in network development, often coupled with limited experience. In smaller practices, the office manager is the networks person. This can be risky.

Network Development Training Program

Healthcare Deciphered does provide a 6-week network development program to help providers adequately train internally resources. 

Without a thorough understanding of this healthcare niche, there will likely be limited growth potential with payers. It is up to the provider to seize opportunities. 

We are offering a degree that does not exist elsewhere in the market. 

How much financial risk are we talking?

In the U.S. today, the majority of medical services are at least partially covered by insurance companies. Typically, providers are a combination of the commercial, Medicare, and Medicaid plans. There is always a portion of cash business. The important point is 75% of revenue is tied directly to insurance contracts. If this is not starting to give you heartburn, you must be a client. We happily thank you for your business. The ability to setup a market appropriately is essential.

There are over 5,000 medical insurers in the U.S. The insurers set the pricing for their products (plans), based on the benefits needed by their members. Guess what? The reimbursement initially offered at the start of the negotiation is typically low. The exception to this rule is if your practice has a service that is unavailable in the market and/or a very large existing market share. Payers usually want to maintain coverage for their members. This means your practice may have a negotiating advantage. It is important to understand where your practice is realistically as part of the market. Do you have a service that is unique?

When providers are entering a new market, all new insurance agreements need to be negotiated. Often this happens before the practice is open without any utilization. Basically, the provider is not billing claims for patients yet. Without utilization, practices are unaware of the type and volume of patients that will be seen by the practice. This means the practice must make a prediction. The practice is estimating patient mix. Based on pricing with payers, the output may not be positive. Practices do not want to negotiate with the largest payer to obtain the lowest pricing in the market. This will be a burden that is impactful for years. Do not negotiate out of a hole. Take the time to setup the network adequately from the start. To accomplish this goal there must be time to complete the proper execution of the network. This means allowing for time to negotiate. Often practices are consumed by trying to open their clinics, so network development is overlooked. If insurance contracts are not effective prior to the opening date this could result in financial loss or bad debt write-offs. To optimize performance, it is better to have strategic alignment between opening and contract effective dates.

Margins have been shrinking.

For a new practice, it is essential to optimize market performance in the beginning. Plus, patients are much happier when practices can accept insurance without problems. The solution is network development.

In the first year a single provider practice, on average, yields less than $200K in profit. That is significantly low, as startup costs are roughly half a million or more. The financial risk to the practice could be substantial. The other big predicament is if the contract pricing is lower than the cost to do business. Providers could be “stuck” with too low pricing. Payer contracts have an initial period that “locks” in pricing. If there is an issue with the pricing, the only options would be either to reject the contract or terminate due to financial strain. Contracts can be re-negotiated later, but there is no guarantee the payers will agree to new terms. 

Contracts that are negotiated to low are a hinderance to the provider posing potentially high financial risk unless this can be appropriately offset. Each contract is different; therefore, every negotiation varies. 

Opportunities are prevalent if you know where to look!

It is the network development strategy and outcomes that can transform an organization. Since network development involves both the expansion and integration, it can result in the increase in volume and revenue for the organization. The success of these functions is pivotal to providers and payers. 

Let’s start to further define network development. To develop a network encapsulates any of the following: expansion, saturation, optimization, and integration. There are subcomponents of each area that are often undervalued as a substantial part of the process, such as credentialing and payer enrollment. We speak to these areas later. The focus right now is on the core fundamentals of network development, which are:

  1. Expansion
  2. Saturation
  3. Optimization
  4. Integration

These components are not mutually exclusive. The combination of these components will result in desired strategic optimization of the network. The network is the type and volume of insurance plans that a provider is contracted for in-network services. Providers that do not participate in insurance networks may be unable to accept these types of patients limiting their potential member base. From a financial perspective, the provider is able to hold the patient responsible to pay all or a portion of the service entirely by cash. Sometimes for the provider this is a much more viable option. There is a cost to doing business with insurance companies. 

There are several opportunities for an organization. 

Expansion

Market Expansion is the expansion into a new or existing area where a practice does not have relationships with a payer or payers. The formal definition is a growth strategy that aims to make a product or service available in new markets when existing ones get saturated as defined by Phrase.com. This is where practices must obtain new agreements. The ability to negotiate is key. There are different types of network development specialties. Often times the goal is to obtain a contract. This is not network development. The ability to negotiate a mutually beneficial contract that helps establish profitability is the only option in our opinion. To accomplish these goals for clients takes time. Contracts that are not negotiated can be obtained within a few weeks. For contracts where the initial offer is 100% perfect, this tactic works. All contract terms are ideal for the business and pricing yields a substantial return on investment. 

This is not realistic. Contracts need to be negotiated. There have been very few, if any, agreements that did not have at least 1 or 2 changes. The back and forth between providers and payers takes time. Ideally, to fully negotiate with a market this takes several months of active negotiations. Each payer is different. It is helpful to have a lawyer review the language too. Smaller practices may not have the ability to pay for all contracts to be reviewed. In this case, narrow down the review to a couple of key agreements based on highest potential volume. However, a network can be built in a few weeks, just depends on the need. Speed is not favorable to drive enhanced payer contracts. 

Market expansion can help a practice establish volume quickly. For a new or expanding provider this can be the difference to operating in the black. 

Saturation

In comparison, this is the continued ability to gain patients in an established market. This is in contrast to market development where the provider is entering into a new area. In healthcare, there are a lot of options for services. It is very competitive. To the patient it can be difficult to discern the advantage from one provider to another. To be honest, a lot of time this comes down to familiarity. For payers, this comes down to cost. Providers that yield high quality outcomes at a reduced rate are listed at the top of the provider directories. Yes, there is an algorithm. Providers need to be vividly aware of how each payer is marketing their practice.

Payers utilize provider directories to highlight their markets. The providers who rank higher are seen by the patient first. Often there are some types of quality score that is a part of each providers bio. Providers who do not have ratings fall to the bottom of the list. There are several plans that utilize “Health Grades” as the source of their reviews. This means that a negative review could be pulled into multiple forums. 

To gain additional patient volume providers must rank. The better option is to obtain a “preferred” designation by the payer. This could be for quality patient care, meeting criteria for excellence, or reputation. There are multiple options. Each is important to understand. Providers with higher rankings, usually have higher market share. An error in this data could be devastating, especially if a provider is not even listed. This does happen more than it should. Good news, it is fixable. 

The ability to gain insured patient volume is directly related with the relationship that exists between the organizations. Providers without partnership are missing out on opportunities. The strategic payer partnerships will create sustainability in the market for the provider with both the payer and their patients. Payers are very open to partnerships. It takes initiative to execute properly. Often this is best to have a consulting group lead these types of negotiations. This could be a number of innovative options. It is important to have a resource knowledgeable to guide the conversations. Providers must continually drive patients to the practice to create financial stability and practice longevity. 

Optimization

We start with a surprising revolution. Providers do not need every contract in a market. Honestly, it may be more harmful to the overall strategy for the network. The rationale for contracting with any and all payers in a market is to ensure the practice can accept all potential patients. This logic is flawed.

It is not imperative to have every contract. Instead, it is better to contract with payers where terms are reasonable. It appears this may limit the business’s ability to expand. This is a superficial misunderstanding. Our vision is to create partnerships that drive positive financial outcomes. As a result, our philosophy is not all contracts are beneficial or necessary. It is better to have a few highly lucrative agreements.

This concept can only be realized through a process called Market Optimization. It is the evaluation of a providers’ network to promote patient volume that allows for the greatest return on investment. Practices are able to optimize their internal processes and resources more efficiently. Remember, there is a cost of doing business with insurance companies. It is not always net positive. Practices can incur substantial bad debt as a result of just 1 bad agreement. The other concern that comes up regularly is around the providers ability to care for patients. There are contracts that limit certain functions that impact or change the business. This means the cost is not exclusively financial, but operational too. Lastly, it can be an administrative burden to conduct business with certain payers. 

This may be the result of payer policies or burdensome pre-qualification criteria. In these situations, the patient is caught in the middle resulting in frustration. The provider may not want to participate in a network that could adversely affect their reputation. The other administrative obstacle is billing. There are plenty of problems that could result through the complicated payment process continuum. Providers often do not want to wait unnecessarily for payment or continually battle to get paid. It costs the practice time and resources each time there is an issue with a claim. The impact may not be worth the contract.

From a consulting perspective, this is often the “low-hanging fruit”, where unrealized opportunity exists. Do not be afraid to terminate a contract. It may not be an ideal situation. The truth is it may be necessary.

The ability to audit and review a networks viability is part of network development. This the strategic component focusing on practicality. Not every contract is good. It is better to create a network to enhance the core business resulting in better ebidta and longevity.

Integration

Network Development is a core business function that drives provider partnerships too. It is crucial to understand potentially overlapping and/or shared markets. There are substantial acquisitions, mergers, consolidations, etc. in the healthcare industry. This has led to market integration. The ability to appropriately consolidate payer contracts into a mutually viable agreement that will yield growth and opportunities as a result of a merger or acquisition. While this may seem simplistic it is not. In my experience, this area is often not analyzed thoroughly enough during integration phases.

One of the main reasons is providers do not have copies of their agreements and/or amendments. The missing information can quickly result in improper projections. There have been numerous times during an acquisition, where contracts are needing to be re-negotiated to sustain the viability of the collaboration. The biggest issue is not appropriately tracking rate reductions. During the evaluation period, high-level review of the financials and outstanding A/R may not highlight issues with contracts or payments. The bad news is this usually comes to light within a few months post close. 

Completing a deeper dive in the beginning will reduce financial loss and risk overall. We have been asked during a merger or acquisition to analysis gaps and potential network risks. Proper evaluation will yield a better result.

The other issue is determining the best options to move forward as a collective entity. This part of market integration focuses less on evaluation, instead this is the ability to create the future strategy for implementation post close. There could be a multitude of options, varying by payer. The timing of integration and/or consolidation of the payer network is integral. It is important to have a roadmap for implementation. This ensures a smooth, optimal transition into a single unified entity. In these types of situations, surprises are rarely good news. This is the reason finding the right skillset is essential. The strategy and direction dictate the future of the organization.

Why leave it to chance?

As we have discovered, network development is a broad term used to describe 4 functions that drive the financial viability of the company creating inherit opportunities for growth and expansion. This is amazing! 

  • Market Expansion
  • Market Saturation
  • Market Optimization
  • Market Integration

The problem is finding someone with the skillset to truly drive outcomes and yield measurable results. Remember, there is no certificate for network development. Even in a Master’s of Healthcare Administration program, this subject is majorly overlooked. It has always been very surprising to us an integral part of the organization’s foundational success is so heavily ignored. The potential negative side effects of a bad negotiation or network are potentially devastating. These issues cause concern for providers and practices that are supposed to be concentrating on patients. The truth is providers without an administrative resource to assist spend a good portion of their time on insurance issues. Furthermore, finding the right resource is even more difficult. Within Healthcare Deciphered, our team, has 20-30 years of experience. We are passionate about Network Development!