Many physicians we work with face the tough decision of whether to keep their practices independent or join a larger organization. Oftentimes, physicians and practice managers believe they must consider such a move to “gain a larger footprint” for negotiations with payers. The advantages of larger groups in payer contract negotiations versus small and solo practices are generally accepted. But should we assume larger groups automatically have an edge?
Negotiating power can come from different factors. The most basic is having something the other side wants (or, ideally, needs). But it can also come from not wanting what the other side offers too much (i.e., being able to walk away). It can come from having something to offer that is better than alternatives. It can also come from the ability to be flexible.
Bigger groups may give payers a convenient way to negotiate rates for a larger geographic area in one deal — a plus the payer will appreciate. The group may be empowered to push for a higher rate for all providers in it — and it might work. And the payer may feel it must deal with this large group, without the option to walk away, because it needs the coverage it provides. But the group will also likely be less willing to walk away in the face of a deal it perceives to be poor, because the negotiators have to represent the interests of everyone. The fact that neither side can easily walk away takes away some of the leverage that more size might otherwise provide.
On the other hand, if a smaller practice has special qualities that a payer might value — say, specialty coverage in an under-served area, or newer services that are rare in their market — the payer might be willing to pay more, at least for certain codes, for that small practice. But that could be less likely if that small team is part of a larger group negotiating rates across multiple markets.
Similarly, if a small group of physicians scores well on a health plan’s internal quality measures, or if patients rate them very highly, these facts can stand out in the practice’s favor in negotiating — but these advantages can get averaged out when the physicians are part of a larger group.
And, of course, if a small group is dissatisfied with a particular payer, it could be a whole lot easier to walk away as a unit than it would be for a large group — meaning more leverage.
Larger organizations may be more confident and knowledgeable about negotiating — especially if their larger size allows them to hire more experienced businesspeople to do the negotiating. But a bigger organization can be challenged to be nimble while representing all its members, probably can’t walk away from a mediocre deal, and may find it can’t take advantages of qualities that would allow individual physicians to stand out if they weren’t part of a larger mix. Smaller groups often have negotiating advantages that they just don’t perceive — the key is to determine if you have them, what they are, and how to use them before assuming your only strength will come from numbers.