Negotiating the Right Contract
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Holmes Report

Negotiating the Right Contract

St. Mary’s Hospital’s contract negotiations with Anthem Blue Cross, Colorado’s second largest healthcare insurer, had broken down. The publicly traded insurer had just announced that it was terminating its contract.

Paul Holmes

St. Mary’s Hospital’s contract negotiations with Anthem Blue Cross, Colorado’s second largest healthcare insurer, had broken down. The publicly traded insurer had just announced that it was terminating its contract because the hospital would not dramatically increase the discount rate for Blue Cross patients.

The hospital was still smarting from a contract battle with Rocky Mountain Health Plan, a local non-profit HMO, the previous year. During that contract dispute the hospital was battered in the media. And to make matters worse, Rocky Mountain Health Plan’s contract was set to expire 30 days after Anthem Blue Cross’ termination.

Unlike Anthem, Rocky Mountain is a Grand Junction-based non-profit organization with deep relationships with the area’s largest independent physician association. It is the largest insurer of local businesses and their employees.

This “perfect storm” could create negative media coverage and negative relations with physicians, patients, and local business leaders. Davies was retained to engineer a positive outcome – the right contract and the right public perception of the negotiations for the hospital.

The negotiations were closely watched by Rocky Mountain Health Plan negotiators. The public, the business community, insurance and hospital regulators, and the media were also watching how St. Mary’s would handle Anthem’s threat to terminate the contract. And there were thousands of Blue Cross members who retired to western Colorado from other states concerned about the negotiations.

If public and political pressure forced St. Mary’s to accept Anthem’s contract demands, the hospital would be significantly disadvantaged in the Rocky Mountain Health Plan negotiations.

St. Mary’s Hospital is in a unique business environment, with a non-profit community-based insurer as its largest customer. The insurance company, Rocky Mountain Health Plan, also had physicians associated with the region’s largest IPA on the HMO’s board of directors.

The key to success was to win the contract negotiations, allow Rocky Mountain Health Plan to save face, and avoid any deterioration of medical staff relationships.

Davies executed a three pronged strategy – media relations, direct mail, and letters to the editor. Every element communicated that Anthem Blue Cross was an out-of-state, giant insurance company that did not care about controlling healthcare costs. Davies also reminded local audiences that the company paid exorbitant executive salaries and bonuses that contributed to rising healthcare costs.

Davies worked with St. Mary’s to create and coordinate desk side media briefings to communicate the hospital’s commitment to quality and century-long role in the community.

The media briefings were used to leverage positive media coverage and reinforce messages that St. Mary’s greatest concern was patient care. If Anthem really cared about its members, why did it abandon the negotiations instead of trying to resolve the contract impasse?

Davies also worked closely with St. Mary’s lobbyists at the state capitol to ensure that the State Insurance Commissioner was being fed a steady stream of positive messages about St. Mary’s.

Davies created a strategic direct mail program with the goal of building relationships with Blue Cross members, as well as position the hospital as the responsible party in the contract negotiations.

The direct mail program communicated directly with those who had the most to lose – Blue Cross members. If Anthem terminated the contract, thousands of Blue Cross members would no longer be covered for medical services at St. Mary’s. Since Denver is the nearest option for many advanced medical services, Blue Cross’ termination would be a tremendous inconvenience to many patients.

The goal was to motivate Blue Cross members to communicate their concern and displeasure at Anthem’s termination notice directly to Anthem’s CEO and to the State Insurance Commissioner. This “inside” approach complemented the “outside” media approach with a strong call to action.

After compiling a database of 5,300 Blue Cross members residing in St. Mary’s service area, a personalized letter from the hospital’s CEO invited recipients to get involved and pressure Anthem to return to the negotiating table. Response cards and phone numbers were provided.

Contacting Blue Cross members directly completely surprised Anthem. St. Mary’s preemptive strike framed the debate and Anthem was now on the defensive.

Due to the direct mail effort, hundreds of calls were placed to Anthem’s CEO and hundreds more to the office of the State Insurance Commissioner, flooding their switchboards. When the media “discovered” the mailings, the hospital proudly pointed to 1,500 individuals opposed to Anthem’s actions and supportive of St. Mary’s position.

After a week of angry and upset policy holders calling their CEO, Anthem reacted by mailing a confusing letter that threw gasoline on the fire.

St. Mary’s took Anthem’s confusing letter and contacted Blue Cross members again. By the third letter, St. Mary’s had established a relationship with the primary target audience. The letter was accompanied by the list of questions that St. Mary’s submitted to Anthem asking the insurer to clarify which services were specifically covered and which services would be 100 percent member responsibility.

This letter was the tipping point in the public opinion battle. Anthem found itself outmaneuvered at every turn, and their PR efforts were backfiring and undermining support for the company’s negotiating position.

At the beginning of the program, St. Mary’s CEO predicted that the Anthem negotiations would drag on for several months and complicate the Rocky Mountain Health Plan negotiations. Thirty days after St. Mary’s placed its urgent call to Davies, Anthem Blue Cross’ CEO flew to Grand Junction and agreed to a new contract. St. Mary’s was victorious.

Less than a month after the Anthem Blue Cross negotiations were completed, Rocky Mountain Health Plan quietly agreed to a new contract with terms favorable to St. Mary’s. This time, there were no ugly news articles or public accusations. In fact, there seems to be a new spirit of cooperation between the two organizations, quite a contrast from a year earlier.

Not only did St. Mary’s hospital use the public affairs effort to meet its business goals, it also protected and enhanced its standing and reputation with the public, the medical profession, and local business owners.

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