Ki ThoughtBridge Negotiation Process Helps Mid-Sized City Save $4 Million Annually in Community Health Care Costs

In the late 1980s and early 1990s the health systems of a mid-sized city were praised as a model of collaborative health care providing effective coverage and care at low cost. Cooperation among the three major health care systems of the community was praised, as was collaboration between the health care and business communities. However, in the late 1990s, this changed due to changes in the health care environment, leadership turnover at the health systems and changes in relations between the business and the health services community. By 2001, a major hospital in the city was forced to shut its doors, physicians shuttled from one system to another lured by politicking and benefits, and health care costs rose relentlessly.

The business community sought to change this dynamic and reduce heath care costs. However, with organizational and personal trust at issue for the health systems, as well as economic viability, the question was: where to begin? The Blue Cross Blue Shield (BCBS) of the area, the community's largest health insurer, forced the question when it issued an RFP for medical lab testing with the goal of lowering costs.

After several attempts to develop a 3-way consolidated approach failed, the health systems submitted individual bids. Then two submitted a joint bid. Then the third also joined with one of the two to submit a joint bid. This cycle of exclusion and collusion turned into a race to the bottom: the winning bid would be economically infeasible, successful only based on the criteria that it froze out others. At the same time, the possibility existed that BCBS would move lab testing services out of the city to a national lab. Despite these ominous signs, the health systems found it easier to disrupt each other's bidding than to create a community-based, collaborative solution.

In late 2001, in this context of cutthroat competition and organizational intrigue, the employers' association sought to broker a cooperative “community” agreement among the health systems. To bring the parties to the table and deal with the lack of trust, they turned to Ki ThoughtBridge for assistance with the negotiations. The three health systems – and BCBS, having observed the RFP process – were extremely skeptical about the idea of a community lab. It was easy for each to find reasons why the negotiations would fail: lack of trust, internal concerns, unwillingness to meet face-to-face with their adversaries, ongoing competition for people and resources, and lack of time before the January 30th BCBS deadline. Nevertheless, the employers' association convinced key people in each organization to take the time to meet with Ki ThoughtBridge consultants to explore the idea of joint negotiations.

Process

At the end of December 2001, the four parties agreed to an aggressive schedule of 12 days in January to negotiate a framework agreement for a community outpatient-testing lab using an interest-based approach.

In January, negotiations were conducted at an intense pace. To begin, Ki ThoughtBridge trained the teams in the essentials of the interest-based negotiation process: discovering the interests of all parties, generating creative options, and choosing agreeable criteria to evaluate the options. Given the history of working relations, each team needed to understand the ramifications of not agreeing to collaboration, and that each group's alternative was less appealing than the community lab.

Ki ThoughtBridge introduced the One-Text Process, a systematic drafting process, to create the framework agreement. The most significant challenge was to get administrators from the hospital systems to see one another as partners facing a shared problem instead of as competitors. As individuals and teams critiqued the One-Text draft, they explained their interests for the other teams. This was critical to prevent the teams from investing in “their” solution; it allowed all to view possible options for agreement based on shared interests, not coercion or strength of will.

As negotiations began, Ki ThoughtBridge created three inter-organizational working groups, each with the task of taking into account the interests of all to design a possible structure for the community lab. The three groups conceived different models, which all shared essential elements:

1. Creation of a new entity shared by all hospital groups;
2. Design of a ‘virtual' lab that would channel testing according to agreed-upon guidelines; and
3. A single reimbursement agreement between this new entity and the insurance company.

As the teams from the health systems sought to align their needs, they built working relationships, but they lacked a common perspective on the business and operational possibilities of their new venture.

Specifically, they could not discuss the reimbursement and economics of the venture without feeling threatened. Ki ThoughtBridge emphasized the need to discuss this issue according to outside criteria rather than try to haggle or make take-it-or-leave-it threats. To find a single set of business assumptions and criteria, we enlisted outside commercial lab administrators serving similar markets to provide a neutral perspective.

By the end of January, as work on the framework agreement for the lab was being completed, mixed working groups of administrators designed a reimbursement plan to be negotiated with BCBS. Agreement on the reimbursement rate was one of the final and critical hurdles the teams crossed on the way to creating a community lab solution.

Results

Two days before the January 30 deadline, all parties signed the framework agreement to create the new community medical testing lab. In creating this “virtual lab,” the health systems agreed with BCBS on a reimbursement rate estimated to save the community over $4 million annually. Beyond immediate dollar savings, the hospitals identified new business opportunities for their joint venture and a single rate of reimbursement. 

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