Managed Care’s Forgotten Bargain: Discounts in Exchange for Volume
If a payer steers patients away from your health system, what is your discount buying?
The payer wants the discretion to designate your health system as out-of-network while retaining your in-network discount. You receive discounted reimbursement while patients receive financial incentives to go elsewhere.
Before you sign, ask the direct question: What are you receiving in exchange for the discount?
That question gets to a bargain that has become harder to recognize in today’s managed care contracts.
Discounts are supposed to purchase something.
Remember, the discount was agreed to as a trade-off.
The bargain was simple: your health system accepted lower reimbursement in exchange for the prospect of more patients. Payers assembled limited networks and used benefit design to encourage members to choose participating providers. Network access had value because it could redirect business to your organization.
The arrangement did not necessarily guarantee volume. But it offered a credible economic exchange: a lower price per service, supported by the opportunity to provide more services.
CFOs understand that calculation. Additional volume across all service lines can help spread fixed costs and make a discounted rate economically supportable.
But the discount deserves a fresh look when the expected benefit changes.
When participation becomes the price of keeping your patients.
In a broad network, participation may offer limited incremental volume. Your competitors participate, too. The payer’s members may already be your patients.
The financial proposition shifts. You accept a discount to preserve access to existing volume, rather than attract additional business.
Preserving volume has value. It may justify participation. But it is a different investment case, and your analysis should reflect that distinction.
A discount justified by growth should not survive indefinitely on an untested assumption that growth is occurring.
You should know what the payer brings to your health system: incremental patients, retained volume, favorable product positioning, reliable payment, or some combination of those benefits. You should know what you’re giving up to receive these benefits.
Contract renewal is the time to test that exchange.
Out of network. Still on the hook for the discount.
Now consider a more troubling provision: your agreement allows a payer to exclude your health system from a particular network or product while retaining access to your contracted rates.
Your health system loses the favorable network designation. Members may face higher cost sharing when they choose you. The payer can encourage them to use competing providers.
Yet when a member receives care from your health system, the payer still expects the participating discount.
The payer keeps the pricing benefit while invalidating the network benefit that helped justify it.
For your organization, that can mean fewer patients at the same discounted reimbursement. Your fixed costs do not fall simply because the payer changes your network designation.
If the payer wants that arrangement, it should be able to explain its economic value to you. “It is our standard language” is not an acceptable financial justification.
The fine print can make the economics worse.
Look beyond the rate exhibit. Examine how the agreement treats services furnished to members of products or networks in which your health system does not participate.
If the language permits denial of payment while also prohibiting you from billing the member, you may face an even greater exposure: medically necessary care you have already furnished with no contractual path to reimbursement.
That is a financial term worth modeling before signature.
Patient billing protections also require separate analysis. The No Surprises Act restricts balance billing in specific circumstances and provides a framework for resolving certain out-of-network payment disputes. Those protections should not be confused with a blanket obligation to accept zero payment.
Your objective is to resolve the payment obligation between the payer and your health system before the patient ever needs care.
Bring the justification of discount back into the negotiation.
Before approving the next agreement, ask your team:
How is participation defined? Identify the products and networks covered by the agreement, including exclusions.
What supports the discount? Assess actual volume, member incentives, and the value of participation.
Who can change the bargain? Determine whether the payer can and by what means alter network status or product participation without a corresponding payment adjustment.
What happens when we are excluded? Establish the applicable reimbursement and identify provisions that could leave furnished care unpaid.
Payers may raise competition concerns when you challenge network exclusions. Have counsel evaluate the specific provision and proposed response. The economic question remains relevant: what consideration supports the requested discount?
Exclusion does not automatically establish a legal right to higher reimbursement. The reduced patient volume does give you a reason to revisit whether the agreed price still makes financial sense.
Your health system should be able to explain every material discount it grants, the value it receives, and what happens when that value is withdrawn.
If the payer wants to steer patients away from you and keep your discount, ask it to defend both sides of that bargain.
Where BDC Advisors Can Help
Your payer discount should have a clear economic justification. BDC Advisors helps health systems assess the value of the exchange, identify contract provisions that weaken that value, and negotiate terms that support your financial goals.
Contract language is one part of a broader payer strategy. We work alongside your executive leadership and board to quantify exposure, strengthen leverage, and equip your team to negotiate rates and terms together.
Our work includes:
Contract assessment and staff training: Identification of provisions that extend discounts without corresponding network benefits, expose your organization to unpaid care, or permit unilateral changes—and demonstrating how your team can negotiate them.
Reimbursement strategy: Evaluating whether rates adequately reflect the value your health system brings, cost growth, and the economics of each payer relationship.
Financial modeling: Quantifying the combined effects of reimbursement, patient volume, product participation, and contract terms on net revenue and margin.
Negotiation and board decision support: Establishing clear objectives, alternatives, and decision criteria before your organization commits to a new or renewed contract.
Payer-provider expertise: Bringing decades of negotiating experience from both sides of the table to anticipate payer positions and strengthen yours.
Contact BDC Advisors
Before you agree to another discount, know what you are getting in return.
A favorable rate increase can lose its value when the contract allows the payer to redefine network benefits while accessing discounted pricing. Your contracting decisions should reflect the economics of the entire agreement.
To evaluate your payer contracts and strengthen your negotiating strategy, contact Alexandra Criscione, Director, BDC Advisors, at (773) 485-1891 or alexandra.criscione@bdcadvisors.com.
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