Restoring Margin When Payers Won’t Close the Gap to Cost

Alexandra Criscione, Director, BDC Advisors

If you are a health system CFO, you are likely being asked a harder question than you were five years ago.

Not simply: “Can we get the payer renewal done?”

But: “Will this renewal sustain the enterprise?”

That is a different question. And it requires a different way of thinking.

For years, traditional renewal strategies assumed a relatively stable environment: predictable labor costs, manageable inflation, modest annual rate movement, and some degree of shared negotiating pressure between payers and providers.

That world no longer exists.

Today, health systems are absorbing persistent labor inflation, elevated supply and drug costs, capital pressures, and enterprise-wide fixed obligations. Meanwhile, many commercial reimbursement increases continue to lag the true cost of care. Even when a renewal appears “reasonable,” it may still lock in a widening gap between revenue and expense.

That is the danger.

A renewal can look successful and still weaken the organization.

Continuity is valuable. Relationships matter. Avoiding disruption matters. But none of those objectives can replace financial sustainability. Stability without durability is not success.

The traditional renewal model often optimizes for keeping the contract in place. It does not always solve accumulated underpayment, structural margin erosion, or long-term capital adequacy. That creates a quiet but significant risk: the board sees stability until the financial impact becomes difficult, or impossible, to recover.

CFOs need a stronger framework.

The better question is not, “How are we paid relative to the market?”

The better question is, “Do our commercial economics support our cost structure and long-term viability?”

Market comparisons can normalize underperformance. If the entire market is under-reimbursed, being “near market” does not make the economics sustainable. Internal cost structure, historical underpayment, CPI-U accountability, capital needs, and enterprise risk must all be part of the analysis.

This is where the conversation must shift.

Commercial reimbursement can no longer be governed as a routine contracting issue. It is an enterprise risk issue. It belongs in the same conversation as margin protection, access, capital planning, service line viability, and fiduciary responsibility.

That does not mean being hostile. It does not mean being reckless. It does not mean every negotiation should move toward termination.

It means you need to know the economic truth before negotiating posture redefines it.

You need decision criteria before the payer frames what is “reasonable.”

You need to understand your walkaway before the renewal becomes a false choice between accepting inadequate terms or creating disruption.

And you need optionality.

The strongest CFOs are not simply chasing “the market.” They are building governance frameworks that help leadership understand risk, evaluate tradeoffs, preserve leverage, and make board-defensible decisions.

Because at some point, persistent underpayment stops being a payer problem.

It becomes a governance problem.

And inaction becomes a decision.

The hardest part of this work is not the math. It is not even the negotiation.

The hardest part is changing how leadership defines the problem.

If you are still evaluating payer renewals through the old lens, you may be answering the wrong question. The goal is not merely to renew the contract.

The goal is to protect the enterprise.

Where BDC Advisors Can Help

Restoring commercial margin requires more than a successful renewal. It requires an enterprise framework that connects reimbursement strategy with financial sustainability, governance, and long-term capital planning.

BDC Advisors helps health systems evaluate whether commercial reimbursement is sufficient to support the organization's cost structure—not simply whether rates are competitive within the market. We work alongside executive leadership and boards to quantify economic risk, strengthen negotiating leverage, and develop strategies that produce durable financial outcomes.

Our work includes:

• Commercial reimbursement strategy: Closing the gap between reimbursement, inflation, and the true cost of care.

• Board-level decision support: Establishing governance frameworks and decision criteria before negotiations begin.

• Financial modeling: Quantifying historical underpayment, inflationary erosion, enterprise risk, and long-term margin sustainability.

• Negotiation strategy: Developing economically durable contracting strategies that preserve leverage and create board-defensible outcomes.

• Payer-provider expertise: Decades of experience negotiating from both the payer and provider perspective.

Contact BDC Advisors

The question is no longer whether you can renew the contract.

The question is whether renewing it makes your organization stronger.

Before accepting another renewal that appears successful on paper, make sure you understand its long-term financial implications.

BDC Advisors helps health systems replace reactive payer negotiations with disciplined, enterprise-level strategies that protect margin, preserve access, and support long-term sustainability.

---

To discuss strategies for restoring commercial margin, evaluating payer economics, and developing board-level contracting strategies, please contact Alexandra Criscione, Director, BDC Advisors, at (773) 485-1891 or alexandra.criscione@bdcadvisors.com.