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MAD, Stuart Smalley and Unintended Consequences: When Payers and Providers are at Odds (Part I of IV)

June 19, 2009
by Marc D. Paradis
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The 1980s and 1990s were a challenging time for many physician practices and hospitals. Managed care was on the rise and for-profit insurance companies were effectively employing divide-and-conquer tactics at the negotiation table. Although Integrated Delivery Systems (IDS) in health care had been around for a while, Kaiser Permanente being one of the oldest examples, an explosion of mergers in the 1990s yielded as many as 850 IDS’ in the US by 2000. Along with this rapid growth came some confusion as to the exact definition of an IDS but the basic goal of most IDS’ was to provide an effective counter-balance at the negotiation table. Once an IDS reached a certain size, a for-profit insurer could no longer afford to walk away from the negotiation table. This threat of mutual assured destruction allowed all parties to play hardball while guaranteeing a shared interest in fair and executable contracts (with kudos to John Forbes Nash of “A Beautiful Mind” fame for writing the formal equations that describe this type of equilibrium).

From this perspective, patients would benefit, hospitals would benefit, doctors would benefit, and healthcare would benefit, as Adam Smith’s “invisible hand” corrected the excessive profit margins and zealous managed care cost-cutting pressures which had been exerted by the for-profit insurance companies. Pharmaceutical and medical equipment manufacturers, as an ancillary benefit of the creation of IDS’, awoke to a new balance of power at the negotiating table as well. While the mutuality of destruction was not as guaranteed with the pharmaceutical and equipment manufacturers, IDS’ now became large and prestigious accounts. As such, the external competitive pressures of similar drugs and alternate technologies forced the manufacturing account executives (salespeople) to craft more balanced proposals for negotiation.

Speaking of salespeople brings us to the next link in the story. One thing that I learned very quickly as a pre-sales consultant supporting the account executives of a large, multinational software corporation was that account executives were a lot like Stuart Smalley from the Saturday Night Live skits of the 1990s (and I hope that none of my former colleagues are reading this!). Where Al Franken, as Stuart Smalley, would stand in front of his mirror and say “I’m good enough, I’m smart enough, and doggone-it, people like me”, the account executive stands in front of a (metaphorical) mirror and says something like “I’m a good enough salesman, I’m smart enough to control this sales cycle and doggone-it, Company X will buy product from me”.

The basic problem is this: Company X has all of the money, Company X controls the meeting calendar and clock, and Company X has the ultimate, and only binding, say on whether or not a deal is done. In other words, the Golden Rule restated: “They who have the gold, make the rules”. Over the last hundred years or so, thousands upon thousands of books have been written, seminars delivered, and even scientific research published, in an attempt to refute or obscure this basic fact – all other things being equal, in a negotiation of dollars for goods and/or services, the party or parties with the dollars have the upper hand.

In the end, as a salesperson, the quality or your relationship with the customer, the strength of your close, or the value of your solution is not as important as internal company politics and finances, the vagaries of their legal department, the competitive landscape the company lives in and/or the macroeconomic tide that the company is riding on. Despite what neoclassical economic theory says, individual actors/companies are not rational decision makers, nor do they always act in accordance with either their short- and/or long-term interests.

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Marc D. Paradis MS

Marc D. Paradis, MS, is Director of Strategic Data Services in Applied Informatics and a Manager...