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Jun 19

Negotiation Rules: Hallway Chat = Boardroom Meeting

Picture the following situation:

A large hospital-based group provides contracted services at multiple facilities, including at a hospital that we’ll call Community Memorial St. Mark’s.

The group is in the midst of renegotiating its exclusive contract with the hospital. Early on, the group and the hospital settled on coverage of some newly added slots from 7:00 a.m. to  3:00 p.m. Monday through Friday. The overall coverage obligations became the basis for a fair market valuation analysis.

Then, one morning at around 6:15 a.m., the hospital’s COO passed the group’s leader at the facility, Dr. Bob, in a hospital hallway. The COO said a quick hello and then, in a completely off the cuff, chatty manner, said something to the effect of “think we can handle running those new slots until 5?” Dr. Bob said “yeah” and continued on his way. In retrospect, Dr. Bob doesn’t think that he even stopped walking, the exchange having taken perhaps 3 or 4 seconds.

A few days later, the hospital’s attorney generated a new draft of the revised exclusive contract. It now included a 5:00 p.m. end time, a two-hour increase in coverage in connection with the new slots. Despite the increase in workload, the amount of financial support from the hospital remained the same.

Dr. Bob was furious. To him, the hallway “chat” was just that: an exchange of pleasantries and an optimistic expression of the growth of the venture. But it was absolutely not a part of the current negotiation process. To Bob, the COO had engaged in “drive by” negotiation.

The COO, on the other hand, didn’t see anything wrong with the conversation. To him, it was a brief exchange on an important deal point, one on which he obtained Dr. Bob’s assent.

What went wrong, and why?

It boils down to a matter of perception of the negotiating process.

Physicians inexperienced in business often mistakenly regard hospital negotiation as a formal process separate from day to day activities at the facility. When at the facility, they are on their way to render patient care or are headed back to the office or out the door. Hallways are not negotiation tables. For many physicians, location is a factor in negotiation – the physical context controls the question of whether or not there is intended content.

To a hospital administrator, all discussions with contracting parties, whenever and wherever, are part of the negotiation process. The executive’s office, the board room, the wash room, or the hallway, even the check out line at the local market, are all simply locations – and to him or her, location is not important; it is content, not physical context, that controls.

Because you can count on the fact that hospital administrators are not going to change their perception of the immateriality of physical location to negotiation, it’s incumbent on physicians to learn this lesson and learn it well. Any communication with, or within earshot of, an administrator is a part of the negotiation process.

Physicians can never have an “off the record” conversation with an administrator. The only alternative is to have no communication at all; hardly an effective strategy. Understanding this rule allows physicians leaders to both protect their negotiating positions and to use “informal” communication with administration proactively to inform and dis-inform in the context of a controlled negotiation.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.advisorylawgroup.com

 

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