[0:12] Nirav Chheda: Hello everyone and welcome to NEMT Expert Talks.
[0:17] Nirav Chheda: I'm here with Matt Murphy who was on the founding team of circulation which was a tech enabled NEMT broker which was successfully acquired by ModivCare.
[0:30] Nirav Chheda: Matt subsequently worked for ModivCare for a number of years as the executive vice president of network and since then he has worked for other tech-focused healthcare startups.
[0:43] Nirav Chheda: Matt, thank you so much for being with us.
[0:46] Matt Murphy: Oh, thanks for having me, Nirav.
[0:49] Nirav Chheda: So, today we are going to talk about how to negotiate with your broker.
[0:54] Nirav Chheda: The key steps for an NEMT company to go through in negotiating with a broker is number one, preparing for that negotiation, two actually doing the negotiation with their broker, and number three, launching their operations with the broker postnegotiation.
[1:10] Nirav Chheda: Um, so why don't we just dive into topic number one, preparing to negotiate with your broker.
[1:24] Matt Murphy: think back to my broker experiences, the first being circulation, more of a tech enabled startup, um, using Google Maps to price rates in real time, and then ModivCare, which is more of a traditional, um, broker, um, with
[1:36] Matt Murphy: rate cards and large Medicaid contracts.
[1:38] Matt Murphy: The things that I really saw as being successful indicators for um NEMT companies, both startup companies that were new to the space and established ones, were they knew their cost structure really well.
[1:51] Matt Murphy: So they had their numbers down.
[1:52] Matt Murphy: They knew how much it costs to operate a vehicle on a daily basis.
[1:56] Matt Murphy: They knew what their variable costs were in terms of fuel, um staffing, etc.
[2:00] Matt Murphy: And could come to the table and have a really knowledgeable conversation based on those underlying business data points.
[2:07] Matt Murphy: Um, so I think as a company goes into these negotiations, even beforehand, like talk to your accountant, have a good sense of what your insurance rates are on the market.
[2:16] Matt Murphy: If you're launching in a new market, go and get those quotes, figure out what fuel rates are and what labor rates are.
[2:21] Matt Murphy: Um, because with such tight margins, unless you understand your very basic cost structure for a sedan versus a wheelchair versus the ambulance vehicle, it'll be impossible for you to have a successful negotiation later on with a Okay, got
[2:34] Nirav Chheda: it. So understanding all of your various costs so that when you're talking with that broker, you can sort of lay it out for them.
[2:41] Nirav Chheda: Hey, you know, these are all the various costs that go into me doing a trip for you.
[2:47] Nirav Chheda: So here's where we need to push down those costs.
[2:51] Nirav Chheda: Otherwise, it's untenable for me to do trips for you.
[2:56] Nirav Chheda: I guess before moving on to the next step, you know, there are your sort of national broker companies, the big ones like ModivCare, right?
[3:04] Nirav Chheda: where you worked. Um and then you have your relatively smaller broker companies, your regional ones or even ones in your specific local area.
[3:13] Nirav Chheda: Um is there any difference in preparing to negotiate with the big guys versus the small guys?
[3:20] Matt Murphy: Yeah. Um not tremendously different I'd say for both.
[3:23] Matt Murphy: Um is so knowing your cost structure is one piece.
[3:25] Matt Murphy: The second piece which is probably even more critical and I'd say the local regional brokers will be better at this than the larger ones is understand the market.
[3:33] Matt Murphy: Um, and what I mean by that is what are the zip codes you're operating in?
[3:37] Matt Murphy: What are the distances of trips?
[3:38] Matt Murphy: And then ultimately, what does competition look like?
[3:41] Matt Murphy: Um, so on the first piece, understanding the market profile.
[3:45] Matt Murphy: Um, it is really important for you to know am I operating in zip codes that are rural Texas or rural Midwest where I'm going to have long distance trips with unloaded legs back um versus a high density urban
[3:58] Matt Murphy: metropolitan area. So know that. And so the second piece is whether it's a regional or national broker know where most of the trips originate and end.
[4:06] Matt Murphy: And what I mean by that is are there major medical centers or dialysis clinics or substance abuse clinics in that area where most of the trips will be concentrated around?
[4:14] Matt Murphy: And again for a national broker they're going to have a really good understanding of this at an aggregate level.
[4:19] Matt Murphy: Those local guys will have an even better understanding.
[4:22] Matt Murphy: So you really need to go in with a well-versed um kind of understanding of what the market looks like and what those trips look like.
[4:29] Matt Murphy: I'd say the next piece in terms of preparing for that um again regional or national broker is that we mentioned kind of the cost structure up front.
[4:38] Matt Murphy: We understand the market dynamics know what the competition looks like.
[4:42] Matt Murphy: So for a regional broker it's fairly likely that you can talk to colleagues or others in the space and understand how many other people are there out there competing for those contracts.
[4:51] Matt Murphy: with a national broker, keep in mind that they might have their own subsidiary doing trips that they can bring in to compete with you on rates or other large providers.
[4:59] Matt Murphy: Um, so I'd say again, understanding competition, what the ride profile looks like is super important, but more than anything, know what that broker, how deep of an understanding that broker has in that Step number two, then actually negotiating
[5:13] Matt Murphy: with the broker. failure point I've seen in negotiations with start or with both startup in NEMT companies and especially with established ones is a trying to do everything in one call or one engagement.
[5:31] Matt Murphy: So if I think about negotiation, I would typically break it up into at least two points of contact or two contact two calls, two meetings, whatever it is with whoever you're talking to at the broker.
[5:41] Matt Murphy: And that first call, don't even talk rate.
[5:43] Matt Murphy: Start to understand. And what I say is think of things that are inside the contract and outside the contract.
[5:48] Matt Murphy: So stuff that you'll negotiate that are inside the contract are things like your service level agreements, your pickup and drop off window times, liquidated damages, the actual rates themselves.
[5:57] Matt Murphy: That stuff goes in the paper.
[5:59] Matt Murphy: The stuff that's outside the contract is okay.
[6:02] Matt Murphy: They might have rate buckets on my rate cards, but what are the kind of commitments they'll make outside the contract in terms of volume of trips that are 0 to three miles versus 11 to 10 miles, etc.
[6:12] Matt Murphy: or 10 to 11 miles, etc.
[6:14] Matt Murphy: So, kind of understand those two buckets of things you'll want to negotiate.
[6:18] Matt Murphy: And then in that first contact, start asking questions.
[6:20] Matt Murphy: Don't even talk rates. Don't ask them to commit to anything.
[6:23] Matt Murphy: Understand what their actual trip volumes look like?
[6:27] Matt Murphy: So, the first question I would ask is, "Hey, when we negotiate a rate card, is it going to be a mileage bucket?
[6:33] Matt Murphy: Is it going to be a per mile rate?
[6:34] Matt Murphy: What does that structure look like?" So if it's a mileage bucket rate, the next question I'd ask is, okay, what are the average distances of trips in your market that you see with your other providers?
[6:45] Matt Murphy: And then the second question would be by those rate buckets, what is the percentage of trips in each?
[6:50] Matt Murphy: So are 90% of the trips under three miles or are 90% over 10 miles?
[6:55] Matt Murphy: And that'll kind of give you the data you need when you get to the negotiation step um and that second contact.
[7:00] Matt Murphy: So then going into the negotiation, if I have all this understanding of here's what the average trips distances look like, here's the number of unloaded legs, the percentage of trips that are standing order versus dynamic or real-time orders,
[7:13] Matt Murphy: then you can start talking rates.
[7:14] Matt Murphy: So if I go into the meeting, there's kind of two things to expect or two different ways it could go.
[7:19] Matt Murphy: The first is the broker is either so strong in the market or you have so much competition that there's no leeway to negotiate rates.
[7:27] Matt Murphy: The second way this could go is you have a ton of leverage because it's a new market for them or they need coverage in areas where they don't have other providers.
[7:35] Matt Murphy: If you're going the route of, hey, rates probably aren't negotiable, things to negotiate or think about are what are the distances or types of trips you want from that broker.
[7:44] Matt Murphy: So, they may or may not be able to agree to it contractually, but if they want you to cover a certain area, um, tell them, "Hey, I'll take these zip codes, but only if they are 80% or more
[7:54] Matt Murphy: standing order trips or if over half or dispatched 48 hours in advance." So, try and get those points on paper that'll drive value for you if you can't negotiate rates.
[8:04] Matt Murphy: An additional example would be let's say that 90% of the trips in the market are over 10 miles.
[8:10] Matt Murphy: Um but you want those 10% of trips that are under three miles in the one downtown area.
[8:15] Matt Murphy: Those are kind of things you can ask for outside the contract and get to if you can't negotiate the rates On the other hand, if you can negotiate rates because they need you really bad in that area um
[8:25] Matt Murphy: or there's not a lot of competition, I would say know where you can give and take on different rates.
[8:30] Matt Murphy: And you can do that by using the data you got in the first contact.
[8:33] Matt Murphy: So, if it's really important to the broker to get a lower cost on long distance trips per mile, maybe you negotiate in that rate bucket, but you leave it um as a higher rate on those 0 to three
[8:44] Matt Murphy: mile trips. Um so again, think about not only what it costs you and what you need to make on that trip to make money, but also what are the types of trips that make you the most money and
[8:53] Matt Murphy: negotiate there and give way on other areas that don't matter as much to you.
[8:57] Matt Murphy: surprise. Like the biggest problem I see with most NEMT companies coming in is they will not understand what it costs them.
[9:05] Matt Murphy: They will do everything they can to get to the business or get the business and then a month, two months in, they'll be losing money and have to come back to the table and at that point you're at
[9:13] Matt Murphy: a point of disadvantage in that negotiation.
[9:15] Matt Murphy: So, it's much more advantageous if you can say, "Hey, here's what it cost me.
[9:19] Matt Murphy: I can't do it for less than this." And have that conversation up front.
[9:22] Matt Murphy: Yeah. I mean, when you first start with a broker, you have one chance to negotiate up front.
[9:26] Matt Murphy: it would be unwise to negotiate again within the first year.
[9:30] Matt Murphy: Two reasons for that. One is if they see that you've under bid the market um and aren't making money and they're have a great rate with you, they have no reason to negotiate with you in that first year.
[9:40] Matt Murphy: So, I'd say wait at least a year before the first kind of rate setting exercise.
[9:44] Matt Murphy: Um that makes you look more professional and it also just prevents any perception that you are not able to sustain growing volumes um with that broker longer term.
[9:54] Matt Murphy: Um so I'd say at least a year after the first time I would say thereafter I think it's prudent as an NEMT provider to do one of two things either negotiate annually um looking at the market inflation cost
[10:08] Matt Murphy: of fuel etc or whenever there's a major change in your cost structure.
[10:12] Matt Murphy: So in a lot of states the insurance structures or state insur insurance pools will change and you could have dramatic changes in your underlying cost.
[10:20] Matt Murphy: When those things happen, it is completely reasonable to go to your broker and say, "Hey, there's been this major statutory change or this major change in insurance rates or the minimum wage just went up in my state.
[10:31] Matt Murphy: Um, we need to come back to the table." Those are great leverage points because then the broker in their discussions with their clients, the health plans are having the same conversations.
[10:40] Matt Murphy: Hey, it costs more to service this market.
[10:42] Matt Murphy: I need to pay my providers more because of these one, two, three reasons.
[10:45] Matt Murphy: So, I'd say whenever there's major structural changes, go back and negotiate.
[10:49] Nirav Chheda: But then if there aren't, no more than annually Step number three, actually launching your operations after you've negotiated with the broker.
[10:58] Matt Murphy: How does that look? having a really good software platform is helpful because like I said, the kind of negotiation up front is setting your rates, but then it is on you and your dispatchers to know what types of
[11:18] Matt Murphy: trips you want and to have that conversation daily with a broker.
[11:22] Matt Murphy: So, if you negotiated either contractually or as a handshake agreement that 80% of your trips would come to you 48 hours in advance, you need to be calling the broker's dispatch line or trip routing line daily to make
[11:35] Matt Murphy: sure you're getting that flow of trips.
[11:37] Matt Murphy: The second piece is I would say every other day or at least weekly pull a report from your system and look at what are the kind of mileage buckets that I'm getting and what are the mileage buckets that
[11:47] Matt Murphy: I expected when I negotiated. And if you're not getting the trips you want, call back.
[11:51] Matt Murphy: So form the relationship with the dispatcher or with the trip routing team at that broker and have your dispatchers calling every day negotiating for the right trips within those trip buckets until you hit a steady state.
[12:02] Matt Murphy: I would say on the broker side they want to kind of streamline their operations.
[12:08] Matt Murphy: So when you sign a contract with them, they might not set up a routing system or automated um trip assignment system when that rate card is signed to give you the right volume of trips.
[12:18] Matt Murphy: But if you are the squeaky wheel continuously calling in, they will eventually update their systems and then you will organically or naturally get that flow of trips that you wanted in the first place.
[12:28] Matt Murphy: So I'd say be aggressive but polite and continue to call the broker day after day.
[12:32] Matt Murphy: That's the first thing. Um the second piece is more of a let's call it a monthly exercise.
[12:37] Matt Murphy: So for the first six months, you probably negotiated with a regional operations manager or business development person or network development person.
[12:45] Matt Murphy: I would get them on the phone at least monthly and pull the data as to what they promised, what you're actually getting in terms of trip volumes and have that conversation.
[12:53] Matt Murphy: So at that point, you're attacking it not only from the front line with the people dispatching and routing the trips, but with the people negotiating and trying to keep the network happy.
[13:01] Matt Murphy: And those two pressure points will typically push the broker in the direction of giving you the right volume of trips you want.
[13:11] Nirav Chheda: that was pretty comprehensive in how to negotiate with your broker.
[13:15] Matt Murphy: Matt, thank you so much. Are there any final thoughts you want to leave our viewers Yeah, honestly, the biggest reason I see transportation providers fail both in negotiations and just as companies is they don't understand their cost structure
[13:28] Matt Murphy: and they don't have a good accountant.
[13:30] Matt Murphy: So, know how much it costs for you to do business and bring that into every negotiation with your broker.
[13:37] Nirav Chheda: Run, Bambi, run. All right. Thanks, Matt.
