Dislodging the anchor

A well-established technique in negotiation is to "set an anchor." The idea is to be the first person to put out an offer in a negotiation in which price is the main issue. Many people think, incorrectly, that you are better off if you let the other party make the first offer. But, no. An anchor, once set, has a powerful impact on the negotiation, causing the final price to settle in its vicinity -- even if the anchor has no substantive basis.

I fear that we are seeing this phenomenon happening in Massachusetts. Many of you have followed our current controversy regarding insurance rates for individuals and small businesses. Lots of people with these kind of insurance policies found themselves with large premium increases this year.

The state legislature is engaged in dealing with this problem, and one idea pending is that the hospitals should contribute $100 million to help alleviate these premium increases. I am not gong to comment here on whether that source of funds is the right or wrong one. But I am going to comment on a dynamic surrounding the current negotiations.

Several weeks ago, the Partners Healthcare System volunteered to donate $40 million to this problem. On the one hand, this could appear generous. On the other hand, as noted by Boston Globe columnist Yvonne Abraham, it can be viewed as less than generous.

But the point is that PHS set an anchor with its offer, one that now leads some legislators to think that PHS has "done its share" and that the other hospitals should come up with the remaining $60 million. The usual dynamic that we could expect at this point is for the remaining hospitals to squabble among themselves as to who will pay what portion of this. That puts individual legislators in difficult positions, as many of the hospitals are the major employers in their districts.

The real point, though, is that the PHS anchor has no legitimacy. This collection of academic medical centers, community hospitals, and about 4000 physicians in the state has received excess insurance rates that produced billions of dollars in extra revenue over the last decade. The system has used those funds to recruit physicians, direct care to its network, and build new facilities throughout the region, further building its market influence and ability to demand higher reimbursement rates. Who is to say that a one-time offer of $40 million is anywhere near a fair contribution to this problem?

Another lesson of negotiation theory is that an illegitimate anchor needs to be dislodged. The Attorney General has prepared a report showing the disparity in reimbursements received by systems in the state. The Legislature might consider drawing on that research to decide if the Partners anchor has dropped in the wrong part of the sea floor.