Health Systems Use Their Regional Dominance to Muscle Insurance Companies

Our healthcare reimbursement system is broken and evidence for this keeps accumulating (see: Why the Prices Charged by Hospital for Inpatient Care Are Irrelevant). I am not sure that healthcare reform will do anything to remedy this situation. The amount of money that insurance companies reimburse hospitals for services is determined by high-level yearly negotiations. These discussions are far removed from the cost of the set of services that are delivered to individual patients. If you don't have insurance and are required to pay the fictional posted list prices, you may be forced into bankruptcy. A recent article raises a new and interesting point about these negotiations (see: Health Insurers Toughen Stance in Disputes Over Hospital Rates). Below is an excerpt form it:

Health insurers are fighting demands by hospitals for sharply higher reimbursement rates by threatening to drop the hospitals from their health-plan networks, and blaming them for higher insurance premiums....In a fresh battle, Stellaris Health Network....just asked a unit of health insurer WellPoint Inc. to increase its payments by 16% this year—in part, so that Stellaris could fund a new cancer center, according to the insurer. The hospital's contract is set to expire at the end of the month, and WellPoint's Empire BlueCross BlueShield unit is pushing back. It sent letters to members on March 2 warning them that the insurer might lose the hospitals from its network....Last week, Continuum Health Partners, a coalition of five New York City hospitals, resolved a protracted dispute during which UnitedHealth Group Inc. said the hospital initially asked it to raise payments by 40%. During the negotiations, UnitedHealth had warned its members that the contract with the hospitals was at risk....Hospitals argue that low Medicare rates and cuts to Medicaid mean that hospitals have to get money from elsewhere, and increasingly that is private insurers. Rising ranks of uninsured Americans have led to more uncompensated care and have swelled the rolls of Medicaid, exacerbating the problem. But insurers contend that in recent years big hospital systems have been buying up smaller medical centers and using their dominance in a region to demand big rate increases. America's Health Insurance Plans, a trade organization, points to data showing hospital markets are 47% more concentrated than they were 13 years ago.

There is increasing consolidation of the health insurance market with Aetna, UnitedHealth, and WellPoint being three of the major players (see: Health insurance industry consolidation a potential threat to providers). As the news clip above indicates, hospitals are being squeezed by cuts in Medicare and Medicaid payments enacted in order to make the cost of healthcare reform more palatable to the public. Hospital executives, seeking to shore up their financial spreadsheets, are seeking large increases from the insurance companies. Part of their demand for revenue is designed to fund new building programs, also as noted above.

Partly in response to the enormous buying power of the health insurance giants and partly to justify their large salaries, hospital system executives are expanding their own empires. This regional dominance provides them with the ability to exercise more influence over a UnitedHealth or Aetna at the bargaining table. What worries me is how little the interests of healthcare consumers such as small business owners are represented in these discussions. The federal government can and will demand low rates for the services it covers. The health insurance companies, perhaps in league with the hospital executives, agree to higher reimbursement rates each year, in part to compensate for the lower rates offered to the government. The net result of all of this is that private employers, and their employees, end up paying the lion's share of the true cost of healthcare.

Comments

[bariatric surgery]

Those states that offer health plans for their employees, nonetheless, still operate the plan through a private insurance firm such as Blue Cross, similar to many Fortune 500 companies' arrangements under the Employee Retirement Income.