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Health Plans Don't Always Play Hardball with Providers

 |  By Margaret@example.com  
   May 09, 2012

When you're looking for healthcare cost drivers, don't overlook those high-prestige, must-have hospitals that payers need in their networks to keep their customers satisfied. Their rates are hobbling health insurers, or so it appears.

 

But get this: Sometimes health plans don't play hardball when it comes to provider negotiations. They'll agree to large increases in provider payments as long as their competitors pay even higher rates.

Must-haves, by the way, are often academic medical centers like Partners Healthcare in Boston. While they used to be referral centers for more specialized care, these must-haves are offering more primary and secondary care, as well as tertiary and quaternary care.

Robert A. Berenson has looked into this phenomena and produced a study that appears in the May issue of Health Affairs. Berenson is a fellow at the Urban Institute and serves as vice chair of the Medicare Payment Advisory Commission or MedPac. Along with Paul Ginsberg, president of the Center for Studying Health System Change, Berenson and his team conducted interviews with healthcare leaders in the 12 metropolitan communities involved the center's community tracking study.

Geography, specialized services and the size of the hospital system across multiple markets can also play a role being deemed a must-have. Berenson says that's the case in Miami where Baptist Health, which is not an academic medical center, effectively competes with the University of Miami Hospital and is considered a must-have for insurers.

Here are five instructive points gleaned from the study:

 

1.The haves sometimes help the have nots.
Berenson says there's evidence that some hospitals without must-have market power can get reasonably decent rates when health insurers are trying to maintain hospital competition in the market. In markets such as Indianapolis there is an effort, according to one healthcare leader, to "keep small providers alive, so there is less consolidation." Mid-tier hospitals can definitely get spillover rates from the must haves but that usually doesn't extend to hospitals that cater to low-income Medicaid and uninsured patients. Insurers don't think twice about leaving those hospitals out of their networks unless they house a level one trauma center.

2.Dominant insurers don't sweat rates.
Dominant insurers with 60% to 70% of a market don't need to muscle the must-haves to accept lower rates. "As long as they think they have the most favorable rates, they don't have to push their potential market power. They just have to be better than the competition," says Berenson. He explains that while the rates in these markets are lower than in markets where there isn't a dominant insurer, the rates themselves aren't bargain basement.

3.Tiered networks are a tough sell.
The must-haves are in a position to veto most efforts to make them part of a tiered network where there is higher patient cost sharing for selecting that hospital. Even if a must-have facility agrees to be part of a tiered network, it has the clout to define the terms of the tier to make sure cost sharing probably won't have much of an affect.

4.Bluffing doesn't work.
If an insurer doesn't have a reasonable threat of excluding a hospital from a network, then it loses a lot of negotiating leverage. In that case, Berenson says the only hospitals an insurer can legitimately threaten are facilities that don't see a lot of the insurer's members.

 

5.Employers often look the other way in insurer-hospital confrontations.
Berenson says Boston is a perfect example of this phenomenon. Employers may complain about their healthcare costs, but when Tufts Health Plan tried to take on the powerful Partners,  employers balked at the possibility of not having the healthcare system in their networks. "You don't do business in Boston if you're a health plan without Partners. So what's the threat against Partners? It's a must have for employers."

In the end, Berenson says negotiating leverage between insurers and hospitals is a more nuanced process than previously considered. It makes you wonder if public policy focused on health plan rates increases is really getting to the root of the problem. Berenson and his team conclude that "a range of other market and regulatory approaches also need to be examined."

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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