Insurers Are Winning, and Here’s the Proof
Last week, Modern Healthcare reported what we’ve been suspecting: some health insurance companies are at war with hospitals, and they’re winning.
Since mid-2013, we have witnessed a change in tone among some payors during their negotiations with providers. Increasingly, they have been more aggressive in their positions, asking for drastic cuts, insisting on draconian terms and language, proactively targeting patients and the news media, and refusing reasonable compromises that would have been common just a year or two ago.
Compiling dozens of anecdotal examples reveals a pattern that’s impossible to ignore.
Last week, Modern Healthcare confirmed what we’ve observed, and the data reported suggests that payors’ efforts to reduce provider payment rates are driving a significant change in the financial reality facing hospitals.
For the first time since the Federal government began tracking the data nearly 20 years ago, the prices that health insurers paid to acute-care hospitals dropped year-over-year.
The decline is tiny – one tenth of one percent – but it is unprecedented. Until now, payment rates have been going in only one direction: up.
The data covers all insurers, both private and public, and highlights the decline we’ve been seeing:
- Medicare rates declined significantly, by 2.3%
- Medicaid rates fell by 0.1%
- Among the commercially insured, rates grew by 1.6%, the weakest 12-month price growth on record
There are many factors that are likely contributing to the payment rate decline, including reductions in what Medicare pays for care and downward price pressure created by narrow networks.
It also suggests that our observations have been reflective of a nation-wide trend. In fact, some private insurers have been playing hardball in their negotiations with providers, and have been reaping the rewards of their behavior.
This is happening at the same time that premiums continue to rise. Although ACA-based individual premiums seem to be stabilizing, national research suggests a nearly 4% increase in employer-sponsored healthcare costs heading into 2015. That means insurers are telling their employer and individual policyholder customers one thing, and hospitals and physicians another – and they’re winning both arguments.
Pretty astonishing, right?
Health plan customers – both individual and group – have come to expect increasing premiums, so this news shouldn’t come as a surprise. But the dramatic deceleration in payment rates certainly does.
Insurers have achieved these decreases thanks in large part to two strategies: maintaining resolve in their game of chicken against hospitals during negotiations, and placing the blame for high costs directly on hospitals through proactive communications programs aimed at patients, news media, and other stakeholders. Health systems that remain silent allow the aggressive payor to control the way they’re perceived, and that can stick to a provider’s brand for the long haul.
The data suggests these aggressive strategies are working, and health systems are at risk if these dramatic changes undermine the ability to reinvest in technology, services, and the capability to take on risk and manage the continuum of care. And until these payor tactics stop working, or face significant resistance from providers, we can expect them to continue.