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A New Era for Payor/Provider Relations

Last week, at our annual ReviveHealth Summit held in Charleston, we shared our yearly Payor/Provider Trend Report. Immediately, we began hearing positive feedback about the findings. While the discussion started informally between sessions, conversations soon took over breakout sessions and other programming. It was clear that we were not the only ones to encounter a change in managed care disputes in 2018. At Summit (and now in this post), we want to bring these discussions about the payor landscape into view and encourage everyone to look at the managed care industry as a sum of its parts.

Here, we detail two of the trends laid out in our Annual Payor/Provider Trend Report and distill those into easily understandable lessons. You can explore the findings further in the full report.

Trend 1: Payor/Provider conflict is at an all-time high.

The last year has been ugly, building on a series of several difficult years. Conflict between payors and providers is at an all-time high, and contract negotiations that used to be perfunctory are now protracted, involved, and difficult. In 2018, we saw high-profile disputes between major payors and providers including: Tenet Health, Envision Healthcare, HCA, NewYork-Presbyterian, Mission Health, Montefiore, Mount Sinai, OhioHealth, ProMedica, and Johns Hopkins – just to name a few. In fact, these disputes became so common that, unfortunately, we almost consider them “normal.” We shouldn’t.

Implications

In our experience, the first organization to publicly comment on the circumstances has the upper hand in establishing the narrative. Successful negotiations require providers to gain advocates and public support by communicating with and educating key stakeholders early and often.

Looking Ahead

The state of payor/provider relations in 2018 was marked by intense conflict and public battles. This was exacerbated by tactics that included a level of social media engagement and point/counterpoint we have never seen before. In 2019, we see that trend continuing. Providers will increasingly have to choose between two scenarios. In the first scenario, providers will accept lasting, negative impacts of immediate payment cuts. In the second scenario, providers will endure short-term, negative impacts as they fight for the right rates and contract language.

Trend 2: Payors are targeting market-leading “must-haves.”

Over the years, payor/provider conflict has frequently been driven by challenger brands and third-tier provider brands asking for significant rate increases. It was rare for payors to engage in conflict with market-leading brands, which used to be called “must-have” hospitals or health systems, before the wave of tiered and narrow networks changed the definition of a “must-have.” These “must-have”, market-leading brands would challenge payors for rate increases (pre-2008) or for the rights to participate in tiered or narrow networks. This was a balance of power that resulted in stable provider networks and very few out of network situations.

That balance is long gone. In the last two years, the increasingly public conflicts between the largest payors and health systems more commonly involve market-leading “must-haves,” rather than challenger brands and third-tier providers. As we look at 2019, this trend appears to be intensifying.

Implications

The most interesting thing about payor targeting is revealed by recent pricing data which shows how drastically commercial rate increases have moderated in recent years. It seems that every week there is a new headline about health insurance costs being driven by price increases for the underlying services. However, the 2018 JP Morgan 17th Annual Hospital Survey paints a very different picture – commercial payment rate increases for hospitals were 2% in 2018, 2% in 2017, 2% in 2016, 2% in 2015, and 2.5% in 2014 as commercial rate increase have been stagnant over the last decade, it’s reasonable to expect that 2019 will be similar.

Insights

Health systems, especially those who have been on auto-renewing evergreen contracts in states with one or two dominant payors, are often not accustomed to negotiating every few years across multiple agreements. While payors may not be issuing terminations to open up those evergreen contracts now, health systems should plan for that to happen in the next 2-3 years as payors attempt to find more soft spots to reduce their medical loss ratio, especially with acute-care providers.

These trends are real and they will only intensify over the coming months and years. As payor/provider relations continue to evolve, it is important to stay up to date on the industry and ever-changing relationships in managed care. For a more detailed look, watch out for our next post, detailing two more common trends, and be sure to download the Annual Payor/Provider Trend Report, which dives further into the changes you can expect in managed care in 2019.

February 14, 2019
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