Contract negotiations between health plans and healthcare systems have become more and more like trench warfare, each side dug in to maximize revenue and each developing new tactical weapons to lob. Health plans have used managed care to cut rates and utilization; hospitals leverage relationships with doctors, patients and communities to force rates back up.
Of late, hospitals have had the upper hand-courtesy of angry patients fighting back against restrictive managed care-and have used it aggressively, forcing a sharp spike in healthcare costs. Now managed-care plans are counterattacking with a relatively new weapon.
As our reporter Laura B. Benko has documented (June 3, p. 17), insurers have come up with a new form of tiered health plans. Instead of the tiered plans most of us are used to, such as formularies and access to certain specialists, these new plans group hospitals based on cost and then charge enrollees extra if they choose to use the pricier facilities. A growing list of insurers-including PacifiCare Health Systems and Tufts Health Plan-have unleashed this new device, trying to make consumers more aware of their contribution to skyrocketing healthcare costs. Plans also are looking to extend the tiered model to physicians.
Every new offensive brings a counterattack, and some hospitals are canceling contracts after being placed in the high-cost tier. Last month, two Northern California facilities dropped Blue Shield of California, and the backlash from other providers forced Blue Cross of California to shelve plans for its own tiered product.
The hospitals that dropped Blue Shield charged that this form of tiering ignored differences in the quality and scope of services offered among facilities, and that it penalized lower-income people by leaving them with little or no choice of hospitals. Insurers argue that the tiering isn't that drastic, because in the event of a medical emergency, patients can still use the ER of higher-cost hospitals without paying extra, and the copayment difference for the patient is not big enough to price them out of a hospital.
If that is so, why have tiers, and why are providers risking lost business by dropping out of tiered plans? These hospitals are correct to do so. Basing decisions solely on cost ignores two of the most important debates in healthcare circles today, those over quality of care and nurse staffing. Yes, healthcare services must be competitively priced, but if we are to address the related issues of medical errors, quality of care and inadequate staffing, we can't make our best hospitals unaffordable for lower-income people.
The impact this will have on academic medical centers might be profound. Teaching hospitals may be making some bucks on Medicare, as we have reported (May 27, p. 6). But they are facing a 15% cut in Medicare payments in fiscal 2003 and further cuts in the next four years, unless Congress steps in to help. Teaching hospitals are more expensive by their very nature, but we depend on them for training our next generation of physicians, for the advancement of technology and as a safety net for poor communities.
Surprisingly, some hospitals are buying into the tiering concept, perhaps sensing a market opportunity to compete with higher-priced hospitals or perhaps realizing they have no choice.
As Benko reported, San Diego-based Sharp HealthCare, which had dropped out of Blue Shield's network last year when its facilities were moved into the "affiliate" tier (read: more expensive), has cried uncle, dropping its prices to get four of its five acute-care hospitals back into the "choice" echelon.
Meanwhile, across the nation, other health plans are adopting tiered plans. Now, the big question is how employers will react. Obviously, many companies are looking to cut healthcare costs. But as we have seen with the Leapfrog Group, they are also concerned about quality.
Waltham, Mass.-based Tufts placed academic medical centers in a higher tier than community hospitals in its tiered plan, Choice Co-Pay Plan. Only a few employers have signed on. Let's hope that trend continues.