A large payer and health system in California are embroiled in a bitter feud over expired contract terms, the type of fight all too common in the fee-for-service world. With healthcare switching to value-based care, some had hoped these types of financial squabbles would disappear as the interests of providers and payers became more closely aligned on reducing costs.
But healthcare observers shouldn't hold their breath for that change yet. Experts largely agree that value-based contracting will not be a panacea for healthcare payment spats, and these types of disagreements will persist in a value-based reimbursement setting. What will change will be the sticking points between insurers and providers—issues such as per-member per-month fees and performance measures, for example.
“It'll just change what they argue about, not whether they argue,” said Mark Pauly, a health economist at the University of Pennsylvania.
Some believe “we're going to see more of these price disputes than less,” said Texas A&M health economist Michael Morrisey, because true price transparency has not yet permeated the consumer market and negotiations remain veiled in secrecy.
The two players at the center of the most recent argument are Blue Shield of California and Sutter Health. Blue Shield is a not-for-profit health insurer with $11 billion in annual revenue and a profit margin that is capped at 2%, said spokesman Steve Shivinsky. Sutter Health, headquartered in Sacramento, is a not-for-profit network of doctors and hospitals with about $10 billion in revenue per year. Through the first nine months of 2014, Sutter posted a 3% margin.
Similar battles between payers and health systems have routinely cropped up across the country, including high-profile cases in Connecticut, Florida and Georgia. And they all center on which party has more negotiating clout in the respective market. But shouldn't value-based reimbursements—payments that prioritize high-quality outcomes and shared savings—minimize these types of feuds?
Not really, according to health economists. Richard Hirth, a health policy professor at the University of Michigan, said value-based reimbursement has the potential to decrease price conflicts between insurers and providers because it should, hypothetically, result in more collaborative, less wasteful care, he said.
“If their incentives are a little more aligned, they obviously have less to fight about,” Hirth said. “I think there's less benefit to airing your laundry in public,” he added. “You essentially are a team, whether you're integrated or not.”
But instead of merely haggling on fee-for-service rate increases, value-based contracting may spur the two sides to butt heads over other issues. Experts predict that determining lump-sum payments, quality metrics to be used for bonuses or penalties, and arrangements for how shared savings should be split will be the new payment bargaining chips.
“There's all kinds of dimensions that aren't really part of a straight fee-for-service negotiation,” Hirth said.
Movement toward value-based payment arrangements is evident, but the number of such contracts is difficult to peg. Catalyst for Payment Reform, a not-for-profit healthcare think tank funded by large employers, estimates 40% of commercial health insurer payments to hospitals and doctors are tied to value-based incentives. That figure could change when factoring in capitated rates associated with Medicare Advantage plans.
These types of payment designs also come as more consumers and employers demand price transparency, another value-oriented wrinkle that hypothetically should quell industry infighting. Price transparency has become a point of emphasis for patients who increasingly shoulder more of their out-of-pocket healthcare costs through high-deductible health plans.
But price transparency in the context of payer-provider rate disputes may affect only smaller, elective-type procedures such as colonoscopies, Pauly said. Consumers care only about the prices they have to pay, which are those that come in under their deductible. Most of the costs associated with expensive procedures, such as heart-valve surgery, will likely be covered by those with health insurance, and consumers will assume insurers have gotten the best prices possible, Morrisey added.
In California, about 270,000 Blue Shield members are stuck in the middle of the quarrel, potentially losing in-network access to Sutter's doctors and hospitals. HMO enrollees have access to Sutter providers until March 31, while PPO members have until June 30.
Sutter spokesman Bill Gleeson said the system made “an extremely fair and reasonable offer” by proposing an overall price increase “that is less than 1%.” However, Blue Shield officials said in a statement that “Sutter has a long history of driving up the cost of healthcare.” The insurer argued that Sutter's charges are already up to 30% higher than other providers in the region and state, driven in part by Sutter's acquisition of hospitals and other provider groups.
Blue Shield said another disagreement, aside from payment rates, occurred when Sutter sought new contract terms “that would insulate them from any potential litigation.” Those terms would require Blue Shield and its self-insured customers to take any anticompetitive complaints through an arbitration process instead of the court system. One of Blue Shield's self-insured clients, the benefit trust of the United Food and Commercial Workers union, filed a class-action lawsuit against Sutter last April alleging price gouging.
But Sutter contends Blue Shield's argument is a “red herring,” saying that it is “standard in the healthcare industry” to settle such disputes through arbitration. “This is about a very large and powerful health insurance company demanding to spend less on actual patient care,” Gleeson said.
Blue Shield said it hopes it can come to terms, but Sutter isn't expecting a breakthrough. “The parties are very far apart,” Gleeson said. “And we're not optimistic.”
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