Providers and payers face intense negotiations after the pandemic

The pandemic has brought many hospitals and insurers both closer together or farther apart depending on how the two responded and interacted during the first year of the crisis.

Providers and payers that expanded their cooperative efforts since COVID-19 struck are likely to continue on that path, and so are those who pulled back from each other in the past year.

That in turn is shaping how payers and providers approach upcoming contract negotiations, experts say. “The payers who really stepped up and were willing to help and form a partnership this past year will be included in ongoing discussions around how we best manage both longitudinal care and acute needs across the country and potentially around the world,” said Wesley Wolfe, senior director of payer contracting at Cleveland Clinic. “Those payers who were very transactional may have less influence,” he said.

As the landscape shifts between payers and providers, post-pandemic negotiations are almost guaranteed to be more focused on telehealth than they have in the past.

“Our hope and desire and expectation is that coverage for care delivered virtually will remain in place,” Wolfe said.

He added that payers have historically been concerned that virtual visits would be another access point that drives up overall healthcare utilization, “but now we have a really credible dataset to show it really is, in large part, just a replacement of in-person utilization.”

Some organizations are arguing for reimbursement rates for telehealth that are similar to in-person visits. However, Dr. Robert Berenson, a fellow at the Urban Institute, believes that is unlikely to happen. “If these visits are reimbursed at parity under a fee-for-service model, costs will go through the roof—it’s not sustainable,” Berenson said. If that were to happen, Berenson said he would expect to see a dramatic increase in the use of telehealth, because of patient preference and potentially lower overhead costs for physicians.

More broadly, relationships between payers and providers are expected to mostly be an extension of how the pandemic went. Some of Cleveland Clinic’s payers engaged in “robust conversations” during the pandemic, looking for ways to work together and ensure both chronic- and acute-care patients had their needs met, Wolfe said.

For example, some payers provided invaluable cash advances in the early stages of the pandemic. Others may look to see how a hospital responded to a loosening of administrative requirements like those mandating prior authorization of care, said Dr. Robert Lorenz, executive medical director of market and network services at Cleveland Clinic.

“There will be a postmortem on what transpired during the pandemic and I think payers are going to recognize that we didn’t run amok with their temporary relaxation of prior authorization requirements, and we stuck to appropriate utilization,” Lorenz said. “Nobody wins with overly intrusive requirements, particularly when we have a historical rate of over 90% approval.”

Pamela Stahl, president of Anthem Blue Cross and Blue Shield of Georgia, said that if the pandemic has changed anything in her organization’s experience with contract negotiations, it has highlighted the shared payer and provider desire “to ensure that people have access to affordable healthcare and access to their physicians.”

Anthem BCBS of Georgia recently renewed a number of contracts, including one with Atlanta-based Piedmont Healthcare, and those negotiations wrapped up two months ahead of schedule.

Stahl said a key to this success was to talk early and often as the executive team. “While the folks who do the negotiations for us continued to work through the details, the executive team met regularly, talked openly and agreed to listen so that we could understand each other’s positions,” Stahl said.

Executives at both organizations also assembled a list of the top five issues most important to them, she said, adding, “We decided that those were going to be the items we would work through first, rather than waiting until all the other aspects of the contract would be done and then delaying the negotiations, since these were the hardest points to work through.”
While she would not disclose details of the agreement, Stahl said the Blues plan and Piedmont are working toward ultimately shifting to a value-based arrangement.

But that doesn’t mean hospitals, physicians and insurers are all best buds after collaborating to battle COVID-19. Fred Bentley, a managing director at consulting firm Avalere Health, said provider groups and hospitals may be in a relatively strong negotiating position relative to insurers because of an imbalance in their financial strength.

“For a lot of 2020, and extending into 2021, payers have had more money on hand than they typically do,” Bentley said. “While some health systems have weathered this period pretty well from a financial standpoint, hospitals that have struggled will be in a strong position to say, ‘you need to hold the line, if not bump up the (payment) rates, to help keep us whole and keep our doors open.’ ”

Major providers like Sutter Health in California lost $321 million on operations in 2020, while insurance giant UnitedHealthcare reported operating earnings of $12.4 billion, an increase of 20% from 2019.

Richard Bajner, a partner at consulting firm Guidehouse, echoed Bentley’s sentiments, saying a slew of provider revenue constraints make them more likely to enter contract negotiations with a “hardball approach.” Moreover, Bajner added, the Congressional Budget Office forecasts the Medicare Hospital Insurance trust fund will be exhausted by 2024, which is likely to pressure CMS to limit Medicare reimbursement over the next few years.

“In an environment where the trust fund is less solvent than at any other point in Medicare history, policy implications may be more draconian to the provider segment,” Bajner said.

Sagging government reimbursement will likely result in providers needing to eke out more money from the shrinking commercial segment.

“This will create an environment for more challenging conversations with payers that could lead to hardball negotiations over prices,” Bajner said.

The pandemic has already been cited as a factor in a contract dispute between Montefiore Health System in New York and UnitedHealthcare, which remains unresolved.

Another pressure point that will affect negotiation dynamics is CMS’ price transparency requirement. Both payers and providers will be coming to the table with detailed benchmarking analyses, Avalere’s Bentley said, and both will look to see “if their competitors down the street are getting a sweetheart deal, and asking, ‘why am I not getting the same?’ ”

One lesson of the pandemic is that fee-for-service reimbursement did not work well when procedures were halted at most hospitals, making value-based and capitated models more attractive. Dr. Penny Wheeler, CEO of Allina Health in Minnesota, said the pandemic taught providers that these types of arrangements—that actually pay for keeping your community healthy—are the way to go.

“None of us want to be so volume-dependent that the bottom drops out of our financials like it did when people couldn’t do scheduled surgeries,” Wheeler said.

But entering into those types of arrangements requires strong data and information infrastructure and patient management personnel in order to track clinical outcomes and costs and to coordinate care. Not all provider types have these resources, she said.

Cleveland Clinic officials have had discussions with payers about revising the metrics of their existing value-based contracts in light of lessons learned during the pandemic, Wolfe said. “I think the answer to that, at least in the short term, is likely no,” he said. “We typically have a broad set of quality measures that are in our value-based agreement—things you would expect … and I don’t see us overreacting and changing a bunch of that because of a once-in-a-hundred-years global pandemic,” Wolfe said. However, “We are giving due consideration, particularly to those partners that have stepped up during the pandemic,” he noted.

For example, he said, Cleveland Clinic is reviewing whether capitation more broadly could benefit both sides of the equation. “We’re thinking through what global capitation means in these types of events and then what the appropriate corridors and protections are on both sides that would need to be in place to provide some stability in revenue and expense for the health plans, and to ensure continuity of care for members and patients that we take care of,” Wolfe said.

Anne Ladd, director of purchaser innovation at Purchaser Business Group on Health, said cost pressures from the pandemic have led some hard-hit employer groups to seek out bundled-payment arrangements and other approaches to balancing costs with quality. “COVID-19 has made many employers’ C-suites much more cost conscious,” she said.

New data like the RAND Hospital Transparency Study has revealed “wild variations” in price within the same region, she noted, and employers have taken a closer look at who they include in their provider networks.

“Employers are speaking more seriously about building narrower networks now and leaving out those hospitals and health systems charging the highest prices,” Ladd said, noting hospitals’ reported quality metrics are also being taken into consideration.

“Before COVID-19, employers didn’t want to disrupt their employees by narrowing the network, but given the increasing cost pressures over the past year, there’s now a greater appetite to do that.”

David Wild is a freelance writer based in Toronto.