Contract negotiations are growing more contentious between providers and payers as both sides battle rising costs.
Fueling the tension are persistent economic challenges stemming from the COVID-19 pandemic.
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Providers are facing higher costs for labor, supplies and pharmaceuticals. In addition, they are fed up with increased payer denials and years of low reimbursement rates, and in some cases, are choosing to cancel contracts altogether. Payers are seeing their medical costs rise as patients seek deferred care and providers charge more to deliver those services.
Payers and providers negotiate for a variety of health plans, including commercial coverage and the government-led Medicaid and Medicare programs, to set reimbursement rates and determine any supplemental benefits for members.
“You go through periods where both the plans and the hospitals have a good sense of what they want or what to expect, and then something upsets that, and we had [a] pretty profound event,” said Paul Ginsburg, senior fellow at USC Schaeffer Center. “I think both sides would agree that rate increases need to be higher. It’s just a matter of not agreeing on how much higher.”
Rising costs are fueling contract disputes
Inflation is the key impetus for providers taking a harder stance in negotiations.
The U.S. inflation rate spiked to 7% in 2021 and now sits between 3% and 4%. The fluctuation has made it harder for providers to predict their future costs, especially when negotiating multiyear agreements.
Chicago-based CommonSpirit Health earlier this month said it planned to take a “firm stance” in contract negotiations and ensure payers absorb their share of inflation.
Increased denials and prior authorization requests are adding to the friction, as they create more administrative burdens and slow the payment process, providers say.
A 2022 survey from the American Medical Association found physician practices spend an average of 14 hours per week on prior authorization requests, completing 45 requests per week on average for each physician.
Brent Estes, chief managed care officer at New York-based Mount Sinai Health System, said providers have no choice but to fight back. Inpatient claims denials have doubled in the last three years at Mount Sinai, Estes said.
“That takes a significant amount of the revenue that we negotiated as part of our deal off the table, which is just exacerbating people’s financial pressures,” he said.
But payers say many providers are being reimbursed more than enough.
Health insurance trade association AHIP said in a statement that many providers, including those affiliated with large corporations or private equity firms, have more leverage to demand above-market reimbursement rates.
“Coupled with required public disclosures of rates paid to other providers, corporate-owned provider groups and hospitals have seized an opportunity to extract more money from health plans and employers. More than ever, it is essential to have health insurers negotiating on behalf of employers and consumers to make health care more affordable,” AHIP said.
Neither Cigna nor UnitedHealthcare responded to a request for comment on the tenor of contract negotiations.
A recent contract dispute between Mount Sinai and UnitedHealthcare left thousands of patients in employer-sponsored and individual plans in limbo for months until a deal was reached in March.
Providers are canceling contracts
Providers aren’t afraid to walk away from payer contracts if negotiations fail. They have become particularly skeptical of Medicare Advantage contracts in recent months, especially in areas where most patients are under government-sponsored care.
Great Plains Health in North Platte, Nebraska, announced this month it will end its Medicare Advantage contracts, effective Jan. 1. Chief Financial Officer Summer Owen said the Medicare Advantage plans were hindering access to care, causing service delays, higher out-of-pocket costs for some patients and extended lengths of stay.
“We felt that we were unable to fulfill our mission by continuing to participate in these contracts,” Owen said.
Great Plains, a 116-bed regional medical center serving patients in west Nebraska, northern Kansas and northern Colorado, lacks negotiating power against large commercial insurers and has little to no input on policy changes, Owen said. She said she would like to see clearer language in the contracts and more local decision-making.
Cape Fear Valley Health in Fayetteville, North Carolina, cut ties with UnitedHealthcare Medicare Advantage plans last summer, largely because of a claim denial rate approaching 30%, said Bart Fiser, Cape Fear Valley’s vice president of corporate revenue cycle and managed care.
Fiser said Cape Fear Valley, which serves a seven-county region in southeastern North Carolina, has similar issues with other big payers, including those with a greater presence in the Medicare Advantage and managed Medicaid markets.
“It’s a very hard relationship [with insurers] now. It’s not as collaborative as it used to be," Fiser said. "Help me understand why it would be better to be in network again."
