Market changes alter playing field of provider network negotiations

March 1, 2011

Insurance executives are observing a greater degree of anxiety among providers as they try to build their networks in an evolving era of healthcare.

Key Points

INSURANCE EXECUTIVES ARE observing a greater degree of anxiety among providers as they try to build their networks in an evolving era of healthcare. Now a year after President Obama signed health reform into law, administrators continue to wrangle over implementation.

Medical-loss ratio rules reserve a slim 15% to 20% for insurers' overhead and profit, which puts insurers in conflict with providers as they strive to create efficiencies.

The only answer is for all factions of healthcare to stop battling each other and work together, says Douglas L. Chaet, senior vice president of contracting and provider networks at Philadelphia-based Independence Blue Cross (IBX). Although negotiations with providers historically have been contentious, the uncertainty is leading some provider networks to try to "grab what they can" and stockpile revenue with whatever additional reimbursement they can eke out to prepare for future cuts, he says.

"Unfortunately, a lot of those types of organizations are going to be at a competitive disadvantage if they wait too long," Chaet says.

Joel Hoffman, senior vice president with Ingenix Consulting, says the old negotiating tactics-in which patient volume is used as leverage-are not working anymore. Providers are being rewarded for value and quality, not quantity.

"The new focus is on becoming more efficient," Hoffman says. "Ultimately it's going to be all about driving efficiency and demonstrating value."

The preferred way to achieve value is for hospitals, physicians and insurers to collaborate at the local level to bring costs down, increase access and provide quality care. Hoffman says the current landscape is an untenable situation, and innovative organizations know they need to work together on solutions.

Among the challenges confronting insurers is the need to enlist enough primary-care physicians to cover what is expected to be an influx of new patients gaining access to healthcare under the reform. However, with a national shortage of primary-care physicians, some insurers are getting creative to lure them to their networks.

Independence Blue Cross for example, set aside $45 million last year in increased incentives for primary-care physicians. The physicians who took advantage of all the incentives were able to double their base reimbursements.

"We wanted to make a statement," he says. "We wanted everyone to know how incredibly important primary care is to the delivery of healthcare."

Too little attention was paid to primary care physicians over the years, as reimbursements dwindled and specialty care skyrocketed, Chaet says. Now, primary care doctors are questioning their ability to survive in a climate where new and expensive technology is embraced as a means to demonstrate quality care.

IBX launched its program after learning overhead costs were pushing them to leave private practice and become hospital employees.

"We want to make sure this market becomes a haven to the very best primary-care physicians," he says. "If there were primary-care physicians interested in relocating, we want them to very clearly see that Philadelphia is a place they could thrive."

Chaet says IBX prefers private-practice care because: physicians are more productive; they tend to practice autonomously; and they are more engaged than salaried hospital employees.

When physicians-not hospitals-drive the delivery system, care becomes more community-based and less dependent on expensive and high-tech acute care, he says.

"Patients who are effectively managed by primary-care physicians have better outcomes, and they're happier," he says.

Carl King, head of Aetna's national networks and contracting services says healthcare reform is pushing physicians to give up private practice. Much of the motivation stems from the sheer complexity of practice management.