The Wall Street Journal –
February 28, 2013:
Hospitals and health insurers are locking horns over how much health-care providers will get paid under new insurance plans that will be sold as the federal health law is rolled out.
The results will play a major role in determining how much insurers will ultimately charge consumers for these policies, which will be offered to individuals through so-called exchanges in each state.
The upshot: Many plans sold on the exchanges will include smaller choices of health-care providers in an effort to bring down premiums.
To keep costs low, the insurers are pressing for hospitals to grant discounts from the rates hospitals usually get in commercial plans. In return, participating hospitals would be part of smaller networks of providers. Hospitals will be paid less by the insurer, but will likely get more patients because those people will have fewer choices. The bet is that many consumers will be willing to accept these narrower networks because it will help keep premiums down.
Tenet Healthcare Corp., THC +0.43%one of the biggest U.S. hospital operators with 49 hospitals, Tuesday said it had signed three contracts for exchange plans that would involve either narrow or “tiered” networks, in which people pay more to go to health-care providers that aren’t in the top tier.
Tenet said that in exchange for favorable status in these plans, it granted discounts of less than 10% to the three insurers, which it said were Blue Cross & Blue Shield plans covering 15 of its hospitals, or around 30%.
“It makes strategic sense for us,” said Trevor Fetter, Tenet’s CEO, in an interview. “There will be a market here, and it’s important for us, we believe, to participate in that market.” He said that insurers around the country have approached Tenet to discuss similar plan designs.
Analysts said Tenet’s disclosures, which came during an earnings call with analysts, are the most explicit from any hospital chain so far about how the negotiations are shaping up. “It’s the clearest statement they’ve gotten about exchange products, pricing and impact,” said Sheryl Skolnick, an analyst with CRT Capital Group LLC.
Exchange plans will take effect in 2014. In that first year, health plans sold on the exchanges could have 11 million to 13 million enrollees and generate $50 billion to $60 billion in premium revenue, according to an estimate from PwC’s Health Research Institute, an arm of PricewaterhouseCoopers LLP.
Stonegate Advisors LLC, a research firm that works for health insurers, has been testing clients’ plans with consumers in a mock-up version of an exchange, which is an online insurance marketplace. Marc Pierce, the firm’s president, says nearly all the products have included limited provider networks.
The tests have found that premiums are the most important factor in consumers’ choices, he said, with more than half typically opting for a narrow-network product if it cost them at least 10% less than an equivalent with broader choice.
Florida Blue, the Blue Cross & Blue Shield plan in the state, will offer plans with a “tighter, more select group of providers” in its exchange, said Chief Executive Patrick J. Geraghty in an interview. “We believe the exchange is going to be driven by price, and therefore we’re looking for a lower-price option.”
The insurer has already struck deals for narrow-network plans and will use those same terms for the exchange versions, it said. Florida Blue said it has been winning discounts of 5% to 10% off typical commercial rates from hospital systems, but getting breaks as high as 20% in some cases.
Plans with smaller choices of health-care providers are a big focus for insurers, partly because many other aspects of exchange plans, including benefits and out-of-pocket charges that consumers pay, are largely prescribed by the law, giving them few levers to push to reduce premiums.
“The need for a smaller network with lower pricing was critical,” said Juan Davila, an executive vice president at Blue Shield of California, which said it hopes to offer a preferred-provider-organization plan for individuals on the exchange. It would be built around a provider network around 40%-45% of its traditional PPO scope. Mr. Davila said Blue Shield had signed an exchange contract with Tenet but declined to comment on its terms.
So far, insurers and hospitals have sent differing signals on what kinds of discounts the hospitals might grant for the exchange plans, which would vary by market. Publicly traded hospital chains have said they are pressing to get paid approximately what they receive for traditional commercial health insurance.
Some insurers talk about steeper discounts from hospitals. WellPoint Inc. WLP -0.48%has said it is aiming to pay providers somewhere between Medicaid and Medicare rates, and sees talks trending toward rates close to Medicare. Medicare rates are often substantially lower than commercial prices. An Aetna Inc. AET +0.66%official at an investor conference Monday suggested the rates might settle somewhere between Medicare and commercial.
For their part, hospitals have to weigh whether discounts they grant for exchange products pose a risk to the richer pricing they get for traditional commercial health plans, which include those now offered by employers.
Catholic Health Initiatives, a not-for-profit operator of 78 hospitals based in Englewood, Colo., said it is negotiating with insurers about exchange plans in around half of its markets, and insurers are often seeking to craft narrow-network designs.
CHI is taking a “conservative” approach and discussing “very modest discounts in exchange for a narrow-network opportunity,” said Juan Serrano, a senior vice president, in an interview.