Contract Heavy RBP – Will the Real Slim Shady Please Stand Up

Which hospitals do you have a contract with?

That’s the question we frequently hear when we talk with brokers and representatives of self-funded health plans who have lived in the world of network-based health plans while costs continue to skyrocket out of control. These decision-makers come to us looking for a new solution, but they view contracts and access to care as the same thing, and they ignore (or are simply unaware of) some of the shortfalls of this strategy.

First, there is a real timing challenge to negotiating and implementing these agreements, which can hold up a member’s access to care. With the consolidation in the health care provider landscape, local decision-making has been replaced with system-based negotiations involving multiple departments often far removed from the locality where the physicians and hospital care for patients. As a result, it is not uncommon for discussions and negotiations to take many months – even years – to get to an agreement. Members and their families can grow old waiting for these deals to get done.

Another problem with equating access and contracts is the basic assumption that a contract necessarily results in access. Anyone who follows healthcare trends nationally knows very well how frequently we read about large healthcare provider systems having a public fight with the near monopolistic insurance carrier over their failing negotiations. These public spats often result in providers getting dropped from networks, and patients are left to scramble to establish care with new providers. Then, just when they get re-established with a new provider, suddenly, the two sides who were once throwing mud at one another are now publicly holding hands around the campfire, complimenting the other side, with both claiming victory. In these cases, members get treated like ping pong balls, going back and forth between providers, but the costs continue spiraling out of control.

Far and away, the most critical problem with focusing on contracts, however, is the contract itself. Many (if not most) times, these contracts are subject to the provider’s pricing strategy, which extends pricing based on the number of covered lives reported by the insurer. Under this strategy, the best pricing goes to the group that has the largest number of covered lives, slightly worse pricing goes to the next biggest carrier, and so on. Of course, this pricing strategy is shortsighted because it ultimately leads to greater market power of the biggest carrier, which undermines the provider’s market power as well as any purchasing power the self-funded plan possesses because other alternatives have been priced out of the market.

Along these lines, I recently found an interesting research article showing this strategy is alive and well among providers (Do Insurers with Greater Market Power Consistently Lower Prices for Hospital Care? Evidence From Hospital Price Transparency Data). Based on their research of now publicly available pricing data, the authors found that, on average, the largest insurers negotiated 23% lower prices than insurers that aren’t considered large players in the markets. In other words, if your provider relations strategy is focused solely on contracts, then you’re bound to get more of the same in terms of increasing health plan costs. Clearly, this is not sustainable, so other strategies should be considered.

At ClaimDOC, our provider relations strategy is focused on developing strong relationships with providers in each market and not necessarily limiting those relationships to contracts. We start by doing extensive research of the market to identify the best providers to approach in an effort to assure access to care at affordable prices. To augment this market research, we gather critical information through our Pave the Way® process, where our plans’ members tell us which providers are important to them. This information helps us build a market-specific provider relations strategy, and then we go to work.

With this strategy in place, we set out to establish great working relationships with all of the targeted providers. Of course, this includes the large, consolidated health systems, but we don’t stop there. We take the same approach with smaller independent providers like direct primary care organizations, ambulatory surgery centers, and endoscopy centers, to name a few. Often, these providers are extremely high-quality providers who provide excellent patient care and are willing to employ a pricing strategy that frequently beats the negotiated system agreements. This not only provides lower cost options than the consolidated health systems, but also provides some leverage to bring prices in line when patients opt for care at those consolidated systems. This work is hard and time-consuming, but it pays off when your members are looking for alternatives.

As we approach these providers, we keep an open mind toward the type of relationship that will result in access for our members. We are up front with providers about our standard pricing, and how we will process claims quickly and correctly with low administrative disruptions. Interestingly, many providers are perfectly willing to provide access in exchange for our standard pricing rather than devoting the time and resources required to get the agreement in place. Rather, these providers see these cases as additional marginal revenue, and because our system is still a fee-for-service model, the additional cases priced fairly create an adequate financial incentive to see the patient. In these cases, a contract is really a solution looking for a problem, and insisting on a contract here would only cause the plan to leave money on the table. Not surprisingly, these are cases where a contract is not pursued, and we foster this relationship by working extremely hard to make the process smooth for provider and members alike.

There are instances, however, when the provider does require some type of agreement, so we are open to a variety of approaches such as single case/single patient agreements or even – yes – a global agreement if the provider is otherwise unwilling to see the patient. In these cases, we use the provider’s pricing transparency data (like those reviewed in the Sage Journals article referenced above) to guide our negotiations, and we push hard to get the best deal available from a pricing standpoint as well as other nonfinancial provisions (e.g., audit rights) to maximize the patient experience and plan savings. Again, we also work to make sure the provider’s experience is positive because members are best served by constructive, long-term relationships with providers.

At the end of the day, health plans can no longer afford to evaluate their health plan in the same way they did 10 years ago, especially in assuming access and contracts are one and the same. Plans must recognize that, in many cases, contracts don’t really ensure access, and in most cases, a contract is very expensive. In order to effectively manage the expenses of a health plan, we must all consider working with providers in new ways to ensure access, maximize member experience, and achieve cost savings. As the owner of ClaimDOC, I can tell you it’s easier and more cost-effective for us to get a contract than to do the hard work of creating access without contracts. I understand why all our competitors focus on it to drive the profitability of their own organization. Whether brokers or prospects appreciate it or not, our mission isn’t based on doing what is easy.