Why Do Reimbursements Cause Friction Between Insurers and Healthcare Providers?

Jan 06, 2006 at 04:36 pm by steve


When UAB Health System and UnitedHealthcare parted ways late last year, the split highlighted the ongoing tension between insurance carriers and healthcare providers over reimbursement rates. Last fall, UAB gave the insurance company 90 days notice that without higher reimbursement rates, it was terminating its contract. Negotiations did not result in a compromise, and the contract terminated at the end of November. "We could not accept on behalf of our customers an off-cycle, unpredictable increase in the neighborhood of 60 percent," says David Lewis, chief executive officer of UnitedHealthcare's Gulf States region. "When we sought to renegotiate, we were unable to get UAB to come off those numbers." UAB, on the other hand, did not regard the requested increase as "exorbitant," as UHC had described it in a letter to customers. "We've been having reimbursement issues with United for a number of years, and it reached the point where we had to provide notice of termination," says Gary Mans, UAB spokesman. What UAB was asking, he said, was in line with other teaching hospitals nationwide. Talk to just about any hospital executive, physician, medical consultant or billing service representative about reimbursements, and they will tell you that rates are stagnant, and in some cases are even being cut. "Physicians occupy a unique position in the economy in that the price they set for their service is almost never the price at which they're paid," says Jim Stroud, partner at Warrant, Averett, Kimbrough, & Marino Healthcare Consulting Group in Birmingham. His associate, Certified Coder Lisa Warren, explains that "a doctor can decide he wants to charge $100 for an office visit, but if [an insurance company] decides they're going to pay $45, then that's what you get, period. With inflation, the overhead is increasing dramatically, but the payers are not increasing what they're paying the doctors — in fact, they're cutting it quite frequently." UHC's Lewis contends that lower reimbursements are more of a problem with government payers than private insurers. "I think the fact that you sometimes have downward pressure on government reimbursement does have an impact on negotiations between the provider and the insurer," he says. "For example, if a hospital has downward pressure on overall revenues, one of the first places they would look to have some relief would be on the commercial insurance side. "The marketplace for commercial healthcare services is set by natural market forces," Lewis continues. "Healthcare costs are what drive healthcare premiums. Companies like United are all about having fair and reasonable reimbursements be predictable over time, so the company is able to give the consumer, the end user, the employer in my case, predictable premium costs going forward." It appears that one factor in reimbursement negotiations with hospitals is a hospital's official charges, or rates. In reality, say industry experts, no one really pays the rates you see on a hospital bill — not the government through Medicare and Medicaid, not private insurance companies, not self-payers. "It seems crazy to send patients a bill with a charge that's almost twice as much as what the hospital knows it will get paid," reads a script for a PowerPoint presentation provided by the Alabama Hospital Association that explains hospital billing. "When you sell a house, you often set the list price higher than what you need to get, knowing that the buyers are going to try and negotiate a much lower rate. That's what hospitals have done with commercial insurance companies." Hospital charges have been in the news recently. Brookwood Medical Center ranked ninth in the country's hospitals in mark-up on costs, according to a study released last month by the California Nurses Association. Brookwood officials have called the study misleading, because gross charges do not reflect what hospitals are reimbursed for the care they provide. UHC's Lewis says hospital charges play into his company's desire to keep customer costs consistent. "One of the basic tenets of our desire to keep costs predictable is to avoid any contractual terminology that would subject our customers to inadvertent or planned increases in the charge master, which is basically the price sheet for the hospital." Another factor in reimbursement rates is the size of the insurance company. One hospital executive told us that the more patients a provider brings to the hospital, the lower the hospital's reimbursement rates would be — sort of a volume discount. In Alabama, BlueCrossBlueShield is the undisputed market leader. Figures from the State Health Planning & Development Agency show that in 2003, nearly three-quarters of hospital patients with private insurance had Blue Cross. As a result, it is imperative for medical professionals to take part in the Blue Cross system. "You don't negotiate with Blue Cross," says Frank Tobin, vice president of local medical billing firm Medisys. However, he says, "I don't know of anywhere else in the country where it's substantially better. The doctors are not paid as much as they like, but they're paid well." UHC's Lewis doesn't see Blue Cross' dominance seriously affecting reimbursement rates in the state. "We have the advantage as a national company of being able to look at hospital and physician reimbursement rates across the entire country," he says, "and I can tell you that our costs in the Birmingham area and Alabama are considered to be in the middle from a national perspective." So if doctors and hospitals are getting less money per procedure, why do insurance premium rates keep going up? "There are more things being done, and there are more expensive things being done," Tobin explains. For instance, he notes, his father had a heart attack at about the age Tobin is now. Because of that family history, Tobin has had several stress tests. Now physicians are looking at using advanced scanning technologies to detect heart problems, including CT scans, PET scans, MRIs and nuclear stress testing. All that testing costs money. "Most of the insurance companies look at it this way," Stroud says. "If they've got a new procedure out there for which they're going to pay, they're going to reduce fees on other procedures, because they don't want to pay out any more money in total." In addition to more technology, there are simply more people needing care. Not only is the baby boomer population getting older and needing more medical care, but they also are more likely to go to the doctor than their parents were. "All that is creating a much greater usage of the system," Stroud says. "More usage of the system drives up costs, so the insurance companies want to drive down the cost they're going to pay for each encounter." Jim Brown, spokesperson for BlueCrossBlueShield of Alabama, says, "The amount of reimbursement times the number of services equals the premium. [The numbers of] services are going up significantly; technology is being added and patient outcomes are better." But doctors and hospitals often feel they're caught in the middle. The tensions between insurers and providers are not likely to go away, as Tobin explains: "The person writing the check can have a legitimate difference of opinion from the one who's rendering the service. The physician is supposed to be sort of like a lawyer, a zealous advocate for his patient's care. The people that are paying the bills have to be an advocate for 'let's keep it under control, let's do what's reasonable.' Those two things are opposite ends of the spectrum, and as far as I can tell, there will always be that tension."
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