One of the hard lessons I have learned in negotiating health plan contracts for physician groups is that if you can’t find a way to apply leverage in the negotiation, there is no negotiation. Leverage is the key to success in most negotiations. With leverage you can get a better deal, without it you are just another commodity. Physicians can obtain leverage in many ways: more training, excellent reputation, strength in numbers, careful use of consultants, financial backing, strategic planning, good public relations, and yes, even good bedside manner. There is a certain cost to obtaining leverage, and expending leverage can be productive, or wasteful, depending on the physician’s skill as a negotiator. EVERY relationship involves negotiation, and every physician must learn the art of negotiation. Unfortunately, many physicians have lost all leverage in their relationships with third-party payers; and they are left with a ‘take it or leave it’ option, if they are lucky, or a ‘take it or leave’ option if the plan has been able to achieve near dominance in the market.
The right of a physician to withhold services, or provide services selectively, depending on whether they are able to negotiate reasonable terms and reimbursement rates from these third-party payers, has been steadily eroding. Perhaps the most obvious sign of this loss of the right to selectively provide services is the demise of out-of-network (OON) leverage: that is, the ability of physicians to decline to participate in health plan networks. If you cannot walk out of a negotiation, there is no negotiation. Physicians who primarily or exclusively practice in hospitals have probably lost the most ground here, in part because of coercive contracting and the EMTALA mandate to provide emergency care to all, regardless of insurance status; but also because many hospitals have also lost leverage in negotiations with health plans. Such hospitals tend to lean on their hospital based physicians to share the pain in these lopsided networking relationships with health plans. This is particularly true in communities and states where commercial health plans have completely sewn up the market for health insurance. In states like Alabama, where Blue Cross Blue Shield of AL has about 87% of the commercial health insurance market; plans can use their monopoly and monopsony power to all but dictate price to every potential enrollee and rates to every provider. There are no real negotiations, and the situation really is a ‘take it or leave’ proposition. I have seen contracts between plans and providers in these grossly under-regulated monopsony conditions where the reimbursement rates were ‘specified’ with the following phrase: “Corporation’s purpose and intent shall be to maintain a Fee Schedule in which the amounts are neither excessively high nor excessively low”, and “The decision to adjust the Fee Schedule will be made solely by the Corporation”. Hospital based physicians faced with such terms can either accommodate to a markedly reduced income, or leave the state.
The right to decline to participate in a plan network is often the only significant leverage that physicians have in negotiations with plans for fair in-network rates. Even those physicians and physician groups that have the option to go ‘out-of-network’, and receive their usual and customary charge for these services rather than a deeply discounted payment as an in-network provider, are struggling to maintain this leverage. Legislators, bombarded with consumer complaints about large balance bills, have limited or even eliminated the ability of physicians to bill patients for the difference between what the plan will pay as a benefit of OON care, and what the provider charges. These complaints have been instigated by a progressive decline in OON benefits, resulting in larger balance bills. Unless these legislators include a reasonable minimum OON benefit standard in legislation to prohibit balance billing, these laws effectively chop physicians off at the knees, eliminating any leverage they may have to negotiate fair rates for in-network services. Insurance regulators that ignore health plan monopolies further erode provider leverage, depressing payments to providers at the expense of profits for plans. This eventually undermines access to care, as indicated by a recent survey of 13,575 physicians conducted by The Physician Foundation, which “found that over the next one to three years, more than 50 percent of physicians will cut back on patients seen, work part-time, switch to concierge medicine, retire, or take other steps likely to reduce patient access”. Unfortunately, few insurance regulators seem interested in enforcing rules against such monopolies.
One legislative approach to level the playing field and restore some clout to physicians in plan contract negotiations is to require plans to pay the OON benefit to OON providers directly, rather than send a check to the enrollee, as was recently done in Florida. Another is mandatory recognition of assignment of benefits, which plans often ignore. Physician shortages, especially in primary care, may also restore some leverage for these physicians, but health plans are already pushing back by increasing coinsurance payments and co-pays for enrollees that go OON for their care, renting physician networks to other plans, suing physicians for ‘excessive’ OON charges, and penalizing (sometimes ousting) in-network physicians for referring enrollees to OON facilities and providers. This may sound like a tug of war equilibrium, but most physicians, especially hospital based specialists, feel like David facing Goliath.
Some would say that the concept of third-party payment (i.e. health insurance) itself is to blame for the demise of OON leverage and loss of value for physician services. Others might point to the increasing role of government health care coverage, with reimbursement tied to shrinking budgets, as the culprit. Regardless of the cause, physician margins, the difference between revenues and the cost of practice (call it take-home pay) are shrinking, and despite the growth of Independent Practice Associations, large group practices, affiliations with hospitals, Wall Street financing of large physician practices, and all the other efforts to enhance physician leverage: health plans, with huge piles of cash to invest in political campaigns and large legal firms on retainer, are winning this war. Consumers, unfortunately, are caught in the middle.