Today I am going to take a break from my series on preventive medicine to talk about a hot topic in Charlotte news coverage this past week that relates to Obamacare and the reality of medical economics. President Obama famously stated, in relation to the ACA, “If you like your doctor, you can keep your doctor. If you like your health care plan, you can keep your health care plan.” These statements, while technically true, were actually misleading. There were a lot of caveats to keeping existing plans, and most people found that their insurance coverage did change, mostly for the better. But today’s topic is related to the “If you like your doctor, you can keep your doctor” part of the statement and has to do with insurance company reimbursement negotiations more than the ACA.
The Charlotte Observer and The Charlotte Business Journal, as well as every other media outlet in town and the larger region, have been running numerous articles about the ongoing, increasingly tense negotiations between United Healthcare (UHC) and Carolinas Healthcare System (CHS). The current contract between them expired on March 1, 2015. If the two sides don’t eventually come to terms, patients who have non-Medicare UHC insurance coverage will only be able to see CHS physicians or use a CHS hospital on an expensive out-of-network basis. There are currently about 80,000 patients in the Charlotte metropolitan area who are covered by UHC and are thus directly impacted by this impasse, including the entire employee base of Duke Power Company.
I understand this game quite well through years of personal experience. Although I was not directly involved in any hospital-to-insurance-company reimbursement negotiations, for ten years I was the Associate Medical Director for United Healthcare of Georgia, and I was also the physician leader of UHC’s Utilization Review Department. In Charlotte, I was the Assistant Medical Director of the largest physician group within CHS, so you can see that I have lived on both sides of this particular DMZ. If you don’t tell anyone else, I’ll pass on some insider information on how this game is played. But first, let me start with some history and background information so my readers can better understand the current situation.
In 1985, I was an internist in private practice in Atlanta, and the economics of healthcare were changing at warp speed. At that time, Atlanta had a very fragmented – especially compared to today — healthcare market. The vast majority of physicians were in small, independently-owned groups comprised of two to six physicians, and the hospitals were not part of a larger network of a huge hospital system. Emory University Hospital, Piedmont Hospital, Northside Hospital, St. Joseph’s Hospital, Shallowford Hospital, Crawford W. Long Hospital, and Georgia Baptist Hospital were all competitors in a small-player free market system. Other than Emory Hospital and The Emory Clinic, no hospital employed any significant number of physicians, and there were no joint physician/hospital vs. insurance company negotiations.
Also at that time, concerns were deepening about the steadily rising costs of healthcare, and both individuals and employers were looking for new answers to already-old questions. Then, in 1985, Health Maintenance Organizations (HMOs) entered the Atlanta medical market en masse, and they did, in fact, significantly reduce the rate of medical inflation. They did this by the use of two impressively effective mechanisms: one, hardball negotiations with both hospitals and doctors to achieve the lowest possible reimbursement rates; and two, the elimination of a lot of wasteful and medically unnecessary utilization of medical services. The HMOs had amassed huge amounts of data on both financial and quality issues regarding the local physicians and hospitals, and they used this data to select their core providers in what is known as a “narrow network.” These HMOs did not want a huge panel of doctors and multiple hospitals; they wanted a smaller number of providers so that they could more easily monitor and control quality and the financial variability that had previously occurred between hospitals for similar procedures. Having a smaller number of providers gave the HMOs another major benefit: it allowed them to aggressively negotiate lower reimbursement rates to providers in exchange for delivering large quantities of patients.
Here’s how this worked. Let’s say that you were an internist in Atlanta in 1985, and 20% of your patients had UHC insurance. It is now November, the time when UHC releases their fee schedule for the next year. Your office receives notification that UHC has reduced their reimbursement for your services by 3%. What can you do? Negotiate? Not an option, as UHC has a non-negotiable uniform fee schedule for all of their affiliated physicians. Drop UHC? Sure, you can, if you’re willing to watch 20% of your practice immediately disappear. Most physicians would agree that losing 3% of their reimbursement on 20% of their patients is preferable to losing 20% of their practice. So you did what most physicians did – you bitched and moaned about the 3% loss, you accepted it, and you moved on, and you continued to see your HMO patients for 3% less money than you had received the previous year. That’s how medical inflation costs are controlled effectively.
Similarly, hospitals faced the same situations with HMOs. The HMOs had a large number of patients in the area, and the hospitals needed to maintain their market share, so the HMOs had the leverage in financial negotiations, especially since only a few of the hospitals in the area were allowed into the HMO’s network. Premier hospitals with great reputations and strong name-recognition had some degree of leverage, as the HMO might very well want them in their network for public relations reasons, but smaller, or community hospitals, had no leverage at all. It was a real give-and-take at the negotiating table, but in 1985 the HMOs definitely had the upper hand. The HMOs utilized the benefits of narrow networks, as well as the competitive relationship between the various hospitals, not only to insure quality but also to negotiate lower reimbursement rates. Unbeknownst to many outside the medical community, narrow networks are not a product of the Affordable Care Act; they are a negotiating tool that has been used by insurance companies for many years. It was not uncommon around 1985 for me to have a large influx of new patients every January whose physicians had been dropped from an HMO, and I was the physician listed in the HMO’s Provider Book whose office was closest to where they lived. By the way, I was a very cost-effective provider as well as an early vocal supporter of the concept of managed care, as I was also appalled by the rate of American healthcare cost increases every year, so the HMOs wanted physicians like me seeing their patients. How many times have you heard your physician make a crack or voice a complaint about insurance companies? That didn’t happen in my office, as I was then, and still am now, a supporter of controlling the runaway costs that have overtaken the practice of medicine in so many indefensible ways.
So now let’s move up thirty years and 250 miles northeast to Charlotte, North Carolina in 2015. There are two giant healthcare systems that own all the hospitals and most of the physicians. This systemic change started in the early 1990’s and evolved quite rapidly. Small, independent medical practices disappeared as they were acquired by healthcare systems and amalgamated into huge, multi-specialty groups that quickly dominated the landscape. Small hospitals also were gobbled up by the big healthcare systems in an attempt to monopolize the market. If you live in Charlotte, your doctor is almost certainly employed by CHS or Novant, and there is a good chance that the doctor’s practice was purchased sometime in the 1990’s. Charlotte has been the poster child for successfully unifying its medical providers. In Mecklenburg County, CHS and Novant are the only hospital systems, period. And to make the market even more concentrated, these two systems own, employ, and control over 95% of all primary care physicians and a large percentage of the area’s specialist physicians. That was the hospital systems’ financial goal, and it is in direct retaliation for the previously narrow networks and hardball reimbursement negotiations that these hospitals had previously endured at the hands of the insurance companies. This is a very different environment than what I described to you was going on in 1985 in Atlanta, right? Now the hospital systems had control of the large number of patients and the HMOs were at a disadvantage in the negotiating process. There aren’t many cities the size of Charlotte with only two healthcare systems, because that is essentially the definition of a monopoly. (True, technically that’s NOT a monopoly because there is competition between the two, I know, but that competition – before this stalemate between UHC and CHS, anyway – was mostly only in name.) This is very good for the hospital systems that are negotiating with the insurance companies, but not so good for the healthcare consumer who is caught between the desires of the behemoths. (See my blog on Charlotte having the sixth highest insurance premiums in the country here.)
Across the country, insurance companies typically set their reimbursement fees at approximately 120% of the Medicare reimbursement. In some highly competitive places, like Atlanta, for example, it is not uncommon for an insurance plan to reimburse at 110%, or even at the same level, as Medicare. The math is simple: the more competition that exists in an area between health systems, composed of physicians and hospitals, the lower the negotiated reimbursement is from the health insurance companies, and the result is a significantly lower insurance premium for consumers. The near-monopolies in Charlotte have allowed reimbursement rates to soar well past 150% of the Medicare fee schedule. That is a major reason why our insurance premiums are so high in Charlotte.
So what has happened here in Charlotte since the ACA really took effect in 2014? Blue Cross’s lowest cost Bronze plan, their so-called Value Plan, excluded CHS from their network. This is an example of a narrow network where patients in the lowest-cost plans are not allowed to utilize CHS physicians. Why was CHS excluded from the lowest-cost plan? Of course, because CHS refused to match the lower rates that Novant offered, so CHS was excluded. Did you notice that there is a new low-cost Bronze Blue Cross plan for 2015, that was not available in 2014, called Blue Cross Local? This network is CHS only, not Novant, and it has roughly the same premiums as Novant’s Blue Cross Value Plan. Did CHS blink? Do I see cracks in the iron façade? Anyone getting nervous over there in the oak-paneled Blythe Boulevard board rooms?
So now we have the current impasse between United Healthcare and CHS. UHC, always a very aggressive negotiator at the bargaining table, has gone nuclear and dropped CHS from their network. The timing, with a deadline of March 1, is great for UHC. If you, as a patient, selected UHC during the last open enrollment period, you can’t change your plan until January 1, 2016. If you currently have a CHS physician, you can’t keep that physician as an in-network provider. If you elect to continue seeing that physician, it will cost you a lot more. UHC hopes that you will find a Novant physician whom you will like, and you will then remain happy with the coverage that UHC is providing for you. UHC’s hope is CHS’s fear, and that fear is what may ultimately bring them closer in their negotiations.
I predict that if UHC wins this negotiation and CHS caves to pressure and agrees to UHC’s reduced reimbursement rate, we will see even harder negotiation by insurance companies for 2016 and, eventually, reimbursement levels for hospitals and doctors will drop in Charlotte closer to what they are in the rest of the country. This will result in lower insurance premiums in Charlotte. We will see.
“If you like your doctor, you can keep your doctor.” It may cost you a boat load more money to fulfill that promise, so it’s a technically correct statement. In practice you won’t keep your physician, but that has nothing to do with the ACA. Narrow networks are nothing new, and they are the result of free-market competition, much more than legislation and the ACA, and they result in cost savings to consumers.
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