The battle at the bargaining table has never been more intense.
Hospitals and health systems, still grappling with the financial aftershocks of the pandemic, are locked in increasingly difficult contract negotiations with commercial payers. Operating costs — driven by soaring labor, supply and utility expenses — have surged, yet reimbursement rates have failed to keep pace.
Hospitals, many of which absorbed double-digit cost increases during the pandemic, are seeking rate adjustments to remain financially viable. Yet, payers seeking to protect and expand their market shares — while improving their margins — are pushing back, leading to heightened friction that shows no signs of easing. As a result, providers are locked in a high-stakes struggle to close the widening gap between revenue and expenses.
CommonSpirit CFO Daniel Morissette and Ken Steele, partner at ECG Management Consultants, discuss how health systems are navigating this turbulent landscape — advocating for fairer rates in contracts, standardizing payer language, utilizing data analytics, and, when necessary, taking a tougher stance in negotiations. With hospital margins razor-thin and inflation continuing to squeeze operations in many markets, the fight for adequate reimbursement has never been more critical.
Editor’s note: This is an excerpt from an upcoming episode of the Becker’s Healthcare Podcast. Responses are lightly edited for length and clarity.
Question: It’s no secret that the volume of denials is growing at an alarming rate. How is CommonSpirit addressing this issue? What strategies have been most effective in reducing denials and accelerating payment?
Daniel Morissette: We’ve been doing our best to advocate for fair reimbursement, not just in terms of base rate increases but also addressing the growing number of claim denials. The volume of denials, downgrades, underpayments and administrative burden through additional and unnecessary reviews that we’re seeing now is significantly higher than at any other point in my career. It’s a tough environment, and while we’ve worked hard to improve quality and patient satisfaction scores — factors that help us indirectly — the fundamental issue remains: the gap between revenue growth and expense increases is unsustainable. Given that we operate in 24 different states, some markets are even more challenging due to higher inflation rates. In certain states, inflation has been so severe that it’s difficult to see a viable path forward without increases in per-patient reimbursement rates.
We’ve also worked to standardize contract language to mitigate these challenges and make it administratively efficient for payers through consistent terms and provisions. While base rates matter, the sheer volume of payer-specific denials and downgrading our services makes contract language a key factor in securing fair payments. If we can clarify terms upfront — what will be covered, what won’t, paying clean claims in a timely manner — it could significantly improve outcomes. Additionally, where possible, we’ve tried to have system-level negotiations while gaining efficiencies for payers and their operations staff. In markets where we have a strong presence, aggregating multiple facilities and physicians in contract discussions can help demonstrate our essentiality within the healthcare landscape. However, success with this strategy has been mixed. At the end of the day, it’s an uphill battle. We’re doing everything we can to make our case to payers, emphasizing the value we bring, but it’s a difficult environment with no immediate resolution in sight.
Q: How have health systems’ approach to payer negotiations changed? Are there any new contracting strategies they are exploring or implementing?
Ken Steele: We’re seeing growing frustration from providers due to the lack of meaningful rate increases. As a result, we’re seeing more aggressive rate proposals for two- or three-year contracts. Providers are also being more vocal about their value proposition — something Dan touched on. Often, payers don’t fully recognize the quality of care hospitals and physicians provide or the cost savings achieved when care shifts from hospital-based settings to outpatient facilities. Providers are pushing harder to highlight these efficiencies and encourage collaboration with payers.
Hospitals are also becoming more efficient, reducing inpatient stays and readmissions — actions that benefit payers but don’t always translate to financial gains for providers unless value-based contracts are in place. Another major shift is in data transparency. Previously, payers asserted during the negotiations that providers were above market rates, but there was little or no data to verify it. Now, with publicly available price transparency data, additional data sources and analytics tools, hospitals and physician groups can accurately compare their rates to competitors. Many organizations are now using this data to justify rate increases, demonstrating that they’re delivering greater value than what they’re being paid for.
This transparency has changed the negotiation landscape. Health plans can no longer claim providers are above market without evidence, and that shift improves providers’ chances of securing fairer rates. However, friction between payers and providers is likely to persist. Hospitals, health systems, and physician groups must operate with a margin to reinvest in technology, staffing, and other critical areas. When rate increases aren’t sufficient, some providers have no choice but to terminate contracts.
Q: Many health systems have taken aggressive stances in contract negotiations, sometimes even dropping plans — particularly with commercial Medicare Advantage plans. What lessons have you learned from recent contract disputes? What advice would you offer other organizations facing similar situations?
KS: Historically, providers would renegotiate before reaching that point, but now, more contracts are terminating without renewal. Health plans argue that employers and members can’t afford the rate increases, yet many of these payers maintain strong profit margins. As a result, we’re seeing more contract terminations. Providers are also growing frustrated with the lack of responsiveness from health plans, as there is a high turnover among payer representatives. With no continuity in problem-solving, hospitals and health systems are increasingly turning to arbitration or lawsuits rather than waiting months — or even years — for resolutions to systemic underpayment or denial issues.
Larger health systems have an advantage in these disputes due to their resources, and over time, I expect continued legal challenges to shift payer behaviors. At the end of the day, providers deliver essential services and create value, yet they still have to fight for appropriate payment. The current system isn’t working, and I expect ongoing friction, contract terminations, and public disputes to continue making headlines across the country. Unfortunately, I don’t see that changing anytime soon, which is troubling news for many hospitals.
Q: Kaufman Hall recently reported that 37% of hospitals are still losing money. With this in mind, how are these payer challenges affecting the long-term financial sustainability of health systems — especially those operating at a loss or on razor-thin margins?
DM: It’s basic economics: the less you’re paid, or the increased costs incurred to collect, for the services you provide, the harder it is to sustain operations. Some of our markets are performing well in terms of margins, which helps, but those positive margins are often used to offset growing losses in more challenging markets especially with single payer dominance. In certain other states, payers have an oligopoly, controlling the commercial market to the extent that we can’t offset significant Medicaid and Medicare Advantage losses. These payers also use their market influence to impose unfavorable terms and rates across their Medicare Advantage, marketplace and managed Medicaid business lines. These difficult markets have only become more challenging over the past year or two, largely due to the rising number of claim denials, downgrades, underpayments and the time and effort required to secure payments resulting in higher days in AR.
Additionally, the transition to a value-based care payment model has become increasingly challenging. On one hand, we must invest in infrastructure, resources, staffing technology and analytics — including actuarial staff and data scientists. On the other hand, health plans fail to equitably share the healthcare savings generated by our physicians. Instead, they shift greater actuarial risk onto us without providing timely data or setting baseline targets based on their actual performance, ultimately leading to greater financial losses.
How long can this continue? I don’t expect things to change overnight, but I do hope for some return to reason. Even as the largest nonprofit health system in the country, we face the same challenges as smaller providers — delays in reimbursement despite meeting documentation and billing requirements. The system, as it currently functions, does not work in providers’ favor. Even when we appeal denied claims at the state level, winning those appeals often takes years and substantial financial resources.
Q: What are some of the more challenging markets in which CommonSpirit operates at the moment?
DM: For example, Washington State is a particularly difficult market due to extreme labor cost inflation. Salaries and wages make up over 55% of our costs, and when wage inflation in a state is double the national average, it becomes nearly impossible to sustain operations. Another example is Arkansas, where one insurer dominates the market, making it difficult to recover costs. While they’ve been a decent partner, ensuring fair reimbursement is an entirely different challenge.
Q: What kind of toll does payer denials and the prior authorization process take on CommonSpirit’s revenue cycle teams? How are you supporting them?
DM: At its core, healthcare billing and collections are highly complex. To put it into perspective, I’d estimate that at least 100 basis points — in about 1% — of our EBITDA is tied up in these payment challenges. That’s a conservative estimate, and the real impact is likely much higher. When you’re already operating with narrow margins, these inefficiencies become a major burden. Running a health system is difficult enough without having to fight for reimbursement that should already be covered under contract agreements.
Q: How important is having robust data and analytics when engaging in payer negotiations? Can you give us a sense of what that data entails and the kind of impact it can have at the negotiation table?
KS: Robust data analytics are now essential for negotiations with payers. In the past, payers had better analytics than hospitals and health systems, but that’s changed. Providers have caught up, and in some cases, they now have better insights than payers. Typically, we analyze 12 months of payer data — across inpatient, outpatient, ER, lab, imaging, and more — then compare those payments with publicly available price transparency data. This allows us to determine what payers are reimbursing competitors.
If our data shows that a hospital or physician group is receiving lower rates than competitors despite providing comparable or better services, that becomes a key point in negotiations. We present this data to payers, demonstrating the need for fairer reimbursement to ensure continued investment in quality care, technology, and patient experience. Without this level of insight, providers are at a disadvantage. In today’s landscape, data is power.