The rising cost of care, growing Medicare Advantage pain points, and frustrations over not receiving appropriate or timely payments from commercial insurers are key factors driving health systems to take a tougher stance in contract renewal negotiations.
Many health systems reported record losses during the pandemic, and although average margins improved in recent months, they remain substantially lower than pre-pandemic levels. Hospitals continue to face rising operational costs due to inflation, workforce shortages and technology investments, making financial sustainability a top priority.
On the other side of the aisle, the country's largest commercial insurers saw record gains, posting billions in profits in 2023.
Contract negotiation disputes between payers and providers that were reported in the media jumped 69% between 2022 and 2023. This trend appears to be escalating this year: several large health systems — including Gainesville-based UF Health, Nashville, Tenn.-based HCA Healthcare and Livonia, Mich.-based Trinity Health — have engaged in high-profile contract disputes with commercial insurers.
Providers have gone out-of-network with large payers in multiple markets this year.
Ultimately it's the patient who loses, having to deal with higher out-of-pocket costs, limited access to in-network providers and further delays in care.
In some cases, hospitals and insurers agree to new contracts that are retroactively applied to the date when the original contract expired, but this is not always guaranteed. And if no deal is reached, patients may be responsible for out-of-network costs incurred during that period.
For example, in May, 11 of CommonSpirit's Colorado hospitals went out-of-network with Anthem Blue Cross Blue Shield for more than two weeks after the health system rejected various offers that "failed to offer terms that fairly reimburse" for services provided.
The strategy worked for CommonSpirt. On May 17, the health system and Anthem, part of Elevance Health, reached a five-year agreement, retroactive to May 1, when the previous contract expired. The agreement covered commercial, Medicare Advantage and individual plans. More than 40,000 CommonSpirit patients in Colorado have Anthem plans.
St. Louis-based Mercy is the latest health system to take a similar stance, telling Anthem Blue Cross Blue Shield that it will go out-of-network with the insurer in Missouri if a new agreement is not reached by Jan. 1, 2025.
"The cost of providing actual care for patients has risen significantly due to inflation, but Anthem has not kept pace with those rising costs when it comes to reimbursing us for the care we provide to our communities," said Dave Thompson, Mercy's senior vice president of population health and president of contracted revenue. "It's unreasonable for the insurer to increase its premiums to patients and employers and increase its profits while expecting those of us providing health care directly to patients daily to bear the brunt of the higher cost for providing that care."
Anthem claims Mercy wants to raise the prices they charge members and employers by five times the current inflation rate, a spokesperson for the insurer told Becker's.
Medicare Advantage has been a particular pain point for health systems, but the program now provides coverage to 51% of the nation's seniors, almost 33 million people. Excessive prior authorization denial rates and slow payments from insurers are some of the well-documented challenges providers face with MA.
Duluth, Minn.-based Essentia Health and Sioux Falls, S.D.-based Sanford Health are two of the most recent systems to announce that they will be dropping some commercial MA contracts in 2025.
Health plans argue that providers are not investing in the appropriate areas to effectively manage care in a full-risk MA environment. Providers push back against this claim, pointing to the fact that most MA carriers have faced allegations of billing fraud from the federal government and are being probed by lawmakers over their high denial rates.
"[Health systems] are getting paid to essentially do the same thing they might do in traditional Medicare. That's a real missed opportunity and why you're seeing so much ambivalence around MA," SCAN Group CEO Sachin Jain, MD, told Becker's. "MA works when health systems are operating in a full-risk environment and doing their level best to actually manage the care of patients — to invest in chronic disease management and hospital avoidance for ambulatory-sensitive conditions. These are the kinds of things that really make a difference between systems that perform well in MA and those that struggle."