For several years, we at CHIR have tracked health insurance industry trends by monitoring trade and mass media, Wall Street analyses, earnings, and other reports. In 2019, we observed an increase in reporting on contract disputes between health insurers and providers. Negotiations regarding what providers will be in a plan’s network and at what rates they will be reimbursed are a regular part of business. However, these discussions are becoming more contentious as insurers face mounting pressure to rein in health care costs while ensuring consumers’ access to providers. In several instances, these negotiations have broken down and contracts have expired before an agreement could be reached. These lapses expose consumers to uncertainty regarding what providers might be covered under their plan and at what cost. As insurers push to hold rates in place and providers advocate for higher reimbursement, these disputes are likely to continue and potentially become more contentious.

Recent Activity

In 2019, several high profile contract disputes emerged across the country and among different insurers and provider and hospital groups. For instance, in early 2019, Anthem and WellStar Health System in Georgia announced that they would let their contract expire for consumers with marketplace policies, placing the health system out-of-network. Anthem extended benefits for members who had already selected or were assigned to a primary care provider at WellStar for a 90-day period. However, it warned consumers that it could not guarantee that the hospital system would respect the previous reimbursement rates and cautioned that members seeking care might be billed by the hospital for the difference. This change prompted two residents in Cobb County, Georgia to file a lawsuit against Anthem alleging that the insurer had misrepresented its network during the open enrollment period.

In March, CHRISTUS Health System in Texas and Louisiana threatened to terminate its contract with Cigna unless the insurer increased its reimbursement rates. Cigna responded saying that the health system’s rates increase automatically every year and that it was doing its best “to hold the line on medical costs.” In South Carolina, Blue Cross Blue Shield (BCBS) and American Family Care’s urgent care centers reached an agreement only after months of negotiations regarding how many of American Family Care’s new centers would be included in BCBS’s network. In some instances, these disputes have involved hospitals remaining in-network, but the health system’s physicians being placed out-of-network. For example, a dispute between Blue Cross Blue Shield of Texas and an ER contractor allowed hospital systems like Texas Health Harris Methodist Hospital and Texas Health Presbyterian Hospital Dallas to remain in-network, but moved any physicians who worked for the ER contractor out-of-network. This meant that consumers could receive multiple bills for the same instance of care – one from a hospital and one from the ER contractor.

From Anthem Blue Cross Blue Shield’s standoff with Memorial Hospital and Health Care Center in Indiana to Southcoast Health System’s letter to the editor accusing Blue Cross Blue Shield of Massachusetts of putting revenues before patients, these disputes often escape the board room and spill out into local media, raising consumers’ anxiety and, by extension, concern among policymakers.

Why Do These Disputes Occur?

Contract disputes most often arise due to pricing disagreements. Insurers are under pressure to maintain or increase costs as little as possible, while providers want to receive greater reimbursement for services rendered. As health care costs continue to rise, contract negotiations offer one lever for insurers to keep these increases in check. But these discussions have become more challenging due to industry consolidation on both sides.

On the provider side, research shows that 90 percent of metropolitan areas had highly concentrated hospital systems by 2016, and over 60 percent of community hospitals now belong to a health system. Provider consolidation increased steadily through 2019 with over 110 transactions related to physician practices and the service sector closing by mid-year. This consolidation gives providers greater market clout to demand price increases. In areas where the provider systems have consolidated so that only one or two systems remain, insurers are placed at a real disadvantage. Insurers must cover these systems in their network or risk falling short of their state’s network adequacy requirements. On the insurer side, companies have responded by merging themselves and/or acquiring provider assets. According to one source, 43 percent of the market is now controlled by just five for-profit insurers, and news of ongoing deals dominated headlines in 2019, including Centene and WellCare’s merger and Tufts Health Plan and Harvard Pilgrim’s proposed merger. UnitedHealthcare is now one of the largest owners of physician group practices in the country. As each side attempts to gain a competitive edge over the other, the market has become more consolidated and the issue of increasing costs has gone unaddressed.

What are the Risks?

Disputes are not only occurring frequently, they also hold higher stakes, as providers have become more and more consolidated and hold near monopolies in certain areas. Too often, consumers’ needs are discounted amidst battles over prices for services and other contract terms. When a dispute occurs, even if it is ultimately resolved, it puts the consumer in a difficult position of not knowing whether they can schedule or seek care at a facility due to uncertainty that the facility may no longer be covered in-network. Though provider networks are constantly changing, these disputes can make it harder for consumers to select the health plan that is right for them because there is no guarantee that an agreement will be reached. When a contract lapses, consumers may then face increased costs, unexpected bills, and potential delays in care if they need to find a new physician or redo prior authorization processes. Even if a contract is later reestablished, there is a good chance that consumers’ costs will be higher, since agreement is often achieved only at the expense of a new pricing arrangement.

Take-Away: Payers and providers were regularly at odds in 2019, with providers demanding ever-higher prices for the care they deliver and insurers under increasing pressure from customers to keep those prices in check. Too often, patients are caught in the crosshairs, facing both health and financial risks when the parties can’t reach an agreement. Since these disputes are likely to continue in 2020, insurers and providers need to establish best practices for reducing the risks to enrollees when negotiations fail or drag out for an extended period.