American College of Physicians: Internal Medicine — Doctors for Adults ®

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In negotiations with health plans, some doctors taking a tough stance

From the July 2001 ACP-ASIM Observer, copyright 2001 by the American College of Physicians-American Society of Internal Medicine.

By William Hoffman

Fed up with what they say are the unreasonable demands of health plans and insurers, hospitals and physician groups have begun to adopt a relatively new negotiating strategy: They are walking away from contracts they say are unprofitable or too burdensome.

To date, large hospital systems have attracted the most attention as they engage in brinksmanship with health plans and insurers, threatening to leave thousands of patients without access to their services unless reimbursements are raised. In a handful of cases, the hospitals have decided that signing a bad contract is worse than no contract at all and have simply walked away from negotiations.

Physician groups appear to be discovering similar tactics. Some are demanding that health plans and insurers take simple steps like centralizing their physician credentialing or eliminating referral authorizations for services provided by another physician in the same practice. Other groups are taking a tougher stance and refusing to work with some of the most powerful payers in their markets.

Physicians who have engaged in these high-stakes negotiations say the results have been mixed. In the most successful scenarios, the tactic has brought health plans and insurers back to the negotiating table and given physicians the terms they demanded. In other cases, practices that called an insurer's bluff have had to learn to live with fewer patients and reduced revenues.

Willing to say goodbye

Walking away from a contract with a large payer may seem like a risky proposition, but analysts say that physicians have become emboldened by changes in the market.

Uwe Reinhardt, PhD, professor of economics and public affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, explained that after a decade of health care economics that were driven by employers and payers, doctors and hospitals appear to be regaining the upper hand.

While employers used to depend on health plans to hold the line on the costs of care, he said, the booming economy changed that relationship. As a result, health plans now find themselves somewhat captive to employers’ large patient populations. Managed care administrators realize that to keep customers happy, Dr. Reinhardt explained, they need to keep valued hospitals and physician groups in their networks.

Research released earlier this year by the Washington-based Center for Studying Health System Change echoes that notion. Researchers looking at health care economics in 12 communities concluded that the consolidation of hospital systems in many U.S. markets has clearly given hospitals and physicians more negotiating leverage with health plans. (The results are available on the Web at www.hschange.com.)

While hospitals tend to battle health plans over reimbursement rates, physician groups often use their newfound clout to deal with more subtle contracting issues. In 1998, when Andrew Mintz became executive director at Summit Medical Group PA, a 100-physician multispecialty practice in Summit, N.J., the group had 32 managed care contracts. After meeting with Summit physicians, managers and health plans, he introduced contract performance standards that quickly reduced that number to eight.

The group's standards require payers to allow the practice to perform ancillary services in-house; allow new physicians to be credentialed solely by Summit, rather than by both the group and insurers; eliminate referral authorizations from in-house primary care physicians to in-house specialists; require claims payment in full within 60 days; and other reforms.

Mr. Mintz said that the group's physicians were enthusiastic about his house-cleaning strategies. “We just stopped the negotiation game," Mr. Mintz recalled. "It wasn’t worth our time.”

When Blue Cross Blue Shield of New Jersey, which accounted for 15% of Summit’s revenues, refused to meet the new standards, the group dropped its contract with the insurer. Mr. Mintz said that the move angered some patients and employers, who peppered both Blue Cross and Summit with bewildered and angry calls. Despite the resistance, however, the practice stuck to its guns. “We were absolutely willing to walk away from every one of our contracts,” he said.

While the practice did lose about a third of its Blue Cross patients, the rest either changed insurance plans or agreed to pay for the group's services out-of-pocket. And Mr. Mintz said that this year, he expects to see a one-time revenue increase of 10% to 20% as a result of reforming Summit’s managed care relationships. He said he expects the group to see another 8% to 15% boost from performing many ancillary services in-house.

While Summit’s revenues were in decline before 1998, Mr. Mintz said he expects practice revenues to grow at a stable 2% to 3% per year beginning next year.

Playing hardball

Not all practices, however, have found hardball negotiating to be an ongoing process. When Piedmont HealthCare PA in Statesville, N.C., couldn’t agree on discount fee-for-service terms with Blue Cross Blue Shield of North Carolina last year, for example, the group dropped its contract with the insurer. CEO Lloyd E. Matson, however, said that the move wasn’t good for either his physicians, who lost enough income to make them reconsider, or the insurer, which took heat from local media and employers whose workers lost access to care.

So shortly after the first of this year, Piedmont resumed negotiations with Blue Cross Blue Shield. While Mr. Matson declined to reveal specifics of the group's new deal with the insurer, he said it had negotiated “minimally" better terms on reimbursements.

The group's negotiating strategy with the state's Blues may not have been a huge success, but it delivered a collateral benefit. Another insurer the group was negotiating with suddenly became more flexible on issues from reimbursement to policy.

“That may just be happenstance," Mr. Matson explained, "but I believe it’s because we took a strong stand with another carrier.” Piedmont has contracts with about 30 insurers, he noted. “We think this is a valuable message sent to everybody, all our carriers. It’s not a threat. We just want to be taken seriously.”

In New York, Mid-Manhattan Medical Associates P.C., a nine-physician multispecialty group, took an even stronger stand when its physicians felt like health plans were walking all over them.

The trouble began in 1996, when Oxford Health Plans Inc. told the practice that it would boost the practice's referral business if it built a breast cancer unit that could perform mammograms, fine-needle aspirations and other procedures. Six months after the group opened the unit, however, Oxford closed all its specialty medical programs, leaving Mid-Manhattan stuck with a bill for office space and equipment.

It wasn't the last time that the practice felt burned by a health plan. In 1999, Aetna U.S. Healthcare withdrew support for its local diabetes programs, including one Mid-Manhattan had established at the insurer's behest.

After those experiences, most of Mid-Manhattan’s physicians decided to drop their managed care contracts, explained Jonas Goldstone, MD, the group's vice president. While the practice's revenue dropped in the aftermath of the decision, Dr. Goldstone said he has no regrets.

He explained that the move has helped the practice function "the way it did in the old days.” That means longer patient visits, no managed care intrusions on medical decision-making and reduced paperwork. “My office manager has resumed a normal life,” Dr. Goldstone said.

There have been downsides. The group now has nine shareholders instead of the original 26. Most of original group drifted away to other practices.

Revenue for the group has also dropped. Those who remained settled for reduced income, though Dr. Goldstein said the drop isn't as bad as it appears on paper. The practice jettisoned burdensome managed care oversight and bureaucracy, he explained, and some patients agreed to start paying for their care out-of-pocket.

Choosing the battles

Though physicians who refuse to work with managed care have received a lot of press, they remain a minority in the medical profession. That's because for most physicians, banning health plans from their practices is simply not an option. There are only so many patients, after all, who can or will pay for their care out-of-pocket.

“Managed care covers about 94% of people who are insured,” noted Paul Ginsburg, PhD, president of the Center for Studying Health System Change. “Managed care may become more malleable to physicians, but the notion that going outside of managed care could ever be more than a tiny fraction of the market, I don’t see it.”

So rather than engage in negotiations that may result in a parting of ways with insurers, some physician groups are targeting fairly narrow areas. Some, for instance, are turning to contract negotiations to crack down on the age-old problem of late payments by health plans and insurers.

Scott D. Hayworth, MD, president and CEO of Mount Kisco Medical Group PC in Mount Kisco, N.Y., said that his practice decided it “won’t sign up for a managed care contract no matter what the rates are" if certain provisions aren't met. For instance, contracts must specify that the insurer will pay promptly to ensure the practice’s financial health, allow the group to decide what best constitutes efficient care and use appropriate in-house services with minimal interference.

Health plans tend to push reimbursement levels for myriad procedures in complex contracts toward the lowest common denominator, Dr. Hayworth said. “The minute you go under that level on one," he said, "the others will soon follow.” A few years ago, a health plan agreed to give Mount Kisco a relatively generous fee schedule but routinely denied a substantial portion of the group's claims. The practice dropped the health plan and now quickly drops slow payers.

While Mount Kisco demands contracts that pay costs and provide a reasonable profit, Dr. Hayworth noted that the group's ambulatory surgery center and partnerships with other local practices save insurers money. The group doesn’t let insurers forget that during negotiations, he added.

Cost of doing business

Insurers and health plans said the message from physician groups adn hospitals has come through loud and clear. But, they added, there’s only so much managed care organizations can do.

“We definitely have seen more physicians scrutinizing contracts, examining parts of contracts that they wouldn’t have noted before,” said Chris Bruzzo, spokesman for Regence BlueShield in Seattle. He noted that the insurer employs a physician ombudsman to help settle disputes about claims denial, reimbursement and other issues.

But the relationship between physicians and payers is just one part of the struggle over reimbursement, cost containment and profits. Physicians and hospitals have complained that while health plans and insurers have been enjoying double-digit premium increases, those same payers have refused to raise reimbursements for the people providing care.

Sam Ho, MD, vice president and corporate medical director at PacifiCare Health Systems, in Santa Ana, Calif., said that employers have only recently reconciled themselves to higher premiums, as medical inflation—due to costly new pharmaceuticals and high-tech services—highlights the need for bigger premium increases. He noted that PacifiCare is now negotiating 11% to 15% premium increases.

Dr. Reinhardt from Princeton predicted that as premiums rise, providers will win pay and other concessions that should relieve some of the last few years’ financial pressures. For physicians working with managed care, however, the pendulum can’t swing fast enough.

“Physicians are fed up," said William H. Mahood, FACP, a trustee of the AMA. "If they cannot find a way to deal with these managed care companies so they can practice medicine in the way they see fit and their patients want, then doctors will either switch careers or retire.”

Dr. Goldstone from Mid-Manhattan Medical Associates added: “Intelligent people are going to say, ‘Who needs this? I don’t want to become a glorified civil servant or an employee of an insurance company.’ Talented people will not go into the practice of medicine, or they’ll join for other reasons than it’s a great profession. And that’s a pity.”

William Hoffman is a freelance writer in Fairfax, Va.

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