Becker's Hospital Review

29 Financial Management Sometimes new agreements are reached by relationships ending and the or- ganizations subsequently coming back together. In November 2014, Atlanta- based Grady Health System left the Blue Cross Blue Shield of Georgia network. At that time, Grady Health System executives claimed the health insurer paid it 70 percent less than other hospitals in the state. However, Blue Cross Blue Shield of Georgia claimed the system was seeking reimbursement higher than inflation. The parties continued to negotiate even after Grady Health System left the network, and the organizations agreed on a new contract in late March. Contract negotiations between providers and payers are a normal part of doing business, but there are many new factors influencing these talks, in- cluding price transparency and the increasing role consumers are playing in healthcare. Even with the transition to more value-based care, it is likely these disputes will continue to occur. Why an increase in these disputes is no surprise There are several factors causing more disagreements between providers and payers. For instance, the economic marketplace is extremely difficult, and cost pressure in the industry is contributing to more contentious negotia- tions between providers and payers. "It comes down to employers, the government and consumers wanting more value," says Ben Isgur, director of PwC's Health Research Institute. To provide that value, payers and providers are trying to rein costs in, and as contracts are negotiated, both sides try to justify cost increases. The greater importance of cost for all parties has resulted in more transpar- ency in the healthcare industry, and by allowing for comparison, transpar- ency is also playing a significant role in these disagreements. "Consumers want more transparency," says Mr. Isgur. PwC's consumer sur- veys show about 43 percent of consumers want an online pricing experience, and many providers are responding to that demand. When that information is available to the public, there is increased pressure on systems to put together more competitive pricing. However, increased transparency can also have a positive influence on payer-provider relationships, as it can lead to more productive ne- gotiations. "One of the things we believe might happen, is it will allow insurers and systems to enter into more value-added relationships, such as [accountable care organzations]," says Julie Coffman, partner with Bain & Company's healthcare practice. The tremendous amount of consolidation hap- pening in the industry may also be causing an uptick in the number of provider-payer disputes. "One of the benefits of consolidation is growth, and with growth comes purchasing power around pricing," says Rick Judy, principle of PwC's Health Industries Advisory practice. These pressures don't affect all organizations in the same ways One reality of increased cost pressure on all parties is the increased difficulty hos- pitals, especially standalone facilities, face in negotiations. Payers are looking for networks of care that can provide the total quality experience and take care of patients in a variety of settings, and standalone facilities are feeling the squeeze. "Forming more clinically integrated networks over time is going to be neces- sary for standalone organizations to have the right negotiating stance," says Ms. Coffman. The pressures are also taking a toll on many community-based hospitals, es- pecially those in dense urban markets. In February, Horizon Blue Shield of New Jersey announced Christ Hospital in Jersey City had terminated its contract with the insurer. In its announce- ment, the insurer said the contract was cancelled because it "could not agree to the demands for rate increases made by Christ Hospital." Christ Hospital is part of CarePoint Health, which operates three of the six hospitals in densely populated Hudson County. Ten percent of Hudson County's population was uninsured in 2014, according to data from Enroll America. That number is slightly below the national average calculated by Gallup in the fourth quarter of 2014. A large percentage of the county's popu- lation is also on Medicaid or in need of charity care. CarePoint CEO Dennis Kelly says, "Payers look at the marketplace and there aren't a lot of reasons for them to get a favorable contract, because there aren't a lot of people with private insurance to serve." He sees this as a significant problem. "The urban community providers are at risk. We've got to be able to negoti- ate contracts," Mr. Kelly says. "Unless the insurance companies recognize that the insurance rates need to be adjusted to the individual markets that systems operate in, safety-nets aren't going to be able to stay open." Will more value-based contracting end these disagreements? Rate increases are the center of heated negotiations between payers and pro- viders in a fee-for-service world, and those types of disagreements might oc- cur less often when dealing with value-based contracts. However, even if the subject matter of the disagreements changes when negotiating a value-based contract, there is still plenty for providers and payers to argue about. For instance, they have to agree on which qual- ity metrics to use to determine bonuses or penalties and work out the details of shared savings agreements. "Forming more clinically integrated networks over time is going to be necessary for standalone organizations to have the right negotiating stance." — Julie Coffman, Partner with Bain & Company

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