Health insurance companies hemorrhaging billions from employer groups, Medicare

August 7, 2020

Physicians: Negotiate your rates. Hold the payers accountable.

Physicians are at the forefront of healthcare; yet they are often the victims of insurance payer’s efforts to reduce costs. Why don’t payers focus on reducing reimbursements to hospitals that often have rates 3-to-5 times that of Medicare? Why don’t payers support private practice rather than reduce physician reimbursement rates? The unintended consequence is that we are entering an era where physicians are tired, overworked, and leaving private practice to join hospitals and large health systems.

Nathaniel Arana from NGA Healthcare, a reimbursement and contract negotiation strategy firm, explains that the payer’s strategy is more focused on control and in actuality doesn't focus on saving money. “Because of the medical loss ratio—payers need to spend around eighty percent of their revenue on claims—payers are not incentivized to save money. The more they spend, the more they can contribute to profit and other endeavors.”

What’s more, these payers are entering into ventures that allow them to spend, rather lavishly, on businesses they own.

“They purchase pharmacy benefit managers, surgery centers, hospitals and physician groups,” Arana says, “which allows them to funnel money to where it is essentially returned to them.”

Arana, who has been negotiating payer contracts for over ten years, believes that promoting private practice and competition in the free market is the answer to the healthcare crisis. This includes trust-busting insurance payers and promoting pricing transparency.

“If people understood just how grossly overpaid hospitals are, they would be alarmed,” Arana says. “If we understood that we could obtain the same service in an outpatient surgery center or physician office at a tenth of the cost, people would certainly consider the alternatives.”

Instead, the lack of transparency in healthcare has allowed payers to funnel money where they see fit, including their own ventures. They are aggressively marketing to Medicare beneficiaries to recruit them to their Medicare Advantage networks. Under these networks, payers can contract physicians at rates significantly below Medicare, and keep the cost savings. They use funds from employer groups to enrich their ventures and hospital partners instead.

Negotiate your rates. Hold the payers accountable. Understand how your contracts are limiting your ability to grow and expand.

Our current model puts physicians under thin margins, especially when so many rates remain stagnant. “Sometimes we need to ask payers for larger increases simply because rates haven’t changed in 15 years. In no other industry does that happen.” Explains Arana. “What we are doing is protecting private practice by increasing margins for physician groups and keeping private practice lucrative. The alternative is, you’re going to see a lot more physicians leaving private practice to join hospitals where rates are 300% greater than a physician’s office. That’s a big problem if we are trying to reduce healthcare costs.” Explains Arana

In few other industries does a third party dictate pricing. Physician reimbursement rates have remained the same for decades, yet premiums increase by large double-digit percentage points.

Arana recommends that physicians understand that they have more leverage against payers, even if they are a smaller group. “You have to address your payer contracts” explains Arana. “If it’s been five years since your rates increased, you’ve already lost around 20% of their value due to inflation and increased costs of doing business. You need to make up for those losses and negotiate for a larger upfront rate, and then plan for yearly cost of living increases.”

The payers don’t like to make reimbursement rate negotiation easy. In fact, some payers are stating that they are adopting “marketplace rates” that all physicians will be paid. “That’s just not true.” Says Arana “They may say that everyone has the same rates, but there are still larger groups with enhanced agreements and hospitals getting exorbitant rates.”

Who loses? Employer groups footing the bill, Medicare beneficiaries who have unknowingly joined a limited network and patients and their trusted physicians. “What makes sense is to publish rates across the board,” says Arana. “That way, it levels the negotiation field. It starts revealing who is getting too much. It points out who might be the bad players. It democratizes a payment system that payers have long-held secret and close to their chest.”

“Ultimately, we will see a shift in the payment systems in America,” Arana says, “But that can’t happen without a fundamental change in how insurance payers are allowed to operate. It can’t change until we are able to change the healthcare delivery model. The hospital is a place for the acutely ill, yet 60% of hospital admissions and emergency room presentations can be taken care of in the outpatient setting. How are we expected to promote non-hospital outpatient treatments if payers keep allowing for consolidation?”

What can you do as a physician group? Negotiate your rates. Hold the payers accountable. Understand how your contracts are limiting your ability to grow and expand. We have to bring the power back to physicians and get good physicians out of the large health systems and back into private practice.