How the Interests of Physicians and Insurers Align

November 29, 2012

By working together, physicians and insurers share the opportunity to gain parity with rapidly consolidating hospital systems.

Physicians and insurers share more in common today than ever before. By working together, they also share the opportunity to gain parity with rapidly consolidating hospital systems.

Physicians, with the power of the pen, and insurers with the power of payment, make a potent combination. Both sides have much to gain, particularly since the consolidation led by hospitals into regional healthcare systems is unbalancing the system.

The motivation for this consolidation is almost purely reactive. The benefits of diversification, reducing cash outflow and increasing cash inflow in response to the uncertainty of the Affordable Care Act, the economy and a highly regulated environment that restricts many other options is a prudent survival strategy.

Insurers, state and federal legislators, and regulators are doing what they have to do to control their own costs. Their best option, and the one rooted in the ACA, is to control the system. The reaction by hospital systems is building strength in size. Physicians are well advised to adopt this strategy because systemic changes will consume us easily as handy, bite-size pieces.

The key benefits of decreased costs resulting from increased purchasing power, shared services, and increased revenues resulting from powerful leverage in negotiating with private insurers are practical, but pitting one against the other is counterproductive.

A recent example, which may be a harbinger of things to come, is being played out between the nonprofit BayCare Health Services, the dominant provider in Tampa Bay, Florida, and United Healthcare, the dominant insurer. Their contracts expired on November 26, 2012, and the two sides remain far apart. Although such brinksmanship is not unprecedented, the sheer scale is impressive - about 400,000 Medicare Advantage and other insured participants are losing in-network access to every key medical center in the region except one. Patients are being transferred to other hospitals and thousands of people are losing their physicians, creating a significant disruption in the continuity of care.

While it would be easy to demonize one or the other or both, that would misrepresent what is really happening. Medicare frequently operates at a loss in the hospital world, and the difference has to be made up on the private insurance side. Conversely, insurers are strongly motivated to keep their costs under control to compete in the marketplace. The problem lies within the system, not the components.

The impact to patients insured by affected United plans is profound because many BayCare physicians, both independent and employed, are unlikely to have admitting privileges at unaffected hospitals.

While one would think that administrators at competing hospitals would be gleefully dispensing provisional admitting privileges to fill their beds, which too is unlikely for a multitude of reasons from risk to economics.

In the end, more and more doctors and their patients become collateral damage in a state of affairs symptomatic of a reform strategy that is entrenched in penalties and taxes and further reduces reimbursements instead of stimulating and investing in solutions.

The moral of the story is that failing to address the underlying problems of eliminating the $750 billion in annual waste indentified by the Institute of Medicine threatens everyone.

A large part of the answer lies with physicians and innovators who can be enabled by insurers working with and investing in them to develop and purchase innovative tools and procedures that will tackle the underlying waste and inefficiencies. Further, physicians need to consolidate and adopt new ways. This is not going away.

Physicians are the only natural partners for insurers because they interface with patients directly and intimately over time, are the agents for care coordination, and are the legal entities that can prescribe care.

Opportunities abound, and it is increasingly imperative that all three - physicians, hospitals, and insurers - work together to embrace them. The inability to do so in the past is the founder of the ACA. The solution is not adaptation, but proactive innovation and cooperation - including revising the ACA into something that encourages a working system.