Prime-UnitedHealthcare spat shows price transparency data will color contract talks

In demanding more money from insurance giant UnitedHealthcare, Prime Healthcare’s New Jersey hospitals came armed with a new negotiating tool: price transparency data.

A federal rule has since Jan. 1 required hospitals to publicly disclose the prices they charge for medical care, including negotiated rates with insurers. Even though compliance has been dismal, Prime said it was still able to see that it was getting paid far less than many of its local peers. That’s led to a tussle that threatens in-network coverage for thousands of patients.

“All we’re asking for are fair rates compared to our competitors,” said Dr. Sonia Mehta, Prime’s regional CEO for the market that includes New Jersey. For-profit Prime is headquartered in Ontario, California.

Hospitals have fought hard to scrap the price transparency rule, arguing in part that patients won’t use it and, further, that they’ll find the numbers confusing. But the Prime-UnitedHealthcare example offers another outcome: that the data will be front and center in future contract negotiations and might even trigger more disputes, which are already commonplace. Whether it serves to move talks forward or stir discord remains to be seen.

Insurers might also comb through the data and realize they’re getting a raw deal. In that case, hospitals won’t be happy, said Adam Block, assistant professor of health policy and management at New York Medical College.

“This won’t be a dispute about 5 percentage points on a price, this would be a dispute about 100 percentage points or 200 percentage points on a price,” Block said. “Issues like that can lead to very tangible contract disputes that have the potential to delay or end a relationship between a payer and a provider.”

Health systems have always had some level of pricing data, although it was never this accurate, said Mike Schatzlein, a former Ascension executive and principal of the consultancy Schatzlein Group. He thinks the data will make negotiations more focused, but it won’t lead to a bunch of contract terminations.

Contract disputes are a game of chicken that are almost always resolved just in time, Schatzlein said.

“I can’t see it leading to a jump in terminations just because of the unpleasantness associated with them,” he said.

Even in Prime’s case, the parties are in a “cooling off” period wherein UnitedHealthcare members can still get in-network care while negotiations continue. At issue is four New Jersey hospitals that Mehta said are “severely underpaid” on the commercial side.

For its part, UnitedHealthcare said Prime asked for a 14% annual rate increase for its employer-sponsored and individual plans, which it called “unsustainable.”

But Mehta claims even 14% wouldn’t bring the hospitals close to market rates because they’ve been underpaid for years.

Whatever effect the price transparency data has will be muted while compliance is low. Fewer than 6% of hospitals are fully compliant, a fact that prompted the Biden administration to increase penalties to as much as $2 million per year for large hospitals.

Once more price transparency data are available, the pressure will be on hospitals to prove that their quality and outcomes warrant the prices they’re getting, said Rick Kes, RSM’s healthcare industry senior analyst.

If they’re demanding more money than the hospital down the street, they’ll have to produce data showing their average length of stay for a certain procedure is two days shorter, or that their patients are less likely to require home care after a knee replacement, he said.

“It’s going to create a larger demand to support the value proposition the hospital has when they go to ask for a specific rate increase on a procedure,” Kes said.

At the end of the day, Kes said that emphasis on value will be good for everyone.

Michael Abrams, co-founder and managing partner at healthcare consultancy Numerof & Associates, agreed that forcing providers to make the case for why they should be paid more is a good thing. It might even prompt more buy-in on alternative payment models in which they take more accountability for keeping costs in check, he said.

“The transparency rule offers a countervailing force to the market power that pushes back on the ‘Whatever the market will bear’ idea of what a provider should be paid,” Abrams said. “Over time, I think it will have an impact.”

It’s impossible to predict what the controversial rule’s ultimate impact will be. After the think tank RAND Corp. released a wealth of hospital-level price data as part of a 2020 study, hospitals at the low end of the reimbursement scale asked insurers for more money, said Sabrina Corlette, a research professor in Georgetown University’s Center on Health Insurance Reforms.

The ultimate goal behind the rule is to empower employers and policymakers to put pressure on high-priced providers, particularly when there’s no discernible difference in quality. That’s what happened in Colorado, where the revelation that hospitals were getting much higher commercial rates relative to Medicare ultimately convinced lawmakers to approve a public option, Corlette said.

“I think the price transparency had its intended effect on policymakers in Colorado,” she said, “but there is a risk that these lower priced health systems will ask for higher rates.”

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