Fair Insurance Contracting and Reimbursement
The following testimony was presented to the PA House of Representatives' House Insurance Committee on September 6, 2007.
Good morning, Chairman DeLuca and members of the House Insurance Committee. I am Dr. Mark Piasio, president of the Pennsylvania Medical Society and a practicing orthopedic surgeon from DuBois.
Let me begin today by thanking the Committee for hosting this important hearing. Also, let me offer thanks for all that you have done in the past on this issue and others such as the passage of Act 68. I realize that your work often receives little thanks, but is deserving of such praise.
I’d also like to thank Representative Lentz for taking the initiative to introduce House Bills 685 and 933, which is why we are here today to testify.
With me is Mr. Dennis Olmstead of the Pennsylvania Medical Society. Mr. Olmstead is our Chief Economist.
Pennsylvania Health Care
The health care system in Pennsylvania generally provides high quality care to the majority of citizens who access and use its services. At the same time, the organization and financing of that system can be described as arcane. To help put this complex system into context, imagine for a moment that we are discussing a business other than health care. A description of that business as described by Dr. William Jesse, CEO of the Medical Group Management Association is as follows:
“In this business, every customer purchases a different, custom-made product. Further, the business must manage and meet the differing needs of multiple customers simultaneously. It must provide every customer with the customized product or service he or she requires. The requirements of a particular customer may vary only slightly, or sometimes greatly, from the product or service needed by other customers. The price that this business charges to its customers has little or no bearing on the amount that is actually paid by the customer – different customers may pay widely varying amounts for essentially the same product or service. The price paid by the customer also is frequently unrelated to the cost the business incurs in creating and delivering the product – for some customers, the business makes a profit on each transaction, and for others the business loses money on each transaction. Further, the vast majority of customers do not pay for the product or service themselves; rather, they rely on their employer or some other third party to make payment on their behalf. These payment agents often require the customer to pay additional amounts for the product or service. And finally this business never collects more than token amounts of cash at the time the product or service is provided. Instead it must send a bill to the customer’s agent (no two of which will accept the same invoice information), then wait a substantial period of time to receive payment.”
It is difficult to imagine that any business could function in this fashion, but that is exactly the structure of our health care system.
Through my career, I’ve had many interactions with health insurers including the Blues, and I’m very aware how difficult it can be for insurers to create a reasonably priced product, while meeting the demands and needs of health care providers and consumers. I understand the difficulty in managing multiple physician contracts. Although I don’t believe it is insurmountable. Managing physician care expenses and dealing with large controlling hospitals that have significant negotiating power while meeting customer demands is obviously a great challenge for insurers. So I understand the tough position the Blues and other insurers are in.
The reality of our health care systems at the front end is a high demand from millions of patients for coverage and care. In today’s marketing-driven world, the normal demand is intensified as advertisements encourage patients to ask for certain medications or procedures. Thus, utilization increases. The reality at the back end is a handful of insurers controlling price and payment. In the middle are doctors and hospitals, working to be paid from a limited amount of money. Since there are fewer hospitals than physicians, hospitals have greater market control and thus have the ability to negotiate better financial contracts with insurers.
This inevitably results in a one-sided contracting process for physicians.
There is no “standard form” for any of those contracts. Instead each insurer develops its own unique form contract with no input from physician contracting groups.
Contracts of Adhesion
Contracts are increasingly onerous and presented to physicians on a take-it-or-leave-it basis. Please understand that not taking their contract is a very difficult business decision. Historically, the insurers have been very good at paying their bills. And, we appreciate that. We’d like to avoid a “take-it or else” scenario, which has occurred in other markets. In fact, the state of Colorado recently approved provider contracting legislation that goes into effect in 2008. Several other state legislatures are considering similar legislation. As you might know, HB 933 is not the first bill of this type introduced in Pennsylvania. But you have not yet had the opportunity to vote on these changes.
In many respects, managed care contracts increasingly exhibit the elements associated with “contracts of adhesion”—a standardized contract that gives the weaker party only the opportunity to adhere to the contract or reject it. Many insurers make the material terms such as the services to be provided and the compensation to be paid-wholly illusionary. Others may inappropriately inject the insurer into clinical decision-making through their definitions of “medical necessity” and other terms.
Let’s consider the following taken directly from a recently approved contract.
“Network Product Participation. Provider must and, where applicable, must ensure that all Practitioners participate in all Network Products covered under this Agreement, as designated by (insurer name) and so long as Provider and Practitioners, as applicable, meet all required Participation Criteria applicable to a Network Product….”
This clause is referred to as an “all products clause.” It requires a physician to agree to participate in all products that the insurer offers. It doesn’t matter that the physician believes that the product benefits or other aspects of the other products may be inferior and are not in the best interest of his patients. A physician may feel comfortable participating in one product but may not feel comfortable participating in another product.
Here’s another example of an unfair clause.
“Network Access by Other Health Plans. Provider understands and agrees that (insurer name) allows certain (insurer) affiliates, ASO accounts, other Blue Cross Blue Shield plans and, where applicable, their respective affiliates that are licensed by the Blue Cross Blue Shield Association as well as any entity or entities covered under a Network Access Arrangement to access the network established under this agreement as a Health Plan for persons covered under Network Products as offered or administered by such entities. Provider agrees to treat any person covered under a Network Product offered or administered by an entity described above as a Member regardless of where the person resides…”
This is an example of a clause permitting the use of “silent PPOs.” A “silent PPO” refers to a situation where, unbeknownst to its contracting physicians, an insurer “sells” or “rents” its PPO network of providers to a third party, typically a third party administrator, insurance broker, or smaller PPO and that third party gets the advantage of whatever discount the insurer has negotiated with the physician. Basically, they’re selling my contract to others without my approval, and they’re profiting from it.
Now, after hearing that, ask yourself one simple question. Would you sign this contract? Most businesses would not. They’d say it is unbalanced and unfair.
And, to make matters worse, these contracts often change mid-term without any agreement from the physician performing the work.
Additionally, it is not just what the contract says, but what it doesn’t say. Generally, significant payment issues such as bundling of multiple services provided into one service or the down coding of office visit or other services is not addressed in contracts.
Again, ask yourself if you’d sign a contract like this. You probably wouldn’t.
But, physicians do sign these contracts because if they don’t, the majority of their business would not exist. With so few entities, one-sided business arrangements occur through a take-it-or-leave-it approach. Since there are no opportunities to negotiate, good ideas from physicians go unheard such as proper pay-for-value methodology, patient safety, and utilization management.. And, when these ideas go unheard, health care costs go up and opportunities are lost.
Insurance industry reaction
Whenever questioned about unfair business practices, insurers are naturally quick to respond. Yet, as these responses fill the air, the state remains unattractive to new providers (ie small businesses), and employers continue to drop insurance coverage.
Excuses range from “changes will increase the cost of health care” to “you don’t have to take our insureds.” But, as we know, when there is not a level playing field, there is no way for the individual physician practice to do anything but accept what is. And, they’re not allowed to offer cost-saving ideas. And sometimes physicians who reject insurer contracts and therefore do not “participate” with the insurer are forced to accept insurer mandated reimbursement levels if the patient wishes to see their physician.
Insurers have the luxury of being in the middle between those providing care and those receiving care. And, they have complete control of product price and reimbursement. In other words, they can be a monopolist and a monopsonist at the same time.
Why legislation is needed
Today, most physicians have no ability to negotiate their contracts with insurers to bring good ideas to the table. The power lies totally with insurers. It is a one-sided contracting proposition with a “take it or leave it” negotiating attitude.
There are two primary reasons for this imbalance. First, it is illegal for physicians to come together to address issues such as reimbursement levels paid for the services they render to insurer members and many other contractually related issues. If they do, the physician is in violation of anti-trust laws and runs the risk of a penalty imposed by federal law enforcement agencies, even if societal cost savings and quality measures would be achieved. Only large scale negotiations will fix or cure the current paradigm.
Second, in a state like Pennsylvania, where one or two insurers dominate each of the four health care delivery markets, the situation is further exacerbated. If a physician says no to the contractual provisions presented to them, they lose much of their patient base leaving them with few options, one of which is to leave the state—an option I am sure legislators would not prefer. The other is employment which may lead to higher health care costs and utilization.
That is why legislation is needed to correct this unfair balance of power. This bill would treat both parties as equals in the contractual relationship. It does not create the opposite of what we have now. That is, it doesn’t slant the contracting process in favor of the physician—it levels the playing field. We do not want this skewed in our favor as that would not be good for society.
Historically, the Medical Society has supported a free market. However, occasionally, free markets fail. And, that’s when it is appropriate for government to intervene. With health insurance becoming unaffordable and physician practices becoming unsustainable, we are in that position now. Administrative redundancy and unnecessary complexity in our health care financing programs is a major source of waste. This complexity diverts billions of dollars each year from the provision of health care services into non-value-added administrative busywork. It has an adverse effect on patients, employers, insurers, physicians, and health care administrators.
Although we support most of the provisions of HB 933 as written, there would be a need to amend certain sections such as Section 5(4) which addresses use of indemnification clauses. We would prefer the language contained in HB 503, the previous version of the contracting bill this Committee has debated. Additionally, there are elements of this bill which leave room for negotiation such as Section 8(a)(3) which would not permit a managed care plan to challenge an erroneous payment after 180 days from the payment date.
At this point I would like to make just a few comments about HB 685. The prime sponsor’s intent is laudable. He proposes a means to assure reasonable reimbursement by linking rates (110 percent) to the applicable Medicare fee schedule and by setting the rates for physicians in the four highest classes of medical liability premiums at an even higher level, 125 percent of the fee schedule. If we are correctly interpreting the proposed Medicare fee schedule language correctly, then we must express strong reservations. Each year physicians have had to advocate aggressively in Washington, DC to oppose Medicare fee cuts! At most, we would consider linking the fee schedule to a Medicare base year with an annual adjustment such as the statewide weekly wage index, which is how the workers compensation fee schedule is determined. We do not advocate for government price control.
The Pennsylvania Medical Society recommends that in order to address problems with unfair contracting and reimbursement that we do not pit medical specialties against one another. Equal pay for equal treatment should be a guideline. Furthermore, let’s not pit doctors against one another based upon geography. We opposed the specific provisions of Act 44 in 2003 that set the abatement premiums at different levels, 100 percent for those with the highest premiums and 50 percent for all other physicians. We must take the same position now on HB 685.
I’d love to be able to sit down with an insurer to work out a contract that benefits everyone – insurers, physicians, and our patients. As I stated earlier, I understand the challenges insurers face in keeping everyone happy. The opportunity to make health care more affordable is being missed by avoiding fair contract negotiations. That doesn’t happen now, and why we need to find a way to work together. An atmosphere of cooperation will benefit the future of our communities. We cannot control improper utilization, quality and safety in our current financing and delivery scheme. As such, we cannot cure the current status quo without open, fair contracting and a free and balanced marketplace.
Thank you for the opportunity to present these views here today on HB 685 and 933.
Last Updated: 8/7/2008