Hospitals Retain Bargaining Edge In Contract Talks

Contract negotiations between health plans and providers, primarily hospitals, were mild in 2002 and 2003, compared to how they played out in 2000 and 2001, according to a study by the Center for Studying Health System Change.

Every two years, HSC researchers visit 12 “nationally representative health care markets” to track any changes.What they found this time was plans that were resigned to the idea that providers have the upper hand.

“The balance of power has shifted to providers — especially hospitals — and health plans in many cases are going along with demands for higher payment rates and better contract terms,” says Paul Ginsburg, PhD, HSC’s president. “Health plans are passing along higher costs through higher premiums, and employers and consumers appear to be the ultimate losers.”

Increased consolidation among hospitals and physician groups is cited as one of the reasons providers have more clout.

Strong consumer demand for broad provider networks also plays a part — health plans find it harder to use the threat of exclusion from a network as a negotiating ploy. Further, certain providers enjoy what the study calls “must-have” status in health plan networks.

“Indeed,” says the study, “while contract negotiations remain difficult, most plans now cautiously approach potential showdowns with a better understanding of the formidable odds they face in trying to win them.” However, as the study suggests, the balance of power could swing back toward health plans.

The study cites an instance where employers — including Microsoft, Boeing, Starbucks, and Nordstrom — became involved in a dispute between Aetna and a Seattle-based hospital system, Swedish Health Services. “The dispute underscored the potential for employers to play an active role in negotiations, particularly by using the [news] media,” the study states.

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