Providers retain upper hand over health plans

Hospitals in recent years have been successful in getting higher rates, decreasing their exposure to risk and obtaining other advantageous contract provisions from health plans, according to a new study. Despite a downturn between July 2001 and July 2002, which could be attributed to an increase in responses, there has been a substantial increase in the use of per-diem and fee-for-service payments methods since 1997, when only 53 percent of HMOs used per-diem rates and 16 percent used fee-for-service arrangements. Since 1997, use of diagnosis-related groups has increased (from 55 percent to 62 percent), and use of capitation has remained the same (19 percent). According to Gary Claxton, a Kaiser Family Foundation vice president, the change is due to the market power of providers, particularly hospitals, which has increased relative to the power of health plans.

“Consumers are demanding broad networks, which reduces plan ability to exclude hospitals from networks,” says Sarah Knoll, the foundation's senior communications officer.

According to a Center for Studying Health System Change report, a number of forces converged in the late 1990s to give certain providers — particularly hospitals — significant bargaining leverage over health plans. By 2000,many providers were pushing plans for large payment rate increases and more favorable contract terms, such as payment based on a percentage of charges, to recover ground previously lost to health plans. Providers have solidified their negotiating clout.