Sunday, October 23, 2011

Yes, they blinked

I ran into an insurance company executive the other day who questioned whether I really thought that Blue Cross Blue Shield of MA could have done better in its recently signed contract with Partners Healthcare System here in Massachusetts.  Recall that the state's largest insurer gave away a huge rate increase to the state's dominant health care system  --  a 2-3% increase on a base that is, what, 15 to 20% higher than the rest of the market.   I said, "Whether it is fear of government regulation or a desire to go along to get along, a tremendous opportunity to truly control costs has been squandered."

This person said, "Remember, this was a private negotiation between two parties."  I allowed how I wasn't in the room, and it is easy to criticize, but, as I thought about it later, this statement alone might be indicative of why the insurance company blinked in this case.

A negotiation of this sort is never a private negotiation between two parties.  When two economic behemoths talk, there are a huge number of interested parties in the community.  And, those constituencies had already made their views known, views that could have been leveraged in this discussion.  Here are examples:

The Attorney General had pounded away two years running that a major issue facing the health care system, one that was driving up costs for the entire state, was the large disparity in rates paid to this provider group compared to others in the state.

The Governor had filed a bill to expand the authority of the Insurance Commissioner to review the rates paid by insurers to providers.  (By the way, many current and former state officials feel that the Commissioner already has that power.)

The Inspector General had expressed concerns that PHS would try to rush through a new contract before legislation passed that could limit payment increases.

Members of the legislature were publicly expressing concern about the rate disparity issue.

The insurance company had had noticeable success in marketing a tiered product, requiring higher co-pays from patients visiting the high-priced providers.

Lower cost competing hospital groups were creating ever more integrated alternative clinical networks.

Business groups in the state were clamoring for real cost controls in premium increases.  Given the unemployment situation, with people less likely to leave jobs for new ones, they felt that tiered insurance products could gain greater acceptance than in the past.

This provider group had not paid a promised $40 million to reduce insurance rates and was being derided for that delay.  It had every reason, given the pending legislation, to try to strike a deal before the law changed.  The insurance company, in contrast, had no reason to hurry.  Further, it had the moral upper hand, having forced other, more poorly paid, providers in the state to take dramatically lower rate increases.

In a public hearing about two years ago, this insurance company had said that it did not have the heft to fight the market power of PHS.  It seemed to fail to understand that the world had shifted.  If there was ever a time to go head-to-head, publicly if necessary, this was it.  An opportunity was lost.


Anonymous said...

The thing that I can't figure out in this deal is indeed the private nature of it. There are numerous examples of very public games of brinkmanship between large hospital systems and insurance companies when a contract is up for renewal, with each side attempting to gain the public's sympathy for their position.
In contrast to this case, where everything was done in a back room and - most oddly- the result appears to be directly contrary to the best interest of the insurance company. During a time in which, as you point out, there would never be a better opportunity to drive a harder bargain.
The entire story just does not make any sense. That alone raises suspicion of some inside tit for tat deal.

Anonymous said...

Do cousins play tit-for-tat? The assumption that the game is one of reciprocity is far too simple. That one could be played in public. Given the dominant resource-holding powers and increasingly mutually beneficial interdependence of the organizations, this game might be better modeled with kin selection in mind. You know, a family.

Keith said...

What I have trouble figuring out is what makes this very costly organization a non profit entity. If it is driving up the price of medical care, and thus pricing many individuals out of the insurance market, does this fulfill its philanthropic role?

Maybe it needs to change its mission staement to one of providing the best health care for patients with the right insurance! For all the rest of you, here are directions to Boston City Hospital!

And of course the other non profit in the equation is Blue Cross. Exactly what do they do to earn their tax breaks!? Certainly it is not striving to provide affordable health care!

I suggest draining the swamp of these perverted tax incentives so those taking care of the burgeoning uninsured or underinsured will have the necessary resources. Those funds seem to be going currently to overly generous compensation for administration and a massive building boom of splashy new hospitals and ever fancier new machines that hoestly are not buying us significant gains in helath and well being. Hospitals are becoming the new snake oil salesmen offering fancy new gadgets at exorbitant prices that do little to improve health. Why else do we pay so much but have decreased longevity comapared to other developed countries?

Anonymous said...

A couple of notes.

First, the Attorney General will almost certainly be reading over this contract for next year's hearings, as they have the previous one, as part of their statutory review authority.

Second, BCBS has emphasized key principles of the AQC, including the need for 5-year deals, which both lock in rates for the plan and ensure buy-in by the provider to AQC as a long-term solution. The Partners deal is the only AQC deal that is cut to 3 years.