8% of hospital-insurer contract disputes go public: study

For-profit hospitals pursue public brinkmanship

Researchers found that for-profit hospitals were about twice as likely to drag their negotiations into the public versus negotiations with nonprofit hospitals. They said this aligns with for-profit hospitals' tendency to be more aggressive in negotiations to maximize the rates they get.

They also identified more public brinkmanship beyond metropolitan areas and among national insurers. However, for-profit hospitals very rarely exited an insurer network.

While for-profit hospitals were significantly more likely to engage in public debate, researchers pinpointed a "Goldilocks zone" that indicated a greater likelihood of public brinkmanship.

Lead author of the study Jason Buxbaum, an assistant professor in the Department of Health Services, Policy and Practice at Brown, explained in a press release that brinkmanship was particularly frequent among hospitals and payer that had "substantial -- but not overwhelming -- local market power."

In the study, hospitals that held between 25-45% of inpatient capacity within a market most commonly threatened to end a contractual relationship publicly. Similarly, insurers in the middle for covered lives -- between 30-45% -- were the most common participants in the public episodes.

This Goldilocks zone means that hospitals and insurers in this tier have enough leverage to threaten a network exit, although neither side is dominant. The potential disadvantages of actually ending a contractual relationship, such as reputational harm, may not be as significant in this zone, whereas market leaders could face public backlash from network exits, they added.

A fight for fair pay?

Hospital leaders almost never frame episodes of public brinkmanship as a grab for higher profits. Rather, executives say they are trying to protect community health and fiscal responsibility.

Hospitals have faced severe financial headwinds, particularly since the COVID-19 pandemic and, more recently, due to inflation. Rising expenses, higher uncompensated care and administrative drag all continue to put pressure on hospital bottom lines, they say.

Facilities are also just showing signs of short-term stabilization, although margins remain below pre-pandemic levels, according to industry reports.

With the cost of delivering care going up, providers are seeking higher rates to cover their expenses and continue providing services to their communities. Hospitals also frequently claim they negotiate higher rates with commercial insurers to offset low reimbursement rates from federal healthcare programs, although this "cost-shifting" has been disproved by some research.

New availability of price transparency data may also be spurring more public brinkmanship, Brown researchers stated.

Threatening to go out-of-network can yield higher rates than insurers initially offer. Ensemble Health Partners reports that two of its clients earned contract rates double the standard 2-3% annual increase after pursuing an out-of-network strategy.

However, the Brown study raises concerns about patients being stuck in the middle of bickering parties.

"In commercial health insurance, prices are generally set with little public sector intervention," Buxbaum said. "Other than aggressive negotiations, health plans have few tools to control prices, and higher prices generally mean higher premiums. So ultimately, there is this real tension between affordability and drama."

Buxbaum and the study's coauthors say more research is needed to understand the frequency of brinkmanship in other markets, such as Medicare Advantage, which emphasize denials and prior authorizations.

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy, and health IT since 2016.