The casualties of healthcare competition

The Record and Pittsburgh Tribune-Review report on the dark side of the medical marketplace

One of the great undercovered stories in American healthcare right now—in American business, for that matter—is the slugfest between hospital systems and insurers, as they fight for leverage and pricing power in the reformed healthcare marketplace. In this bloody battle, hospitals often have the upper hand, “narrow networks” are the insurers’ common counterattack, and patients are often caught in the crossfire. And while it can be a challenging story to cover, some recent local reporting from northern New Jersey and Pittsburgh offers a good road map.

Lindy Washburn, the healthcare writer for The Record of Bergen County, NJ, has made something of a specialty of covering hospital billing practices, and she recently delivered a compelling report on the raging price war between the for-profit Meadowlands Hospital and the giant insurer UnitedHealthcare. (The article was supported by The Commonwealth Fund, which also supports The Second Opinion.) Washburn’s story opened with the tale of computer programmer Ashok Vaidya, who received a collection notice for $86,846 for two cortisone shots he got at Meadowlands Hospital in 2011. Yes, you read that right. The bill reflected Meadowlands’ out-of-network prices, which are among the highest in the country, and are more than 30 times higher than the discounted rate the hospital had negotiated with United, Vaidya’s insurer.

The catch: The hospital was purchased in December 2010 by an investment group, which argues that it never agreed to accept the contracts entered into by the previous owner, and so all care between that point and November 2011—when it reached a new deal with United—is “out-of-network” for the carrier’s customers. Meadowlands says United owes the hospital more than $200 million, United refuses to pay list price, and now the hospital is billing patients directly. (Who knows if the hospital actually expects to collect from patients, or is just trying to turn up the heat on United. Either way, Vaidya tells Washburn, “I thought this was all taken care of… it’s not right for the hospital to go after the patients.”) There’s a hearing today at which the insurer will ask a state court to order Meadowlands to stop sending the patient bills, Washburn reported.

As she sums it up: Vaidya’s dilemma is the “latest illustration of the strategies New Jersey’s for-profit hospital operators use to maximize their income. His case shows how some hospitals try to increase revenues by claiming services were provided to out-of-network patients and then charging the list price for those services.”

Meadowlands went from being in the red to an operating profit of $11 million in 2011; in less than three years under for-profit ownership, investors got a return of more than $14 million. There are similar tales at other hospitals in the state, which means this story points to another one: What is it about New Jersey laws and regulations, or its medical market, that makes the state especially susceptible to price-gouging? State regulators are concerned about what’s happening, and tried to prevent Meadowlands from doing exactly what it’s doing, so why do the hospital’s owners think they can get away with being so aggressive?

The situation in Pittsburgh isn’t as outrageous, but it’s still threatening out-of-network headaches for scores of patients, many of whom may not even know what could happen to them. At issue is a dispute between Highmark, which has 60 percent of the insurance market in the area, and University of Pittsburgh Medical Center, a nonprofit behemoth with about 20 hospitals and 3,500 doctors. The current reimbursement contract between the two sides expires at the end of the year, and UPMC has refused to negotiate a new deal in retaliation for Highmark’s 2013 purchase of the West Penn Allegheny health system, which included five hospitals and about 1000 doctors. “UPMC’s argument is that Highmark now has an incentive to steer patients to Allegheny,” Alex Nixon, a business writer who has been following the story for the Pittsburgh Tribune-Review, told me. The upshot: UPMC will be out-of-network for Highmark customers, which means out-of-pocket costs for care there will skyrocket.

Late last week, Nixon reported that it won’t only be Highmark customers affected come January—but also some 275,000 others who have insurance from other Blue Cross plans, because they work for companies that are headquartered elsewhere, and use Highmark’s network. That’s hundreds of thousands of people who probably didn’t realize what’s happening to their access to the hospital, even if they’re following the news. (UPMC says it would be happy to negotiate a deal with Blue Cross plans that don’t own competing hospitals, but Blue Cross’s own rules prohibit plans from contracting directly with hospitals outside their home region.) Highmark has been pushing for a state law to force UPMC to renew its contract, but Nixon also reported last week that leaders in the state Senate had essentially told Highmark to take a hike.What did we say about hospitals often having the upper hand? Again, there’s a deeper story to explore here about the source of the hospital’s political power.

In both of these cases, the insurer wants to have the hospital within its contracted network. But the situations in New Jersey and Pittsburgh are vital context for the rise of “narrow networks,” for reasons Commonwealth Fund president David Blumenthal explained in a blog post the other day. Under Obamacare, one of the few legitimate ways left for insurers to compete is on price. But to drive a hard bargain on prices with providers in an age of hospital consolidation, insurers need to be bigger than (or at least not much smaller than) providers—and private insurers can’t band together to get more clout. This logic drives insurers toward narrow networks to improve their leverage. For patients, that means less access to specialists. It also means the possibility of steady disruption in the doctors and hospitals you can use when negotiations don’t go smoothly, and of getting a ridiculously high bill when you get caught in the middle or don’t read the fine print.

“The controversy around narrow networks throws into bold relief a much broader debate about the roles of competitive and noncompetitive solutions to our nation’s healthcare problems,” Blumenthal wrote. Most other countries, he wrote, control healthcare costs and prices the way Medicare does—with the government acting as insurer and negotiating provider reimbursements. Patients generally can go to any doctor or hospital they like. But in the U.S, those “centralized regulatory solutions are anathema,” except for Medicare.

As hospital systems continue to consolidate, and to seek revenue even more aggressively, and insurance networks become narrower, more patient casualties will be scattered on the battlefields. This is a multi-dimensional story that requires probing coverage. Washburn and Nixon show it can be done.

Related coverage:

America’s healthcare prices are absurd, So, now what?

Wonkblog on the ACA cost-control feature that might make you change your doctor

Exchange Watch: Missing doctors, missing coverage

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman. Tags: , ,