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Navigating Hospital Price Increases: Effective Strategies for Employers

The provider network is selected carefully, with strong consideration given to the in-network facilities and the doctors. However, rising labor costs, adverse investment outcomes, and general inflation are causing hospitals to pursue substantial price increases during network contracting. This is causing significant disruption for employers as more providers and carriers fail to contract leading major institutions to go out-of-network for the patients they serve. The result: members in danger with limited healthcare options, and stymied cost management strategies for employers.

Hospitals leave carrier networks when they feel they are not being compensated fairly for the services they are providing. Currently, several major hospital systems that are renegotiating contracts are holding out for higher compensation from networks, even as their existing terms expire. For example, in Cincinnati, OH, Anthem Blue Cross Blue Shield (BCBS) customers faced the prospect of no longer being in the Christ Hospital Network; an agreement was at last reached right on the date the previous contract was set to expire. In Fresno, CA, Community Health System moved out-of-network with Anthem BCBS when negotiations were unsuccessful. And the University of California warned its health systems users they will experience higher fees in mid-April due to its negotiations with Aetna having reached a stalemate.

A breakdown in network negotiations isn’t something easily avoided nor predicted. Major negotiations often start 12-18 months in advance of their effective dates – long before the economic view of what each party requires is clear. The role of staff and local constituents can be a wildcard. One carrier used one of their largest union clients to set up a picket line outside a hospital during a contentious negotiation. Another hospital was driven to tough negotiations with a carrier in the first place due to strong backing from their nurse union. The contemporary transition of health systems away from hospitals and into ambulatory settings often muddies the analytical models from both sides trying to calculate what subtle terms and conditions being negotiated equate to in unit price.

In this environment, what is most important for brokers and employers is to take several steps to prepare for possible network changes or increases, including:

  • Understanding the situation: Employers should stay informed about any network changes with local providers, even if these changes are with other networks and the Employer is not immediately affected. An unsuccessful negotiation with one carrier may foreshadow a difficult negotiation with another carrier. Many Hospitals are on three-year contracts with the carrier network and it may just be a matter of time before the next negotiation begins.
  • Communicating with employees: Employers should communicate regularly with employees about potential network changes, including the reasons behind the changes and the impacts they may have on benefits.
  • Working with a TPA: Employers can work with a TPA to manage their employee benefits communication and navigate any network changes. A TPA can stitch together national networks with regional networks and facilitate direct contracting between the employer and providers that go out-of-network.
  • Evaluating other network options: Working with a TPA partner, brokers and employers should evaluate different network options, including narrow and broad networks, to determine which best meets the plan’s and employees’ needs. They should also consider alternative networks and “network add-ons”, such as telemedicine or direct primary care, that can provide cost-effective options for routine care.
  • Negotiating with the hospital: Employers can negotiate directly with the hospital or healthcare provider to try to mitigate any potential network increases. They can work with their broker and TPA to leverage their bargaining power and negotiate favorable terms on behalf of their employees. Also, TPAs can negotiate and manage contracts directly with healthcare providers on behalf of their clients to garner more favorable terms, including lower rates and better services. This can help save money and ensure employees have access to high-quality care at affordable prices. In the case of Community Health, the County of Fresno negotiated a standalone contract directly with the system so employees did not experience any disruption in care.
  • Implementing cost management tools: Cost management tools can help employers make informed decisions about healthcare spending and identify areas where they can reduce spend or prevent loss without sacrificing quality. The right TPA can help manage costs by auditing and processing claims promptly and accurately. What many Employers fail to realize is that discount differentials between networks ranging 1-5% can be fully overcome through effective fraud, waste, and abuse and claims excellence programs – without sacrificing measurability. Using Clinical Care Management programs can provide nurse resources to at-risk members, helping to manage larger claims. If a facility or provider change requires a standalone contract or higher fees through a network to maintain current contracts, being good stewards of the money available helps provide the necessary margins so benefits can be maintained while the employer remains financially secure.

While there are many well-founded hypotheses as to the reason for hospital losses and the push for higher compensation, the reality is that a loss is a loss. Hospitals will seek to recompense those losses regardless of how they occurred. It’s important that brokers and employers prepare for possible network changes or increases so employees continue to have access to high-quality, cost-effective healthcare. A TPA can be a valuable partner, providing expert guidance on healthcare negotiations, managing healthcare costs, and helping to ensure employees receive the best possible care at the most affordable prices.

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