How to decrease managed care organizations’ ‘out-of-network’ status leverage

Moody’s reports that, in 2017, the cash flow margin for nonprofit hospitals decreased to the lowest level since the 2008-2009 recession.

It is not by chance that in the first quarter of 2018, many Managed Care Companies (MCOs) reported record profits, largely due to their ability to secure minimal rate increases to providers while simultaneously increasing premiums. The negotiations between health systems and MCOs have become more acrimonious, and the MCOs are winning. Over time, MCOs have gained an overwhelming unfair advantage in these negotiations and this needs to change.

Though an imperfect system, MCOs are needed to help subsidize the underfunding of government insurance. While Medicare and Medicaid patients can contribute incremental volumes and revenues necessary to support some services, on average, every Medicare patient generates a deficit of more than 20 percent. Yet, rather than recognize this need, MCOs try to match the government rates, putting increased financial pressure on providers.

MCOs are using ‘out-of-network’ status to gain greater leverage
As Al Capone said, “You can get more with a kind word and a gun than a kind word alone.” And today, ‘out-of-network’ status provides the MCO with the ultimate weapon. If an MCO and provider are unable to reach an agreement, one of the parties eventually may elect to go out-of-network. Once a provider is out-of-network, the MCO steers its lucrative elective patients to alternative in-network providers.

It is also common for MCOs to reimburse the member for services rendered by the provider rather than paying the provider directly. Historically, health systems have had great difficulty recovering these payments. This creates a clear advantage for the MCO since the health system loses millions of dollars a month, and often has a negative impact to its reputation, while the MCO experiences little if any negative financial impact. Few health systems can tolerate the financial consequences of being out-of-network with a major MCO for more than a few months and the MCOs know this.

MCOs purposely stall negotiations past the term of the contract daring the provider to go out-of-network. This tactic keeps the existing reimbursement rates and terms in place while the MCO benefits from the annual premium increase. Recognizing their out-of-network advantage, the MCOs have become aggressive at bending the rules. They are changing the terms post-negotiation, e.g., not reimbursing hospitals for elective imaging, changing coding methodologies, etc.

Providers have tools to fight back during an ‘out of network’ period
Under the current rules of engagement, the only way a health system can demand its fair share of the premium is through an unfair, out-of-network fight with an MCO that involves a major disruption in patient care and risks the solvency of its organization.

To even the playing field, health systems and providers must advocate for the following:
• An objective methodology to determine an appropriate “usual and customary” payment rates for out-of-network claims.
• The requirement for health plans to pay providers, not the patient, for out-of-network claims.
• The adoption of a Health Care Providers’ Bill of Rights in each state, similar to that in California, whereby a provider has to agree to a modification made by a plan to a commercial MCO contract or the provider has the right to terminate the contract.

Health Systems and providers need to gain back leverage so these strategies can help level the playing field and keep fighting on behalf of patients.

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