Preparing for contract disputes between health plans and providers  

After a few tense weeks, employers with covered employees in New York City shared a collective sigh of relief when the expired contracts between Aetna and New York-Presbyterian and United Healthcare and Mount Sinai were renewed in late March. It can be stressful and disruptive for members when a health system contract expires, jeopardizing established physician relationships and the in-network status of local healthcare facilities. Unfortunately, it is becoming increasingly common for renewals to come down to the wire and even lapse. But, as we’ll discuss, there are actions employers can take when potential network disruption looms. 

New sources of friction

Why are contract renewals so difficult these days? While negotiations between health plans and provider groups never have been easy, exactly, new developments have contributed to contracting becoming even more challenging. First, health systems are confronting significant revenue and expense challenges. Wage inflation directly contributes to the rising cost of health care delivery. Working in a health system can be mentally and physically draining, exacerbating staffing challenges. At the same time, health systems are seeking to recoup deficits resulting from a growing Medicare and Medicaid patient population (with lower reimbursement levels) while their commercial population may be shrinking. 

In addition, we are in a transition period following the expansion of access to competitive information. As a result of price transparency disclosures, health systems have more visibility into the reimbursement levels being paid to their peers and health plans are benchmarking the discounts that have been negotiated by their competitors. Health systems receiving lower reimbursements have additional grounds to demand a larger rate increase while health plans with lower discounts have additional grounds to demand a higher discount rate. Obtaining favorable financial terms not only affects the profitability of a health plan’s insured business, but also helps them to retain and grow their self-funded business, since self-funded employers evaluating health plans will consider the discounts achieved by each of the bidders. While discounts must be viewed in the context of a full value proposition and the total expected cost of care, a carrier that reimburses at a higher level is disadvantaged when competing for business. 

Finally, negotiations are not just about financial terms. Health system contracts include increasingly complex, and at times contentious, terms related to incentive programs, audit rights, flexibility to offer alternative network products, system integrations, and more. 

A road map for health plan sponsors

Employers can feel caught in the middle. Certainly, they have a financial interest in their health plans’ securing an advantageous arrangement. On the other hand, they depend on health systems to deliver quality care – that’s the raison d'être for health benefits - and recognize that health systems require adequate funding. Meanwhile, a protracted contract stand-off leaves the employer and their employees in limbo and frustrated that resolution cannot be reached sooner. We encourage employers to plan ahead. It can be uncomfortable for an HR department to field concerns without a prepared communication plan and network strategy. The following actions can help: 

• Request a contract road map. Employers should have a handle on when contracts for the health systems that are most utilized by their health plan members are set to expire. 
• Evaluate care alternatives. Any network termination can be disruptive, but they are most concerning when there is a lack of alternative access to care in the area. Understand what the options are. If a network termination would create access challenges, consider promoting telehealth as an alternative care modality for certain conditions. 
• Consider network alternatives. In the event of a disruption, some plan sponsors will allow participants to change their coverage election and select a different medical plan option. This type of election change is permissible (but not required) under the cafeteria plan rules if the disruption results in a substantial decrease in the medical care providers available. This approach may require introducing a new plan option unless the plan sponsor already offers multiple plan options. (This strategy may be promoted by a provider group as it can increase their leverage in negotiations with a health plan while preserving their network access to impacted membership.) Changing plans mid-year is not a simple matter; one of many considerations is whether to facilitate the transfer of deductible and out of pocket maximum accumulators, which may be more achievable for self-funded plans. It will be important to consult with legal counsel on the regulatory issues related to this strategy. 
• Communication strategy: Health plans and health systems may each communicate to members to provide their perspective on an ongoing negotiation. This can cause confusion and heighten concern. Be prepared to respond to your employees’ questions and consider communicating with them proactively.  

It goes without saying that these situations are never easy – just ask health plan sponsors in New York City – but with some advance planning you can be prepared. Especially now, with healthcare costs rising faster than inflation, employers cannot afford to let network disruptions distract from their strategic plans to improve quality and mitigate cost growth.