Health insurers under pressure to keep premiums low are eliminating some hospitals from coverage in a cost-cutting strategy that threatens to freeze out centers that provide specialized care, limiting patient options.
Left out are hospitals such as Seattle Children’s, excluded from five of seven plans on Washington’s state insurance exchange. The hospital, which has sued the state to be included in more plans, is struggling to get paid for care given to about 125 children since Jan. 1, when Obamacare coverage took effect, said Sandy Melzer, the facility’s strategy officer.
In January, “we made the decision to see all the children,” Melzer said by telephone. “Maybe we’ll be paid, maybe we won’t. It’s completely done on faith.” If the insurers refuse to cover their services, the hospital will pick up costs that go beyond the standard deductible, he said.
The insurers’ strategy, outlined in a report last month by the McKinsey Center for U.S. Health System Reform, is an unexpected consequence as the 2010 Patient Protection and Affordable Care Act, known as Obamacare, kicks into gear.
The law puts pressure on premiums by requiring insurers to “broaden health benefits, restricting how much premiums can vary with age and adding a new health-insurance tax,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, or AHIP, a Washington-based trade group. Narrowing networks to those that accept lower payments in exchange for higher patient volume “is one way to help mitigate cost increase for consumers,” he said.
Narrow network plans pit two basic consumer demands against each other. On one hand, patients want choice and the ability to seek care at whichever hospital can best treat their condition. On the other hand, consumers want affordable premiums at a time when health-care costs are rising nationwide.
U.S. health spending is expected to grow more than 6 percent this year to $3.1 trillion as the health-care overhaul takes full effect and millions of Americans gain insurance, according to the Centers for Medicare and Medicaid Services. The average premium for family coverage has increased 80 percent in a decade.
Insurers say one way to help lower costs is to select medical providers who deliver quality care at a low price. This week, the Health and Human Services Department said insurance plans may be required to include at least 30 percent of “essential community providers” in each county in 2015 from 20 percent this year. That means about 38 percent of current plans would need to broaden their networks, according to the McKinsey study.
For now, the restricted plans have put higher-priced specialty hospitals, as well as small hospitals in markets dominated by a single insurer, in line to be cut from insurer networks. Feeling the pressure, they are pushing back.
Seattle Children’s Hospital, for instance, sued the Washington Office of the Insurance Commissioner in October for “failure to ensure adequate network coverage” after its exclusion from five of seven plans offered on the state’s insurance exchange. The hospital, which saw 351,000 pediatric patients in 2012, asked the commissioner to reconsider its standing with four of the plans.
In a Jan. 29 court filing, the state responded that “nothing in the law dictates inclusion of a specific provider, regardless of their preeminence or sympathetic patient base. So long as issuers meet the legal standards for adequacy and covered services, the OIC does not manage their business arrangements for them.”
The costs of carrying the hospital were unacceptable, BridgeSpan Health Co., one of the insurers at the center of the case, said in a filing. “If the hospital’s position were accepted,” the company said, it would require insurers to pay the hospital whatever it wants to charge.
The hospital, meanwhile, counters that the uniqueness of its services and the training required by its doctors to carry out patient care deserve more compensation.
“We take care of a very unique group of children, and the amount of resources we need to have is very expensive,” Melzer said. “We do 100 percent of transplant care and 70 percent of cancer and cardiac care in the state. The expectation that it should cost the same as a community hospital is completely unreasonable.”
Insurers routinely make decisions on whether to pay for out-of-network care. Premera Blue Cross, one of the insurers that excluded Seattle Children’s, has responded to 21 applications for reimbursement from the hospital, approving 13 and rejecting eight, Melzer said on Jan. 29. In the wake of Obamacare, the hospital has added three staff members to handle reimbursement applications, he said.
At some point, Melzer said, the hospital will turn away patients who can’t pay in advance for their services. “It’s not viable going forward,” he said. “We can’t just assume we’re going to get paid.”
For the family of 5-month-old Gabriella Blankers, the issue hit home last month when they took her to Seattle Children’s, concerned about the shape of her head. Costs for a CT scan that found a rare birth defect were initially rejected by the family’s insurer because the hospital wasn’t in their network. While the insurer later made an exception, it would cover the child only until the end of March.
“There’s nowhere else I could go,” to get the expertise Gabriella needed, said Rebekah Blankers, the girl’s mother, in a telephone interview. “Unless I went out of state, out of network, or out of pocket.”
Premera, based in Mountlake Terrace, Washington, covered the Blankers family, which includes three children, through their LifeWise affiliate for $900 a month. The insurer will grant exceptions for some of Seattle Children’s unique services, but won’t cover non-unique services such as asthma visits and tonsil procedures, said Eric Earling, a spokesman for the insurer, in a telephone interview.
“The cost of Children’s non-unique inpatient services is 100 percent higher than such services at other hospitals in our statewide network,” he said.
A pediatric appendectomy, which cost $23,300 at Seattle Children’s, is priced at $14,100 at Premera’s other in-network hospitals, Earling said, adding: “The issue, at the end of the day, is access at a more affordable price. That’s why their non-unique services are not covered.”
While Seattle Children’s doesn’t dispute the price difference, spokeswoman Stacey Dinuzzo said the hospital’s appendectomy cases often involve children suffering from other rare diseases, so the cost isn’t comparable.
Gabriella Blankers’ CT scan occurred on Jan. 17. Premera denied the hospital’s reimbursement request the following week. It then reversed its decision and informed Seattle Children’s on Jan. 30 that it would cover Gabriella’s care for the next two months, after which the insurers said it will only cover unique services.
Rebekah Blankers isn’t waiting to find out what Premera considers unique or non-unique. She has switched Gabriella to a $200-a-month exchange plan that will cover all care done at Seattle Children’s. Meanwhile, the rest of the family -- including Blankers’ two other daughters -- will stay on the less-expensive LifeWise plan.
“I’m just happy this happened during open enrollment,” Blankers said. “If it hadn’t, we wouldn’t be able to switch and we would have to fight.”
Blankers now has a combined estimated premium of $950 a month. If she had switched the entire family to the new plan, her cost would have been about $1,500 a month, she said.
Specialized hospitals aren’t the only centers struggling with the newly narrowed networks. They also affect smaller facilities in markets dominated by a single insurer, further limiting consumer choice.
In New Hampshire, Anthem Blue Cross Blue Shield is the only insurer selling its products on the state’s independent exchange. They cover 16 of the state’s 26 hospitals in their reimbursement network. Among the excluded is Frisbie Memorial Hospital in Rochester, which serves about 75,000 patients a year, according to Al Felgar, the medical center’s chief executive officer.
“When we found out we weren’t in the network, we immediately contacted Anthem, and we were told it was not something they would discuss,” Felgar said.
Anthem president Lisa Guertin says the insurer designed its exchange plans in response to customer surveys: “The message that came back was clear and compelling,” she said by telephone. “They would trade off the full breadth of access for the price point.”
Anthem picked hospitals to fulfill state and federal standards, mostly based on geography, according to Guertin. Under its plan, hospital access for those within the network in terms of driving time and distance is twice as short as is required by New Hampshire law, she said.
Felgar plans to argue Frisbie Memorial’s case at a Feb. 10 public hearing before New Hampshire Insurance Commissioner Roger Sevigny. “We’re a small hospital,” he said. “When you’re small, every patient counts.”
While Seattle Children’s and Frisbie Memorial struggle to get into a network, big hospital companies, armed with more negotiating power, are gaining the additional market share of newly insured patients.
Each of the 77 hospitals operated by Tenet Healthcare Corp. (THC), the third-largest hospital company in the U.S., is participating in at least one exchange plan at every level, Chief Executive Officer Trevor Fetter said at the JPMorgan Chase & Co. (JPM) health-care conference on Jan. 13.
At HCA Holdings Inc. (HCA), the biggest U.S. chain by market capitalization, 97 percent of the 165 hospitals it owns are included in Bronze and Silver plans on the Obamacare exchanges, Chief Executive Officer Milton Johnson said last month. The Nashville, Tennessee-based operator expects “to get a lift” from the Affordable Care Act, as many of HCA’s most important markets, in Florida and Texas, had high levels of uninsured whose care will now be paid for by Obamacare, Johnson said.
HCA’s “margins are high, and their outcomes are good,” Skolnick said by telephone. “They don’t really need anything from these health plans. So why break their price discipline?”
Negotiations on coverage take place annually between insurers and hospitals. News insurers may also join the exchange, such as in New Hampshire, where Frisbie Hospital will have the chance to join Harvard Pilgrim Health Care Inc., or Minuteman Health Inc. in 2015. Hospitals that miss the cut this year can “argue to become part of the network” next year, Skolnick said.
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