UnitedHealth vs. HCA: It's Ugly

Their contract dispute is leaving patients and docs out in the cold

A Denver-based executive with UnitedHealth Group Inc. (UNH ), in a blistering battle with popular local hospitals, finds "insurance pig" scrawled on his house. In Atlanta, insurer WellPoint Inc. (WLP ) takes a jab at one of the toniest hospitals in the city, slamming it in a newspaper ad for treating too few low-income patients. And in both cities, negotiators rush from the bargaining table to court, arguing about everything from false advertising to greed. All the while, hundreds of doctors must scramble to change hospitals as thousands of patients fret over where they'll be treated.

Contract talks between insurers and hospitals have never been pleasant. But for sheer nastiness they are beginning to rival old-fashioned labor-management tussles, minus the police and water hoses. "We're seeing more and more of these very public, very bitter negotiations between health plans and hospital systems," says William Custer, director of the Center for Health Services Research at Georgia State University's J. Mack Robinson College of Business. And with hospital chains and insurers both consolidating nationally and eager to wield their new market clout, odds are high that the rancorous battles will worsen.

The latest frays between UnitedHealth, the country's second-biggest insurer, and Nashville-based hos-pital giant HCA Inc., may be an ugly portent. Since early September, the two have been at loggerheads in the Denver, South Florida, and Tampa areas, where UnitedHealth's contracts with more than 30 hospitals lapsed after the insurer refused to accept HCA's demand to boost reimbursement rates by 8%, twice the national inflation rate for hospitals. "We stand for affordability," says David S. Wichmann, president of the outfit's UnitedHealthcare unit.

"MEXICAN STANDOFF"

Certainly neither HCA nor UnitedHealth is endearing itself to doctors. "They are two very powerful, wealthy corporations who are in a Mexican standoff," says Denver gastroenterologist Mark A. Linkow, one of hundreds of doctors who scrambled to get credentials at Denver's St. Joseph Hospital and is seeing some patients there instead of at an HCA site. "The patients and the doctors are very much caught in the middle."

Both sides are playing hardball. HCA ran ads urging patients in Denver to switch insurers. UnitedHealth countered with a lawsuit accusing HCA of trying to use its market power to "extort" anticompetitive rates. HCA won the first round on Sept. 21, when a federal judge refused to give UnitedHealth a temporary restraining order. HCA, insisting it wants only "fair reimbursement," has claimed vindication. After days of shunning talks, the parties are back at the bargaining table, though they had no deal at press time.

Insurers generally are under pressure to keep up their margins. Premiums for employer-sponsored coverage are going up by less than in past years -- 7.7% this year vs. 9.2% last year and a peak of 13.9% in 2003, the Henry J. Kaiser Family Foundation said on Sept. 26. So it's no wonder insurers are putting more pressure on hospitals. Some are tying rate hikes to performance, a thorny topic in WellPoint's dispute last summer with Atlanta's Piedmont hospital chain. "Nobody is guaranteed a rate increase," says WellPoint Chief Financial Officer David C. Colby. Piedmont and WellPoint finally agreed in August on a contract after court action and a pitched newspaper ad battle.

More such disputes are brewing. Transplant patients at Milwaukee's Froedtert Memorial Lutheran Hospital must go elsewhere since a contract with UnitedHealth lapsed on Sept. 1, and the hassle may spread to all UnitedHealth patients there on Nov. 1. UnitedHealth also is trying to hammer out deals with hospitals in Tennessee and Kentucky. And WellPoint could be facing a tough go in talks with some Tenet Healthcare Corp. (THC ) hospitals in St. Louis.

By Joseph Weber, with Dean Foust in Atlanta

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