Hospitals to see more contract pressures from commercial insurers

Health reform will result in "enormous pressure on the provider contracting side" in the commercial health insurance market, predicted Pamela Sedmak, senior vice president and CFO at Blue Cross and Blue Shield of Minnesota in Eagan, at the May Deutsche Bank Securities 35th Annual Healthcare Conference.

Insurers "can only can take on so much with the rate scrutiny that we have on the commercial side, the level of competitiveness that we have on the commercial side, the minimum MLR [medical-loss ratio] requirements we have on that side," said Sedmak. Consequently, she foresees margin pressures induced by the Patient Protection and Affordable Care Act (PPACA) "coming to a head...on the provider contracting side."

However, many hospitals are already experiencing significant contract pressures--even prior to the implementation of benefit exchanges and other PPACA mandates. In Alabama, the not-for-profit UAB Health System, which is affiliated with the University of Alabama at Birmingham, no longer has a contract with Philadelphia-based Cigna Corp., reports the Birmingham Business Journal. Two years of negotiations were unable to resolve the dispute between Cigna and the state's largest health system, and the contract expired on May 9. Almost 60,000 Cigna enrollees in Alabama will no longer be able to access care at UAB Health facilities.

"We were not been able to reach an agreement on pricing, and therefore we had no choice but to cancel this contract," University spokeswoman Dale Turnbough tells the Journal. According to Cigna, UAB sought reimbursement rates that were almost double Medicare payment rates in Alabama. The hospital system countered that its clinically complex services deserved higher payments.

In North Carolina, Hartford, Conn.-based Aetna Inc. intends to end its contract with the Winston Salem-based not-for-profit health system Novant Health Inc. on July 1 if the two sides can't come to terms on allowable charges for medical care, reports the Charlotte Business Journal. Novant received a 7.7 percent rate increase in January, Aetna spokesman Walt Cherniak tells the Winston-Salem Business Journal. Aetna doesn't want to provide any additional rate increases this year. However, Novant is seeking "another 13.5 percent for Presbyterian Hospital in Charlotte on July 1...and 6.9 percent for Forsyth and Medical Park," he says.

Aetna data supplied to the Charlotte Business Journal show that Novant's inpatient hospital charges are 18 percent more than the average for other Aetna hospitals in North Carolina, while its outpatient charges are 28 percent higher. However, Novant's studies show that the system's "inpatient and outpatient rates are consistent with state and national averages for systems of comparable size and complexity," says spokeswoman Kati Everett.

On the positive side, Premier Health Partners in Dayton, Ohio, has finally signed a new contract with Louisville, Ky.-based Humana Inc. after the previous contract was canceled on Jan. 1, 2009, reports the Middletown Journal. The new four-year contract runs through December 2012. Terms weren't released.

To learn more:
- read this Birmingham Business Journal article
- read this Charlotte Business Journal article
- read this Winston-Salem Journal article
- read this Middletown Journal article