UnitedHealth’s contract battles with two large physician staffing agencies have notable implications for the industry amid the ongoing debate over ways to mitigate surprise medical bills, a new analysis shows.
Moody’s Investors Service released a new report on UnitedHealthcare’s contract negotiations with TeamHealth, a physician staffing company. TeamHealth revealed in its second-quarter earnings that the nation’s largest insurer would cancel high-reimbursement in-network agreements in October, impacting its business in 18 states.
UnitedHealth engaged in similarly heated negotiations with Envision, another physician staffing group, last year, Moody’s noted. Other insurers could follow United’s lead and put pressure on these organizations.
“Current proposals in Congress to curb surprise medical bills seek to pay out-of-network providers a median or market rate based on in-network rates for providers in the same geographic area,” Moody’s analysts wrote.
“By canceling higher-rate in-network contracts, UnitedHealth would effectively lower median reimbursement rates in certain geographies—a strategy other payers could follow,” they said.
Envision reached an agreement with UnitedHealth and accepted the cuts, leading to a 22% decline in its earnings before interest, tax, depreciation and amortization (EBITDA) in the first half of 2019.
Moody’s analysts project EBITDA declines of between 11% and 18% if TeamHealth makes a similar deal and revenue declines of 1% to 2%. However, they’re unlikely to simply take the changes, according to the report—TeamHealth is currently suing UnitedHealth in eight states over reimbursement changes.
United cut certain out-of-network reimbursement rates by 50%, spurring the lawsuits.
“Given UnitedHealth’s significant negotiating clout and the outcome of its contract dispute with Envision, we believe any new contract will likely come at a steep price for TeamHealth,” the analysts wrote.
If these negotiation tactics become a trend, however, the spillover effects could be felt by hospitals, according to the report. Physician staffing organizations are a prime target in the debate over surprise billing, as they provide doctors who may be out-of-network to patients they treat in hospitals.
If a staffing firm’s reimbursement is cut significantly—particularly for one that may not have the flexibility to restructure like Envision—they'll turn to hospitals to boost their bottom line, Moody’s said. TeamHealth, for example, takes in 61% of revenue from physicians contracted out to emergency rooms, so it could request hospital partners increase their payments if insurers are cutting rates.
Hospitals could also find that more of their contracted providers are out-of-network, which would increase the likelihood of surprise bills that harm a hospital’s reputation and relationship with the patient community, according to the report.
“If the profitability of the physician staffing sector experiences material long-term weakness, the ultimate financial pinch could be felt by the hospitals themselves,” the analysts said.