Employers facing rising health costs get tough on providers

Employers are increasingly confronting healthcare providers over rising healthcare costs. This is significant because recent clarity on healthcare pricing and workers' growing dissatisfaction with expenses are prompting employers to adopt a more assertive stance in negotiations with hospitals and provider groups. "We can elevate quality and achieve more efficient healthcare. However, the continuous steep rise in unit prices makes providing health benefits exceedingly difficult," explained Guy D'Andrea, executive director of Catalyst for Payment Reform.

Employers have typically found it challenging to obtain clear explanations from providers regarding pricing, according to Rosa Novo, who manages benefits for Miami-Dade County Public Schools, the third-largest school district in the U.S. For example, Novo highlighted that local hospital officials were unable to justify why MRI costs varied so greatly, between $6,000 to $10,000. "As employers who finance this system, we must take a stand," Novo stated during a spring event in Washington. Following a significant price increase proposal by a 600-provider OB-GYN group, the district removed the group from its insurance network. Although this decision initially upset some employees, it resulted in the provider group returning to the negotiation table and agreeing to a more reasonable 5% increase.

In broader terms, high-profile disputes have led some employers to exclude entire health systems from their networks as part of cost-reduction strategies, significantly saving costs and increasing pay for members. For example, union 32BJ removed New York-Presbyterian from its network, saving $100 million. Smaller enterprises, like Lincoln National Bank in Kentucky, have resorted to direct contracting, bypassing insurers to secure deals directly with providers at significantly lower rates than what large hospitals charged under previous plans, as noted by board secretary Griffin Meredith.

However, there are substantial limitations to this approach, particularly in smaller cities or rural areas where fewer provider options exist. In these markets, more expensive hospitals or provider groups may be considered indispensable by employees, complicating negotiation efforts for employers. This is also a challenge for large companies with geographically dispersed operations, which diminishes their bargaining leverage, according to Ge Bai, a professor of health policy and management at Johns Hopkins.

Ultimately, while cutting ties with certain providers can lead to better deals, it risks discontent among workers who depend on these services. "We need to clearly communicate to our employees that we are committed to providing a curated, high-quality, and valuable benefits package," stated Chris Deacon, a healthcare consultant and attorney. This is often difficult to convey effectively.

The situation is compounded by legal challenges where workers, increasingly burdened by rising healthcare costs that also reduce their wages, initiate lawsuits to hold employers accountable for securing unfavorable deals with firms managing their health benefits. These judicial proceedings underscore the enhanced legal risks for employers, pushing them to demand greater transparency and better terms from third-party administrators of health benefits.  

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