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Expert: Anthem, UC Health may be taking wrong approach in negotiations

Collaboration could cut costs, boost quality

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CINCINNATI - UPDATE: A spokeswoman for UC Health said April 5 that the provider will "hold patients harmless" while it continues to negotiate with Anthem. That means during negotiations, UC Health will waive any out-of-network penalties and will accept discounted rates as payment in full. An Anthem spokeswoman said Monday that the insurer "will not negotiate publicly." She added: "We strongly urge members with questions or concerns to contact us directly, using the customer service number of the back of their ID card rather than depend on media stories."

If you are one of the Tri-State's thousands of Anthem Blue Cross Blue Shield members trying to figure out which company is wrong in the insurer's negotiations with UC Health, consider this: Maybe they both are going about the negotiations the wrong way.

Jeff Weiss, an adjunct professor of business administration at Dartmouth's Tuck School of Business, argues that most insurers and providers take a flawed approach in talks such as these.

Weiss said he's seen the same story play out in markets across the country. Often the two sides use negotiating tactics that are singularly focused on rate increases, with both claiming they're the ones looking out for patients, he said.

But when that happens, Weiss said, consumers lose.

"If you're going to negotiate that way, there's an inherent incentive to padding your demand and to be extreme and to be stubborn," said Weiss, a partner with Vantage Partners, LLC, a Boston-based consulting firm that helps with international negotiations as well as negotiations in health care and IT. "It's a ridiculous game, but that's how it's played."

A better approach is when insurers and health care providers work together to discuss what their numbers represent, Weiss said, whether that's managing risk or a need to improve data collection.

"If you get to the underlying reasons [why] health care is so expensive right now, there's a way to bridge that gap and be creative," Weiss said.

Payers and providers across the country have done that by better managing their working relationships and starting discussions well before any contractual deadlines so there isn't as much pressure on either party, he said.

Negotiations Here Approaching Deadline

Here in Greater Cincinnati, negotiations between Anthem and UC Health remain unresolved with an April 15 deadline fast approaching. The two sides will be meeting Thursday afternoon to try to hammer out a deal, according to UC Health.

UC Health tried to be more collaborative in its approach and negotiate privately in good faith, said Diana Maria Lara, UC Health spokesperson.

"It was our intention to handle the negotiations privately between UC Health and Anthem so as to avoid any anxiety amongst the Anthem members and UC Health patients," she said.

But Anthem chose a different approach, Lara said. An Anthem spokeswoman declined to comment on the insurer's approach except to say that Anthem won't negotiate publicly.

Anthem's official statement is that UC Health "chose to terminate its contract with Anthem, demanding higher reimbursement."

The insurer says UC Health is "already the most highly reimbursed hospital system in Greater Cincinnati and UC Health is demanding their physicians be paid more than other local physicians."

The company negotiates hospital and physician contracts on behalf of its customers, it said, "because it directly impacts what they pay for their medical care."

The statement continues: "As much as we want to provide the broadest possible access to health care, it must be at a rate our customers and members can afford. Giving in to UC Health's demands is not in the best interest of our members or the community."

Anthem's statement concludes: "We have heard loud and clear from employers and other local physicians to hold the line."

Two Sides See Issue Very Differently

UC Health, however, sees the issue much differently.

In a statement issued March 29, UC Health insisted it did not terminate its contract with Anthem. The statement says the nonprofit wrote to Anthem last fall to express its intent to stay in the insurer's networks and asked for a cost-of-living increase.

"The way our system of health care financing works, from time to time health care organizations must ask managed care companies like Anthem for an adjustment in reimbursement rates that reflects the economic realities of the market in which we work," UC Health's statement said. "As a nonprofit organization, we have an obligation to protect the community's assets and assure our financial well-being."

UC Health said the two sides agreed on revised hospital rates but have not agreed on reimbursement rates for doctors' services.

The health system is seeking "a modest cost-of-living increase," it said.

"UC Health is not asking to be paid more than other local doctors providing the same service," the statement said. "We are only asking to be paid comparably to those working at other academic medical centers in Ohio, Kentucky and Indiana."

"What we're asking for on the physician side amounts to less than $1 per Anthem member in the Tri-State," said Lara.

The UC Health statement noted that the two organizations are "very different." UC Health is a nonprofit corporation, while Anthem is for-profit and publicly traded.

"Anthem's shareholders demand a return on their investment in the form of dividends and capital gains," the statement said. "By contrast, UC Health exists to serve the community. Anthem has an understandable obligation to serve its shareholders, but will do so best by maintaining adequate services for its customers."

Negotiation Standoffs Have Become More Common

Anthem says that 14,000 or fewer customers would be affected if the insurer and UC Health end their contractual relationship. That's the number of Anthem customers who used UC Health facilities or doctors over the past 12 months, according to the insurer. If the issue isn't resolved, those customers would have to use other doctors or pay higher rates to keep seeing them.

Such standoffs have become increasingly common in recent years as both insurers and providers have consolidated and gotten bigger, said Timothy Jost, a law professor at the Washington and Lee University School of Law in Lexington, Va.

"We've gotten ourselves into a situation where you've got very powerful insurance interests facing off with very powerful providers," Jost said.

Ultimately, consumers and employers typically lose because rates just keep increasing, he said.

The Affordable Care Act could actually help the situation because it will introduce more competition into the insurance markets, Jost said.

"The hope is that once compensation becomes more transparent, insurers are going to have to lower their premiums," he said. "Insurance companies that offer the best value will take the market."

The federal law, which takes effect Jan. 1, 2014, also could encourage less duplication of services. And while that could reduce costs, too, Jost said, it also could lead to issues of scarcity.

"On the one hand, having lots and lots of providers that duplicate each other is very expensive," Jost said. "On the other hand, just having one MRI in town, you end up maybe with less immediate access to care."

That's another thing that insurers and providers could work to address together by negotiating with a more collaborative approach, Weiss said.

"If a payer and provider could sit down and say, 'hey, look, we want to change the consumer's experience, change the way they follow a routine to, say, manage their diabetes better, find a way to reach out to patients, that's going to create better access,'" he said.

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