A hospital contract dispute in a changing health care landscape

Connecticut’s largest hospital network and largest insurer are in the midst of a contract dispute.

It’s a type of clash that’s become familiar, but it’s occurring in a new context, against the backdrop of significant changes in health care: the consolidation of hospitals into larger networks and efforts by insurers to change how they pay for care.

The dispute pits Hartford HealthCare, the parent company of five Connecticut hospitals, against Anthem Blue Cross and Blue Shield. The two say they’ll sever ties Oct. 1 if they can’t reach a deal on new contracts.

That would mean the five hospitals — Hartford, Backus, Windham, MidState Medical Center and The Hospital of Central Connecticut — would be out of Anthem’s network, and Anthem customers would likely face significantly higher costs to get care at one of those facilities. (Coverage of doctors who are part of Hartford HealthCare Medical Group would not be affected.)

At stake in the negotiations: How much hospitals get paid and whether they’ll participate in the insurer’s network. And the outcome will likely have an effect on consumers’ wallets, since the price of care is a key factor in the cost of insurance premiums.

Here are some things to know about the dispute and some of the factors behind it.

These kinds of disputes usually get resolved

This isn’t the first time a hospital and insurance company have threatened to cut ties, and it’s unlikely to be the last. Four years ago, Hartford and Windham hospitals were locked in a dispute with Anthem and threatened to leave the insurer’s network. The two sides reached a deal at the last minute.

Other hospitals and insurers have also notified patients in the past that they might sever ties, but ultimately settled on new contracts before the deadline. In a handful of cases, hospitals left the insurance companies’ networks for a time before reaching new deals.

But disputes could get more complicated

There’s been a big change in the health care landscape since the last Hartford-Anthem dispute: More hospitals have joined larger chains, giving them more leverage in negotiations. Hartford HealthCare now includes more hospitals than any other health system in the state (although the Yale New Haven Health System operates more beds).

Some people worry more bargaining power by hospitals will translate to higher prices for care.

“The thing we’ve always been worried about is that [with] greater consolidation, the large systems could use that bargaining power and the fact that they have so many lives attached to their system to try to extract more than would be otherwise a reasonable rate under the circumstances,” state Healthcare Advocate Victoria Veltri said.

And when more hospitals belong to one chain, Veltri added, consumers have fewer places to go if the hospital group leaves their insurer’s network.

Hospitals are getting stronger in negotiations, and more sophisticated as they build new types of organizations designed to adapt to changing payment models, said Angela Mattie, a professor of health care management at Quinnipiac University.

Consolidation among hospitals occurred in part as a reaction to consolidation among insurers, said Ellen Andrews, executive director of the Connecticut Health Policy Project, who worries that it will lead to higher prices.

“The insurance companies are trying to get more leverage by consolidating, so that makes the hospitals and provider groups consolidate to get more leverage back,” Andrews said. “But consumers and payers aren’t getting more leverage. We’re just losing it.”

Insurance companies are trying to change the way they pay hospitals

There’s another big change going on in health care, related to how care gets paid for. Both Anthem and Hartford HealthCare have indicated that one factor in contract talks has been efforts to tie pay to performance or “value.”

Right now, most health care providers get paid on a “fee-for-service” basis. That is, they get paid for every patient visit, test or procedure. And most payments to doctors aren’t based on the quality of their care. If you stay healthy and don’t need medical care, your doctor doesn’t see any financial gain.

That doesn’t mean your doctor wants you to get sick. But it does mean your doctor has little or no financial incentive — or funding stream — to invest in things that could help keep you well, like hiring nurses to coordinate your care with specialists or help you manage a chronic condition.

The result: A huge amount of money gets spent on health care, without correspondingly good patient outcomes.

Most people in health care expect fee-for-service payments to become a thing of the past. But exactly what will replace them is still being determined. And making the shift can be challenging for health care providers.

Insurance companies, Medicare and other programs that pay for health care are trying to develop ways to reward providers for better patient outcomes. They’re also trying to get providers to be more mindful of the cost of patients’ care, developing payment models that will let providers share in any savings they achieve on patient care or lose money if they don’t achieve savings.

One type of model being developed involves hospitals working more closely with doctors, nursing homes and other types of care providers to keep patients healthy and out of the hospital when possible.

Some patient advocates worry that giving doctors a financial incentive to save money could lead them to forgo recommended care that could be helpful, although proponents of the system say providers would have to meet care-quality measures, not just cut costs.

While it’s not clear what the best method will be to maximize quality and lower costs, Mattie said, it’s clear there will be changes.

“That’s the one thing that’s certain,” she said.

And if figuring out the new models is a challenge for insurers, making the transition from one set of incentives to another one is tough for hospitals. Keeping patients healthier likely means fewer hospital admissions. But hospitals still get paid when their beds are filled, so changes aimed at keeping patients out of the hospital can be a potential financial challenge, at least for now.

Anthem says it offered Hartford HealthCare a deal that would include modest inflationary increases and “an opportunity to earn substantial additional payments” for improving patient health and safety and care coordination. But the insurer said Hartford HealthCare wanted a larger guaranteed payment increase.

“Our customers and members have told us that large provider payment increases not tied in any way to the value delivered is no longer acceptable,” the insurer said in a statement.

A statement from Hartford HealthCare said negotiations include discussion of “value-based purchasing criteria.”

Evaluating arguments is tricky without data

Anthem says Hartford HealthCare is seeking a double-digit rate payment increase for a one-year contract, after receiving three years of payment hikes that “significantly exceeded inflation.”

Hartford HealthCare said the specifics of the talks are confidential, but that the company requested “a lower percentage for a one-year renewal term, and not a double-digit increase.” The company said it hopes to reach an agreement that will allow it to be paid fairly for the services it provides.

Veltri said she expects state officials to scrutinize the request.

“I just think there is so much attention being focused right now on the lack of transparency in hospital pricing and rates and charges, that in the absence of some more transparency around those figures, it’s hard for anybody like me to accept blindly a rate increase request of a significant magnitude,” she said.

It’s hard for patients to weigh the merits of each side’s arguments because they have little information about payment rates, the use of services by Anthem patients at the facilities, and the hospitals’ margins for that care, Veltri said. For that matter, it’s hard to know if that care is being delivered at a better value than in other places, she said.

But consumers have a big stake in the outcome of the dispute: “Those charges are going to be part of the [insurance] premium dollar eventually,” Veltri said. “So consumer interest is huge in this issue.”

Access Health CT, the state’s health insurance exchange, is in the process of developing a database of medical claims that could provide information on the types of medical care provided and how much it costs.