âThe devil is in the details,â as the saying goes. Nowhere is this more true than in hospital and insurer contracts. These closed-door contract negotiations possess anticompetitive clauses that end up
lowering healthcare access
and
jeopardizing patient care
.
Anticompetitive contract provisions drive up the cost of healthcare and do little to improve patient outcomes. But, of course, itâs more lucrative to operate a healthcare business when there is little to no competition â which means the real incentive for providers and insurers is to grow market shares, buy up the competition, and then aggressively raise demands against opposing parties during negotiations. None of this is motivated by a desire to help patients receive the best care possible.
It wasnât supposed to be this way. Insurers were supposed to look out for their customersâ interests (the employers and patients paying premiums) by driving a hard bargain with providers. Providers were supposed to compete with each other, lowering prices and raising quality for patients.
Instead, under cover of complicated contract negotiations, the importance of patients has taken a backseat to insurers’ and hospitalsâ interests as they fight to shut out competition and extort one another.
PRESCRIPTION DRUG MIDDLEMEN ARE JACKING UP PRICES
Anticompetitive contracting can be observed in
recent hospital consolidation
. Some argue hospitals merging or buying private practices
will mitigate rising patient costs and
prevent rural hospitals from closing their doors. However, others point out that consolidation is just
large medical providers exploiting
a broken, private market to extort more money out of public and private payers without
increasing the quality of care they give
.
You may ask, why does hospital consolidation even matter? It matters because, good or bad, under consolidation, all contracts get changed, and oftentimes, anticompetitive provisions that hurt patients get added. Itâs time for the public to know how anticompetitive contract clauses are used as tools in
closing out competition and keeping prices high
.
Insurance companies are often large and powerful in their own right. So how do hospitals obtain leverage over a large insurance company in negotiations regarding prices and rate setting? They are able to do so because healthcare is local, and insurance companies must offer in-network providers close to where patients reside. To leverage power, hospitals resort to being the biggest player and leaving no other options for insurers.
No patient wants to drive one or two hours to see a primary care doctor who is âin-network.â Provider systems know that, and if a provider system has the only hospital, as well as most of the medical professionals in a geographic area, they know an insurer must contract with them.
In these instances, a provider system may insert an â
all or nothing clause
â into a contract, which requires all of a provider systemâs clinicians to be in-network, even if an insurer would prefer to screen clinicians based on the cost or quality of care the clinician delivers.
Additionally, there are â
anti-tiering clauses
,â which prevent health insurers from encouraging patients to use one provider over another based on quality and affordability. These clauses limit the insurersâ ability to reward providers who are making improvements in quality while keeping costs low.
But insurers are not innocent, either. If one insurer has a majority of patients enrolled in their plans in a specific region, providers know they must contract with that insurance company, or they risk forgoing all possible business and steady reimbursement from those policyholders â to say ânoâ could put providers out of business. Powerful insurers may require a â
most favored nations clause
,â which prohibits providers from offering any other entity, patient, or insurer a lower price than what is offered to the dominant insurance company.
The good news is that anticompetitive contracting can be checked. States policymakers have the ability to ban certain contract terms used to leverage market power and destroy healthy competition â thus taking away the primary incentive for healthcare entities to consolidate in the first place. The push is already happening. Some policy groups, such as the National Academy for State Health Policy,
are tackling this matter with model reforms
, while lawmakers such as Texas
state Rep. James Frank, a Republican, are filing bills prohibiting anticompetitive contracts in Texas
. Itâs time for patients and policymakers to remove anticompetitive contracting provisions that harm patients by increasing the cost of care and lowering the quality of care delivered.
CLICK HERE TO READ MORE FROM RESTORING AMERICA
Adam Meier
is a senior fellow, and
Tanner Aliff
is the healthcare policy manager at the Cicero Institute.