Fair Insurance Contracting
Testimony of Mark Piasio, MD, Vice President, Pennsylvania Medical Society, presentation before the Pennsylvania House Insurance Committee on May 12, 2005.
Good morning, Chairman Micozzie and members of the House Insurance Committee. I am Dr. Mark Piasio, vice president of the Pennsylvania Medical Society and a practicing orthopedic surgeon from DuBois.
Let me begin today by thanking the Committee for hosting this important hearing. Also, let me offer thanks for all that you have done in the past on this issue and others such as the passage of Act 68. I realize that your work often receives little thanks, but is deserving of such praise.
With me today are Mr. Scot Chadwick and Mr. Dennis Olmstead, both of the Pennsylvania Medical Society. As you likely know from past interaction, Mr. Chadwick is with the Medical Society’s Government Affairs Division, while Mr. Olmstead is our Chief Economist.
At one point in time, I was an independent practice physician; however, due to escalating costs, I needed to sell my practice to the local hospital. I simply couldn’t keep up with expenses involved in running an office.
Through my career, I’ve had many interactions with health insurers including the Blues, and I’m very aware how difficult it can be for insurers to create a reasonably priced product, while meeting the demands and needs of health care providers and consumers. I understand the difficulty in managing multiple physician contracts. Although I don’t believe it is insurmountable. Managing physician care expenses and dealing with large controlling hospitals that have significant negotiating power while meeting customer demands is obviously a great challenge for insurers. So I understand the tough position the Blues and other insurers are in.
However, insurers aren’t perfect, and the manner in which insurance contracts are written today does not build a sense of team or help communities move forward.
Reality Check
For a moment, let’s take a look at the Pennsylvania landscape.
In Pennsylvania, there are roughly 12 million residents, 29,000 physicians, 182 acute care hospitals, and four dominant Blue Cross plans as well as some minor insurance players along with Medicare and Medicaid. In a nutshell, every geographic area in Pennsylvania has at least one dominant Blue plan, a few minor health insurers, and, of course government-funded programs.
Depending upon what study you look at, it has been estimated that approximately eight to 13 percent of Pennsylvanians are uninsured. But for those individuals who have insurance, generally it was obtained through one of the insurer types just mentioned. These insurers are required to have a network of providers as a condition of their certificate of authority to operate.
The reality of our health care systems at the front end is a high demand from millions of patients for coverage and care. In today’s marketing-driven world, the normal demand is intensified as advertisements encourage patients to ask for certain medications or procedures. Thus, utilization increases. The reality at the back end is a handful of insurers controlling price and payment. In the middle are doctors and hospitals, working to be paid from a limited amount of money. Since there are fewer hospitals than physicians, hospitals tend to have greater market control and thus have the ability to negotiate better financial contracts with insurers.
This inevitably results in a one-sided contracting process for physicians.
And when this happens, ideas from physicians on how to better manage health care go unheard as unfair business arrangements develop.
Are We Crying Wolf?
Contracts are increasingly onerous and presented to physicians on a take-it-or-leave-it basis. Please understand that not taking their contract is a very difficult business decision. Historically, the insurers have been very good at paying their bills. And, we appreciate that. We’d like to avoid a “take-it or else” scenario, which has occurred in other markets.
In many respects, managed care contracts increasingly exhibit the elements associated with “contracts of adhesion”—a standardized contract that gives the weaker party only the opportunity to adhere to the contract or reject it. Many insurers make the material terms such as the services to be provided and the compensation to be paid-wholly illusionary. Others inappropriately inject the insurer into clinical decision-making through their definitions of “medical necessity” and other terms.
Let’s consider the following taken directly from a recently approved contract.
“Network Product Participation. Provider must and, where applicable, must ensure that all Practitioners participate in all Network Products covered under this Agreement, as designated by (insurer name) and so long as Provider and Practitioners, as applicable, meet all required Participation Criteria applicable to a Network Product….”
This clause is referred to as an “all products clause.” It requires a physician to agree to participate in all products that the insurer offers. It doesn’t matter that the physician believes that the product benefits or other aspects of the other products may be inferior and are not in the best interest of his patients. A physician may feel comfortable participating in one product but may not feel comfortable participating in another product.
Here’s another example of an unfair clause.
“Network Access by Other Health Plans. Provider understands and agrees that (insurer name) allows certain (insurer) affiliates, ASO accounts, other Blue Cross Blue Shield plans and, where applicable, their respective affiliates that are licensed by the Blue Cross Blue Shield Association as well as any entity or entities covered under a Network Access Arrangement to access the network established under this agreement as a Health Plan for persons covered under Network Products as offered or administered by such entities. Provider agrees to treat any person covered under a Network Product offered or administered by an entity described above as a Member regardless of where the person resides…”
This is an example of a clause permitting the use of “silent PPOs.” A “silent PPO” refers to a situation where, unbeknownst to its contracting physicians, an insurer “sells” or “rents” its PPO network of providers to a third party, typically a third party administrator, insurance broker, or smaller PPO and that third party gets the advantage of whatever discount the insurer has negotiated with the physician.
Now, after hearing that, ask yourself one simple question. Would you sign this contract? Most businesses would not. They’d say it is unbalanced and unfair.
And, to make matters worse, these contracts often change mid-term without any agreement from the physician performing the work. Let me use home remodeling as an example.
Most homeowners, if they plan to hire a builder or carpenter to add a room to their house, would sign a contract. Within this contract, the builder would specify services to be rendered, cost of supplies, cost of labor, and a time frame for the project. If the contract called for one window to be installed in the new room, one window would be installed.
Now if the homeowner changes his mind after signing the contract as the project progresses, and decides that he’d rather have two windows instead of one, it would be reasonable for the builder to collect expenses from the homeowner for the additional window. As a businessperson, a change of product changes the cost of the project.
Now, thinking of health care, wouldn’t it be reasonable for the physician to know in a contract with an insurer the fees to be paid for specific procedures? And, wouldn’t it be reasonable for the physician to collect fees for additional work performed when the insurance product changes mid-contract?
But, when dealing with health insurance, there’s no opportunity to re-negotiate mid-contract when insurance products change. It’s a take-it or leave-it approach.
Additionally, it is not just what the contract says, but what it doesn’t say. Generally, significant payment issues such as bundling of multiple services provided into one service or the down coding of office visit or other services is not addressed in contracts. The insurer arbitrarily does what they want without any clinical justification for the activity. It is strictly a cost saving measure, which further undermines physicians’ efforts to receive fair compensation for services they have rendered.
Again, ask yourself if you’d sign a contract like this. You probably wouldn’t.
But, physicians do sign these contracts because if they don’t, the majority of their business would not exist. Again, with so few controlling price and payment, one-sided business arrangements occur through a take-it-or-leave-it approach. Since there are no opportunities to negotiate, good ideas from physicians go unheard. And, when these ideas go unheard, health care costs go up.
What the Insurers Will Say…
Whenever questioned about unfair business practices, insurers are often filled with excuses. Yet, as these excuses fill the air, the state continues to lose good providers, and employers continue to drop insurance coverage.
Excuses range from “changes will increase the cost of health care” to “you don’t have to take our insureds.” But, as we know, when there is not a level playing field, there is no way for the individual physician practice to do anything but accept what is. And, they’re not allowed to offer cost-saving ideas.
Insurers have the luxury of being in the middle between those providing care and those receiving care. And, they have complete control of product price and reimbursement. In other words, they can be a monopoly and a monopsony at the same time.
As insurance costs spiral up, reimbursement to physicians decreases, although hospitals appear protected due to bargaining power. Physicians don’t have this ability and anti-trust rules prevent them from being able to gain any bargaining power.
Why Legislation is Needed?
Today, most physicians have no ability to negotiate their contracts with insurers to bring good ideas to the table. The power lies totally with insurers. It is a one-sided contracting proposition with a “take it or leave it” negotiating attitude.
There are two primary reasons for this imbalance. First, it is illegal for physicians to come together to address issues such as reimbursement levels paid for the services they render to insurer members and many other contractually related issues. If they do, the physician is in violation of anti-trust laws and runs the risk of a penalty imposed by federal law enforcement agencies.
Second, in a state like Pennsylvania, where one or two insurers dominate each of the four health care delivery markets, the situation is further exacerbated. If a physician says no to the contractual provisions presented to them, they lose much of their patient base leaving them with few options, one of which is to leave the state—an option I am sure legislators would not prefer.
To conclude, that is why legislation is needed to correct this unfair balance of power. This bill would treat both parties as equals in the contractual relationship. It does not create the opposite of what we have now. That is, it doesn’t slant the contracting process in favor of the physician—it levels the playing field.
Historically, the Medical Society has supported a free market. However, occasionally, free markets fail. And, that’s when it is appropriate for government to intervene. With health insurance becoming unaffordable and physician practices becoming unsustainable, we are in that position now.
I’d love to be able to sit down with an insurer to work out a contract that benefits everyone–insurers, physicians, and our patients. As I stated earlier, I understand the challenges insurers face in keeping everyone happy. The opportunity to make health care more affordable is being missed by avoiding fair contract negotiations. That doesn’t happen now, and why we need to find a way to work together. An atmosphere of cooperation will benefit the future of our communities.
Thank you for the opportunity to present these view here today.
Last Updated: 8/6/2008