HEALTH INSURANCE CONTRACT PROVISIONS FUEL COST ESCALATION IN MASSACHUSETTS.

The Massachusetts Attorney General’s Preliminary Report, Investigation of Health Care Cost Trends and Cost Drivers issued on January 29, 2010 faulted the leveraged based disparities among health providers in pricing as the principal driver in health care cost increases in Massachusetts over the past five years. In particular the study noted that providers with leverage due to size, geographic location and branding had a substantial leg up in negotiations with insurance companies driving their prices in some cases at levels that doubled those of their competitors for comparable services. Interestingly, the study note a number of health insurance contract provisions that had a substantial negative impact on cost containment.

On of the principal contract provisions that tended to chill competition was the “payment parity provision” that tend to lock in payment levels and prevent innovation and competition based on pricing.  If an insurance company gives a rate increase to providers it uses payment parity provisions to insure that the provider will insist on similar rate provisions from the insurance company’s competitors, so that all premiums will rise together  and the initial insurer will not be at competitive disadvantage in giving a rate increase.

Product Participation Provisions are contract clauses that high market leverage providers insert in health insurance provider agreements that prohibit insurers from created limited network products  and tiered products that might steer patients away from them. Examples of these provisions are called “anti-steering”, “guaranteed inclusion” and “product participation parity” clauses.  “Anti-steering clauses stop insurers from creating new products that might steer patients away from certain providers. “Guaranteed inclusion” clauses guarantee the participation of certain providers in certain products. On the insurance company side, “Product participation parity” provisions mandate a provider’s participation in an insurer’s product if that provider agrees to participate in similar product offered by a competing insurance company.

The Attorney General found that there was widespread practice of insurance companies making supplemental payments to providers, for such things as signing bonuses, infrastructure payments, as well as bad debt or government shortfall payments. These are murky payments which tend to reduce the transparency of real insurance cost structures.

Growth caps are contract provisions that limit the growth of provider organizations. These contractual provisions can limit growth in the number of physicians who will be paid under a newly increased rate or limit growth of particular specialties in a geographic area or in acquisitions of practices over a certain size. Although these provisions might be seen as advancing competition at one level, in practice they can prevent smaller physician groups from meaningfully competing with larger physician organizations.

True health care reform that attempts to bend the cost curve will have to address these kind of structural impediments to containing price advances and diminishing competition the health care system.

Comments

[James Kildare]

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[Private Krankenversicherung Rechner]

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