May 13, 2024 - Health

Employers facing rising health care costs get tough on providers

Illustration of a very long hospital bill pierced by fountain pens.

Illustration: Maura Losch/Axios

Employers trying to rein in rising health costs are also taking the fight directly to health care providers.

Why it matters: New transparency around the price of health care services and workers' mounting frustration with costs are emboldening some employers to get tough in negotiations with hospitals and provider groups.

  • "We can improve quality and can make health care more efficient. But if we continue to see very significant increases in unit price ... it just makes the job of providing health benefits incredibly challenging," said Guy D'Andrea, executive director of Catalyst for Payment Reform.

Between the lines: Employers have often struggled to get good answers from providers about how services are priced, said Rosa Novo, who oversees benefits for Miami-Dade County Public Schools, the third-largest school district in the U.S.

  • Case in point: Novo said local hospital administrators couldn't give her a good explanation of why MRI costs at their facilities ranged from $6,000 to $10,000.
  • "We employers who are paying for this system, who are supporting this practice: We need to take a stand," Novo said at an event in Washington this spring.

Novo said the district dropped a 600-provider OB-GYN group from its insurance network last year after it sought to hike prices 35%.

  • Cutting off a large provider group definitely angered some employees, Novo acknowledged, but she said it ultimately paid off. The provider group came back to the negotiating table months later, and they ultimately agreed on a 5% increase.

The big picture: Other recent high-profile fights have resulted in employers dropping entire health systems.

  • Most notably, the union 32BJ booted New York-Presbyterian from its network as part of a cost-cutting initiative that saved $100 million and allowed for pay raises to members.
  • Smaller businesses like Lincoln National Bank in Kentucky have turned to strategies like direct contracting, bypassing insurers to cut deals directly with providers "at fractions of what big hospitals charged under the previous plan," wrote board secretary Griffin Meredith.

Zoom in: There are some major limits to this strategy. For instance, it's more difficult to play hardball in smaller cities or rural areas with fewer provider options.

  • In certain markets, the more expensive hospital or provider group may be seen as a "must-have" by employees, which also puts employers in a tough negotiating position.
  • And even in large companies, their footprints are often dispersed geographically, which puts "low bargaining power in the hands of employers," said Ge Bai, professor of health policy and management at Johns Hopkins.

The bottom line: Companies risk upsetting workers when providers they depend on are no longer covered, even if it means they're ultimately getting a better deal.

  • "We have to communicate to our employees that we are providing, and want to provide, a better benefits package, a curated benefits package, that is both high quality and high value," said health care consultant and attorney Chris Deacon. "And this is hard to explain."

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