The COVID-19 pandemic brought on a year of thanking healthcare workers. In Chicago, residents held nightly light shows thanking their providers. In New York City, people sang in the streets.
A year later, some experts believe health systems may be using their post-COVID-19 publicity glow to pressure insurers into rate increases, pointing to a rash of recent tense negotiations erupting into the public sphere.
“That’s something we need to watch out for the, kind of the afterglow of public support, and then the argument that ‘we lost money, we need to make it up,'” said Glenn Melnick, a professor of healthcare at the University of Southern California, who conducts research on payer-provider negotiations. “I do think that we will see that this year and next.”
Over the past 10 years, the number of payer and provider disputes that have gone public has decreased, as hospitals have consolidated their systems and strong armed insurers into all-in-one contracts, Melnick said. In most cases, he said insurers feel forced to bend to providers’ increased rates, since they risk losing members, and going out-of-network with major health systems can prove more expensive in the long-run.
But the pandemic has pushed many negotiations to extend to the final witching hour, with healthcare institutions trying claw back some of the money they lost from canceling elective procedures, while health insurers try to keep costs down.
Hospitals are banking on a wave of positive publicity, following years of negative coverage of consolidation amid soaring profits, Melnick said. Except there’s one problem: he believes health systems did not lose nearly as much as they anticipated during COVID-19.
At the end of the year, sicker, commercially-insured patients helped bump up hospitals’ bottom lines and strategic cost-cutting measures helped slim down expenses. The federal grant funds health systems received helped as well, though many returned some of that money.
“We were worried about this price spike after COVID, driven by widespread losses, but the losses were not nearly as bad or deep as expected,” Melnick said. “So that argument is not going to be as strong. But that doesn’t mean they’re not going to try to use this.”
In New York, the Greater New York Hospital Association has taken out full page ads in the Wall Street Journal, New York Post and New York Daily News, saying “insurance companies have resorted to bullying New York’s hospitals into accepting one-sided terms for the essential, lifesaving care they deliver 24/7. After a traumatic year for hospitals, Big Insurance sees an opportunity to squeeze every last penny from them—simply to pad their profits even more.” The hospital association has also taken out separate ads against specific insurers, slamming preferred site of care policies and pharmaceutical pricing.
“Many of our hospitals are cash poor. They lost hundreds of millions of dollars during the pandemic, and the federal money has been very, very helpful in keeping them afloat, but it’s still a little bit of a struggle,” said Kathleen Shure, senior vice president of health finance and managed care at GNYHA. “I think there’s a perception that they are weak right now.”
She said that insurers are attempting to exploit hospitals’ dire financial situation by asking for rate decreases. A GNYHA spokesperson added that he saw plenty of negative stories about hospitals during the pandemic, making the narrative that systems are attempting to cash in on peoples’ love for their hospitals moot.
“I would push back hard on the insurance industry saying we’re riding a wave of great stories,” said Brian Conway, senior vice president of communications at GNYHA.
Positive public perception of providers did not necessarily translate to health systems. A recent survey by NORC at the University of Chicago found that 32% of consumers said they lost trust in the healthcare system during the pandemic. Consumers said they generally trusted doctors and nurses more than they trusted their health systems, although 72% of respondents still said they trusted their hospitals. The survey did not address consumer attitudes to health insurers—which are generally very poor. But a separate report, from the 2021 Edelman Global Trust Index, noted that the pandemic caused perception of insurers to nosedive even further. Edelman found that U.S. respondents’ trust in health insurers declined four percentage points in 2020, with most saying they “distrust” their benefits provider.
“I think a lot of people felt like the health insurance industry made outsized profits on the pandemic, which isn’t actually the case,” said Brad Ellis, senior director of insurance at Fitch Ratings.
While insurers pocketed huge profits during the first half of 2020, thanks to consumers deferring care, a rise in COVID-19 cases and costs at the end of the year offset much of the cash gained, Ellis said. A Fitch report published earlier this month found that the seven largest for-profit insurers’ margins remained flat from 2019 to 2020, with EBITDA averaging 7.5% for both years.
“At the end of the year, it all kind of leveled out and, quite honestly, even that margin of 7.5% is very reasonable. It’s not some outsized profit margin,” Ellis said. “People don’t usually look at it this way. They just see the big numbers, and just kind of view the insurance companies as making a ton of money off of this.”
Many health insurers also gave back during the crisis. Down South, Blue Cross and Blue Shield of Oklahoma invested $100 million for COVID-19 relief in members, and offered $20 million in premium credits to fully insured employer customers. The not-for-profit insurer, which is an affiliate of Health Care Service Corp., recently ran into public network disputes with Saint Francis Health System and OU Health Physicians.
The pandemic played into OU Health Physicians’ narrative of the negotiation, while Saint Francis accused the insurer of attempting to hoodwink the Tulsa-based health system by changing the contractual terms at the last minute.OU Health Physicians, Saint Francis Health System and Blue Cross and Blue Shield of Oklahoma all said they hoped to reach agreements.
“All in all, I would say the hospitals in general operating margins were compressed in ’20,” Ellis said. “But it’s not like when there was a lot of fear early in the year, when the pandemic first came, when they put moratoriums on elective procedures, and hospitals were afraid they would lose their shirt. That didn’t actually turn out to be the case.”
While contract disputes publicly surface occasionally, the pandemic exacerbated this trend, and we can expect more of payers and providers’ dirty laundry to be aired over the next two years, said Adam Block, a New York-based health economist. But unlike past disputes, he said the public will get to see which side prevails. New price transparency rules will provide more insight into how contracts work out, Block said, although most major hospitals are still not posting their pricing. Greater insight into prices paid will make public perception of health systems an even more critical negotiation tactic going forward, he said.
“Hospitals are riding a wave of popularity, after a brief time of relative unpopularity,” Block said. “They certainly should be using this to add some weight to their contract negotiations.”