CA patients often suffer when hospitals, insurers clash

By Craig Wagoner, Special for CalMatters

This commentary was originally published by CalMatters. Sign up for their newsletters.

Guest Commentary written by

No one wants to see health insurance premiums rise. Individuals, small businesses and large employers are already under inflationary pressures. But it will be far worse if health insurance companies fail to help address rising costs facing healthcare providers. 

Lengthy contract negotiations between health insurers and healthcare providers are becoming the norm, leaving patients — our shared customers — in a confusing and concerning ‘out-of-network’ status, while health insurers and providers point fingers at each other.

An overused but accurate phrase applies: healthcare providers are facing a perfect storm of pressures, particularly in California, and especially systems that serve large shares of Medi-Cal and Medicare patients. 

Among our nation’s 6,000 hospitals, our flagship hospital, Community Regional Medical Center in Fresno, serves the fourth highest percentage of Medicaid patients and is fifth for overall government reimbursement. 

While being one of America’s most essential hospitals is rewarding, recent federal changes designed to slow the growth of healthcare spending have resulted in a 15% reduction in Medicaid funding — roughly $1 trillion in cuts nationally over the next decade.

At the same time, California legislation increased the minimum wage for healthcare workers to $25 per hour. While there is none more deserving of this than healthcare professionals, the ripple effects are significant. At our organization these adjustments add $100 million annually in labor costs and will only grow. 

Further constraining hospitals are the legal requirements to treat anyone who arrives in their emergency departments, regardless of ability to pay. What other industry is required to provide service first and figure out how to get paid for it later? 

Our health system absorbed a $231 million reimbursement shortfall last year for the care of government-insured patients, and we must brace ourselves for more. Higher numbers of ER visits from underinsured patients, as well as higher levels of charity care and bad debt will further widen the gap between our cost for providing care and how much we’re reimbursed. 

In the meantime, insurance companies want hospitals to agree to rates that don’t keep pace with rising costs. While government payers offer predictable approval processes and payment timelines, private health insurers increasingly rely on cumbersome prior authorizations, payment denials, paying less for services and slow reimbursement. These practices add administrative costs, strain cash flow, reduce overall reimbursement and threaten our fiscal stability.

Insurers face pressure from employers and members to limit the growth of premiums. But too often, that pressure is used to resist necessary and reasonable rate increases for providers. Health insurers often blame providers for the high cost of care, but hospitals like ours are keenly focused on greater efficiency. In fact, we’re a low-cost leader when compared to the average California hospital. 

In some cases, insurance companies propose quality incentive programs as a substitute for adequate reimbursement, then publicly criticize health care providers when we find this unacceptable. I wholeheartedly support performance incentives as a tool for improvement, but not when these programs are used as a mechanism to transfer greater financial burden to hospitals.

As stalled negotiations become increasingly common, regulators and policymakers should take a broader view of healthcare costs by examining health insurer reserves, and their administrative and marketing expenses. 

For safety-net healthcare providers like us, modest profit margins are not just about staying afloat, they are critical to reinvestment in technology, facilities, our workforce, and public health initiatives that are essential to the communities we serve.

There is much at stake if payers win the war of words over contract rates. Access to healthcare services, healthcare jobs and the stability of institutions that communities rely on will diminish. 

When providers are forced to make deeper cuts to manage this convergence of pressures, patients ultimately pay the price.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.