Banning secret hospital contract terms could cut health premiums 6.5%

Hidden provisions in hospital contracts could quietly be pushing employer healthcare costs higher.

According to a recent White House report, banning three anticompetitive contract terms hospitals use to block competition would reduce hospital prices by 18% and, in turn, lower workplace insurance premiums by 6.5%, saving about $1,755 per year for families and $606 for individuals.

The report identifies three significant restrictions that pose barriers to healthcare affordability: “all-or-nothing” clauses, anti-tiering provisions, and anti-steering provisions.

These provisions can make it difficult for insurance companies to create networks that encourage patients to choose lower-cost yet higher-value providers.

Ultimately, the report’s findings signify that affordable healthcare costs go beyond hospital pricing. Contract design, which is often overlooked, plays a pivotal role.

By understanding these hidden contractual restrictions, benefits advisors can help employer clients ask more informed questions and make better decisions about their health plans.

Why contract negotiations matter

“All-or-nothing” or similar contracting constraints usually appear when employers try to make a targeted network change and discover the carrier’s flexibility is limited.

“In many cases, the issue isn’t just what is written in the contract. It’s also how the contract was negotiated,” said Kaha Hizanishvili and Meredith Dorner of Axia, a Brown & Brown company.

Even if the contract doesn’t explicitly restrict steering or tiering, the pricing and incentives could still have the same effect.

For example, a hospital system may agree to remove anti-steerage language, but achieve the same steerage effect operationally, or require higher reimbursement elsewhere to make up for the lost volume.

The way healthcare is organized locally could create challenges as well.

“In a given market, one system may own the physician groups, control key specialties, dominate admissions, and/or influence referral patterns,” Hizanishvili and Dorner explained.

Whether specialists are allowed to admit patients to multiple hospitals or work across different systems may also determine how realistic it is for patients to receive care outside that system.

As a result, even without any formal anti-steering language, referrals may still stay within the same system because the doctors are part of it.

The advisor’s role in evaluating networks

Advisors can influence network design, but only when they understand how the full network system works in a local market.

According to Hizanishvili and Dorner, broad national assumptions rarely work, even with the same carrier. That’s because provider leverage, system ownership, vertical and horizontal integration, access constraints, referral patterns, disease prevalence, and patient migration can vary materially by market.

Historically, too much of the advisory conversation has focused on discounts, which are not only incomplete but sometimes can be misleading.

For example, if one provider starts with a chargemaster that is 30% higher than another provider’s chargemaster, a larger percentage discount may still produce a higher actual cost.

Advisors are most effective when they bring a clear understanding of the local delivery system, ownership structure, integration dynamics, and knowledge of where the money flows, supported by claims data, access analysis, provider performance information, and clinical insight.

“They should also be pushing carriers on whether they have credible high-performing provider metrics and clinical management tools that connect the encounter, the episode of care, the disease state, and the whole health of the patient,” Hizanishvili and Dorner explained.

At the end of the day, the goal is to look beyond financial performance and dig into market structure, access, epidemiology, clinical management, operational capability, and how the network actually functions for members.

“The conversation must transition from 'Can we get a better discount?' to 'Is this network actually designed to deliver the best possible value to my client?'” Hizanishvili and Dorner said.

How to help employers understand options

While translating complex network restrictions into a simple cost conversation with employers can be a challenge, it’s essential.

Hizanishvili and Dorner encourage advisors to clearly outline what’s in a plan before an employer buys it.

“Show them side-by-side: where members go today, what the employer pays today vs. what alternative care patterns may be available, what can or cannot be changed, and what the cost impact would be,” said Hizanishvili and Dorner

For example, if a market has a lower-cost, clinically appropriate site-of-care option, advisors should be able to explain whether members can be steered there and what prevents that from happening.

Employers do not need to understand every contract clause.

However, they do need to understand whether a current network gives them real levers to manage cost, quality, access, and future trends.

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Anna Baluch is a finance reporter and writer with more than a decade of experience. Contact her at [email protected]