MANAGED CARE: Rejecting Risk Contracts Gives Providers More Clout

      California providers are increasingly backing out of risk contracts that they say offer payment rates below the cost of business, marking a shift in bargaining clout from insurers to providers, the Sacramento Business Journal reports. Although the change is most pronounced in rural areas, where provider numbers are limited, several urban hospitals and regional systems, such as Catholic Healthcare West, are threatening to dump capitated contracts. Physicians are also entering the fray. While most continue to contract with HMOs, they are demanding higher reimbursement or reallocation of risk, and some are dropping managed care contracts altogether. The Journal reports this withdrawal from risk, along with a slowed membership growth for HMOs and a jump in PPO enrollment, has prompted some to wonder whether a migration from these traditional hallmarks of managed care heralds health care's "next great sea change."

Pass the Buck?
      The conflict between providers' frustrations with poor reimbursement rates and insurers' need to retain contracts with large hospital networks is resulting in a "high-stakes game of chicken at the negotiating table." Increasingly, hospitals and health plans are discussing their contract disputes in the public arena, which tends to sympathize more with hospitals. Health plans, seeking tactics to limit potential losses while providers retreat from capitated contracts, have passed costs on to employers through premium hikes. This cost-shifting strategy has proved successful to date, with many insurers, including Foundation Health Systems, PacifiCare and Blue Cross of California, all posting profits last year. While employers have stomached rate increases thus far, some analysts anticipate businesses will soon begin experimenting with alternative means to obtain health care services. Large purchasing pools, such as the California Public Employees' Retirement System and the Pacific Business Group on Health, are pioneering these efforts, which include contracting directly with providers or creating defined contribution plans that place the burden of risk on employees by granting them the ability to make their own health care decisions (Robertson, 5/15).