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The American Journal of Managed Care August 2019
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Influence of Out-of-Network Payment Standards on Insurer–Provider Bargaining: California’s Experience
Erin L. Duffy, PhD, MPH

Influence of Out-of-Network Payment Standards on Insurer–Provider Bargaining: California’s Experience

Erin L. Duffy, PhD, MPH
California’s experience implementing a policy to address surprise medical billing demonstrates that out-of-network payment standards can influence payer–provider bargaining leverage, affecting prices and network breadth.
METHODS

Data Collection

In this case study, semistructured interviews were conducted with 28 stakeholders 6 to 12 months after AB-72 implementation. Interviewees included representatives of advocacy organizations and state-level professional associations, as well as current executives of physician practice groups, hospitals, and health benefits companies. They were asked open-ended questions about 3 domains: (1) the effects of AB-72 on physician, hospital, and health benefits company stakeholders; (2) the effects of AB-72 on relationships and contracting dynamics among these stakeholders; and (3) the role of stakeholders in the legislative process. Potential interviewees were initially identified from among those who testified about AB-72 before the California Senate Committee on Health, authors of editorials and advocacy documents, and experts quoted in newspaper articles.13 Those who were interviewed were asked to recommend other individuals with relevant expertise or experience; 16 interviewees were identified by the author and 12 were referrals. This referral sampling process was repeated to obtain a sample reflecting a balance of stakeholder perspectives.

Legislative, regulatory, and media materials related to AB-72 were collected, including bill text, analysis, rulemaking guidance, video and transcripts of testimony before the Senate Committee on Health, floor announcements, letters of support and opposition from stakeholders, news articles, and editorials.

Analysis

Interview transcripts, hearing transcripts, and other documents were analyzed using process-tracing, pattern-matching, and explanation-building techniques with computer-based qualitative analysis software (Dedoose version 8.0.35 [SocioCultural Research Consultants, LLC; Los Angeles, California]).25 Triangulation among these interview and document data was used to identify stakeholders’ perspectives on and early responses to AB-72.

RESULTS

Provider, payer, and consumer advocate stakeholders agreed that it is important to protect patients from surprise medical bills and that the policy provides effective consumer protection. However, the OON payment standard has been disruptive to the contracting landscape.

Contracting Between Hospital-Based Physicians and Payers

Although the payment standard in AB-72 applies only to OON providers, stakeholders report that it is having substantial effects on hospital-based physicians who historically contracted with payers. When hospital-based physician groups and payers negotiated contracts prior to AB-72, the physicians’ leverage was that they could walk away and bill the payers and patients their charges. Hospital-based physician groups with contracted rates above the new payment standard have lost that leverage because they would now face lower payments as OON providers.

Applying the payer-reported local ACR as the OON payment standard has incentivized payers to lower or cancel contracts above their local ACR. One hospital-based interviewee expressed fear that over time “health plans could selectively terminate hospital-based physician contracts for those receiving the higher reimbursement level…bringing the average rate down.” Physicians in anesthesiology, radiology, and orthopedic practices reported unprecedented decreases in payers’ offered rates and less interest in contracting since AB-72 was passed into law. The use of historical rates to compute ACR in the DOI rulemaking may mitigate this.

Insurer and health plan representatives asserted that their leverage in each market is primarily determined by the level of provider consolidation and state network adequacy requirements that mandate that networks include a sufficient number of physicians within a reasonable travel distance. In consolidated physician markets, payers perceive that they are underleveraged in negotiations because they must reach a contract agreement with the only provider group in the area. From their perspective, they gained a small amount of leverage under AB-72, and it corrected an existing imbalance.

Consolidation Among Hospital-Based Specialists

Hospital-based physicians are seeking to regain their leverage in negotiations with payers, and one approach is accelerating consolidation and exclusive contracting with facilities. Their logic follows that if only 1 practice exists in the local area serving all the local facilities, then payers will have to contract with them on their terms to fulfill network adequacy requirements. Although consolidation is an ongoing trend, several interviewees reported that AB-72 was “what clearly put it over the edge” for their practice. Physicians described engaging in mergers between practices and hiring independently practicing physicians in their area.


 
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