Health Plan Weekly

Analysis of N.J. Arbitration System Sheds Light on Federal Fix for Surprise Billing

January 14, 2021

An arbitration system that New Jersey uses to resolve payment disputes between insurers and out-of-network providers over surprise medical bills has resulted in payments that are much higher than prevailing in-network rates for the same services, according to a new study.

The study, published in the January issue of Health Affairs, found that New Jersey’s final-offer arbitration system “appears likely to increase health care costs relative to other surprise billing solutions and perversely incentivizes providers to inflate their charges over time,” the authors wrote.

By Jane Anderson

An arbitration system that New Jersey uses to resolve payment disputes between insurers and out-of-network providers over surprise medical bills has resulted in payments that are much higher than prevailing in-network rates for the same services, according to a new study.

The study, published in the January issue of Health Affairs, found that New Jersey’s final-offer arbitration system “appears likely to increase health care costs relative to other surprise billing solutions and perversely incentivizes providers to inflate their charges over time,” the authors wrote.

The study has significant implications now that Congress has approved legislation mandating a similar nationwide system of binding arbitration, says Dan Mendelson, founder of consulting firm Avalere Health. “The central finding — that the median arbitrator decision awarded an out-of-network payment of 5.7 times the prevailing median in-network rates — shows that the process favors providers and pushes costs to payers, and thus to consumers,” he says.

The study compared provider bids, plan bids and arbitration decisions with Medicare payment rates, median in-network prices, and the 80th percentile of charges for the same service or services. The mean arbitration award was $7,222 and the median award was $4,354. Providers won 59% of decisions, and health plans prevailed in the remaining 41%.

In addition, nearly one-third of cases decided for amounts that were more than 10 times the median in-network price, the study found. Both health plans and providers tended to bid above in-network rates, but providers bid far higher than plans: the median health plan bid was 1.6 times the median in-network price for the same set of services, whereas the median provider bid was 10.1 times the median in-network price.

In the new federal legislation, Congress stipulated that arbitrators may consider the median in-network rate paid by the insurer, says lead author Benjamin Chartock, a Ph.D. student in the Health Care Management Department at the University of Pennsylvania. “It will be interesting to see the results of the federal rule-making process,” he tells AIS Health. “It’s become clear, given our research on New Jersey, that the intricacies of the arbitration system have a meaningful impact on the outcome of disputes.”

Mendelson says the clout of providers in New Jersey makes it unsurprising that the state adopted a provider-friendly process. “I expect the same with the federal regulations,” he says.

Centene, UnitedHealth Ring in New Year With M&A

January 13, 2021

Although 2021 has just begun, major health insurers appear to be wasting no time when it comes to spending the influx of cash that they’ve collected as a result of lower routine health care utilization during the COVID-19 pandemic.

On Jan. 4, Centene Corp. revealed that it struck a deal to purchase Magellan Health, Inc. for $2.2 billion, a transaction that promises to augment the insurer’s existing behavioral health, specialty health care and pharmacy management assets. Two days later, UnitedHealth Group said it plans to purchase the technology company Change Healthcare for approximately $13 billion in a deal that will bolster its analytics and advisory arm, OptumInsight.

By Leslie Small

Although 2021 has just begun, major health insurers appear to be wasting no time when it comes to spending the influx of cash that they’ve collected as a result of lower routine health care utilization during the COVID-19 pandemic.

On Jan. 4, Centene Corp. revealed that it struck a deal to purchase Magellan Health, Inc. for $2.2 billion, a transaction that promises to augment the insurer’s existing behavioral health, specialty health care and pharmacy management assets. Two days later, UnitedHealth Group said it plans to purchase the technology company Change Healthcare for approximately $13 billion in a deal that will bolster its analytics and advisory arm, OptumInsight.

Taken together, Centene and UnitedHealth’s moves are “really interesting and sizable transactions to kick off the new year given that the buyers were clearly going through [due] diligence during a volatile election cycle and pandemic,” observes Timothy Epple, a principal at Avalere Health.

Centene’s latest acquisition is especially timely given the news that Democrats will have control of the White House and the House of Representatives, plus a narrow majority in the Senate, Epple suggests. The election results “suddenly make that deal look even more attractive given the probable stability and growth tailwinds for government and [Affordable Care Act] markets,” he says.

Further, “while the Change transaction is riding analytic tailwinds that are somewhat party-agnostic, reduced volatility in the near-term policy outlook is a positive for M&A activity across the health care ecosystem,” Epple adds.

Wall Street analysts say the deals make strategic sense for the acquiring organizations, which have been aggressive about inorganic growth.

“We see this transaction as complementary as it builds on [UnitedHealth’s] focus and expansion of Optum, with Change’s data and analytics platform augmenting offerings within OptumInsight,” Citi analyst Ralph Giacobbe wrote in a note to investors. “We expect continued M&A from [UnitedHealth] in its efforts to continue to grow and scale its Optum segments, as we have seen over the years,” he added.

Regarding the Centene/Magellan tie-up, Oppenheimer’s Michael Wiederhorn offered an optimistic take. “Overall, we believe this deal continues Centene’s efforts to strengthen its capabilities in serving the highly complex portion of the government population,” he advised investors.

Wall Street Is Optimistic About Health Insurance Industry, Expects More M&A in 2021

January 5, 2021

Equities analysts are bullish on the health insurance industry in 2021, despite the challenges caused by the COVID-19 pandemic. Wall Street also expects more mergers and acquisitions will take place in 2021 than the previous year.

“Prior to 2020, the industry had already posted several years of record earnings, leading to higher absolute and risk-adjusted capitalization levels, trends that full-year results are likely to further support,” wrote AM Best analyst Doniella Pliss in the firm’s 2021 outlook for health insurers. “In addition, amid a severe level of economic uncertainty, the industry accumulated substantial cash balances, leading to stronger liquidity metrics. These factors make the industry well prepared to withstand the anticipated challenges and further uncertainties of 2021.”

By Peter Johnson

Equities analysts are bullish on the health insurance industry in 2021, despite the challenges caused by the COVID-19 pandemic. Wall Street also expects more mergers and acquisitions will take place in 2021 than the previous year.

“Prior to 2020, the industry had already posted several years of record earnings, leading to higher absolute and risk-adjusted capitalization levels, trends that full-year results are likely to further support,” wrote AM Best analyst Doniella Pliss in the firm’s 2021 outlook for health insurers. “In addition, amid a severe level of economic uncertainty, the industry accumulated substantial cash balances, leading to stronger liquidity metrics. These factors make the industry well prepared to withstand the anticipated challenges and further uncertainties of 2021.”

“Many of our rated issuers have grown their scale significantly over recent years, taken market share and added capabilities. The evolution of business profiles is credit positive,” wrote Moody’s Investors Service analyst Marc Pinto.

“We expect insurers to continue to acquire non-regulated health service businesses to deepen vertical integration, but large transformative deals are unlikely,” Pinto explained. “Smaller, tuck-in insurance acquisitions to improve geographic diversification or under-scaled businesses are more likely. We expect leverage to improve in the absence of outsized M&A.”

Analysts also projected a more stable political and regulatory environment with the departure of the Trump administration, and they observed that a split Congress is unlikely to pass major health care reform legislation. Further, they expect that the Supreme Court will not strike down the Affordable Care Act in its pending decision on California v. Texas.

However, analysts emphasized that the pandemic is far from over, and no one can say for certain what level of care utilization to expect. When utilization dropped in the second quarter of 2020, carriers’ earnings spiked dramatically. A similar, if smaller, phenomenon could take place early in 2021.

“We expect the COVID pandemic to linger into 2021 with more sluggish utilization in [the first half of the year],” wrote Citi analyst Ralph Giacobbe in his 2021 health care outlook. However, he predicted that the second half of the year was “more likely to show accelerating utilization/spending as individuals gain comfort as we get broader administration of the vaccine.”

Surprise Medical Billing Comes to An End, Insurers Oppose Arbitration Mechanism

December 30, 2020

After years of failed attempts, Congress has finally come to an agreement on a measure to end the practice of surprise medical billing.

Surprise billing, also known as balance billing, is the practice of charging patients for out-of-network procedures that insurers refuse to pay for in whole or in part. Often, patients incur these balance bills without their knowledge. The new legislation would ban providers from sending such a bill to patients, and would instead require providers to negotiate reimbursement with the patient’s insurer or submit the dispute to a binding arbitration process.

By Peter Johnson

After years of failed attempts, Congress has finally come to an agreement on a measure to end the practice of surprise medical billing.

Surprise billing, also known as balance billing, is the practice of charging patients for out-of-network procedures that insurers refuse to pay for in whole or in part. Often, patients incur these balance bills without their knowledge. The new legislation would ban providers from sending such a bill to patients, and would instead require providers to negotiate reimbursement with the patient’s insurer or submit the dispute to a binding arbitration process.

Providers will have 30 days from the day of the procedure to negotiate a compromise reimbursement amount with payers. If the parties can’t agree, they must submit their preferred reimbursement amounts to an HHS-approved arbitrator, who will pick one of the two amounts.

Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy, praised the legislation as “closer to the ideal, consumer-friendly solution” than previous attempts to address the issue.

“It’s very likely that this bill reduces premiums,” says Adler, who has contributed to research that found surprise billing increases health care costs.

Insurance stakeholders are displeased that surprise bills will be resolved through arbitration. Instead of arbitration, America’s Health Insurance Plans had lobbied for out-of-network reimbursement to be tied to a benchmark rate.

Adler thinks that insurers’ objections to arbitration are overblown, and he argues carriers will gain leverage in balance billing negotiations because of the legislation.

“It seems pretty easy for an insurer or a [plan sponsor] company to call a provider’s bluff,” Adler says, citing rules in the bill that he thinks will prevent providers from abusing the arbitration system.

Dan Mendelson, founder of Avalere Health, is more skeptical about the bill’s potential to reduce costs and slow premium inflation, since it will require new administrative costs.

“There is no question that whenever you force more cost into the system, it’s going to be reflected in consumer cost,” Mendelson explains. “So there will be a premium effect. Will people actually be able to differentiate it from the typical rise in costs? No….I do expect that it will have an effect, just from an economics standpoint.”

Payer Execs Say Diversity Programs Must Start at Top

December 29, 2020

Internal equity and diversity programs could be a powerful business strategy for plans that serve under-resourced populations, two experts say. But to make these programs truly effective, organizations must start at the top and embed equity and diversity principles in everything they do, moving beyond a mere “box-checking” mentality, said Sachin Jain, M.D., president and CEO of SCAN Group and SCAN Health Plan.

“We have to lead with new leadership. We have to evolve our cultural dialogue around these topics,” Jain said during a Dec. 8 virtual panel at America’s Health Insurance Plans’ Consumer Experience & Digital Health Forum 2020. “But we also have to recognize that you can’t be a good business in 2020 and not actually be excellent at serving diverse populations. I see that, from the seat that I’m in, as opportunity.”

By Jane Anderson

Internal equity and diversity programs could be a powerful business strategy for plans that serve under-resourced populations, two experts say. But to make these programs truly effective, organizations must start at the top and embed equity and diversity principles in everything they do, moving beyond a mere “box-checking” mentality, said Sachin Jain, M.D., president and CEO of SCAN Group and SCAN Health Plan.

“We have to lead with new leadership. We have to evolve our cultural dialogue around these topics,” Jain said during a Dec. 8 virtual panel at America’s Health Insurance Plans’ Consumer Experience & Digital Health Forum 2020. “But we also have to recognize that you can’t be a good business in 2020 and not actually be excellent at serving diverse populations. I see that, from the seat that I’m in, as opportunity.”

When Jain came on board in June as CEO of SCAN Health Plan, he directed the organization to look at data on racial equity and diversity. “Our African-American employees trust [company] leadership less than our non-African-American employees by about 0.5 on a five-point scale. That’s a big problem,” he said. “On Medicare Advantage star measures, our African-American patients do way worse on pharmacy measures than our white patients. That’s an opportunity for us to get better.”

SCAN’s leaders recognized that they were not “thinking diversely across all of our processes across the organization,” Jain said. To begin remedying that, the health plan recently announced that it hired three new executives and promoted another to support diversity.

Aletha Maybank, M.D., chief health equity officer and group vice president at the American Medical Association Center for Health Equity, said that the AMA is performing many of the same tasks as SCAN Health Plan: “looking at our performance metrics, our policies, our culture of the organization to make sure that we’re embedding equity in this way.”

Most health care leaders understand that they need to promote diversity and equity among their leadership and workforce, Maybank said. But to make significant progress, “every single sector within our institution has to be looked at.”

Organizations first need to educate teams “so that folks actually get this.” Then, those teams can change policies, practices, culture and research, she said.