HCA, UnitedHealth Group go head-to-head over pay rates

Contract negotiations between the health care giants in two large markets fail, putting patients and their physicians in a bind.

By Katherine Vogt — Posted Sept. 25, 2006

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This time of year, it's common to hear some saber rattling between large hospital systems and large health plans over negotiations on reimbursement. But HCA and UnitedHealth Group aren't just making noise -- in a few major markets, they've broken off ties. Now physicians and patients are the ones being rattled.

As August came to an end, the companies failed to reach new contract agreements in Colorado and South Florida, forcing thousands of patients and their physicians to look elsewhere for facilities in which they could receive or give in-network care. Analysts -- and physicians -- fear this fight might portend more clash-of-the-titans battles between big corporate health plans and big corporate hospitals. Especially because, in the case of HCA, it needs to raise a lot of money to pay off the enormous debt service on its recently announced $33 billion leveraged buyout.

"These standoffs serve as potent examples of the irrational and unbalanced nature of the current process of contracting with health plans, which creates the kind of standoff we are seeing in Denver, Florida and other places. Brinksmanship like this does not benefit the provision of health care. Ultimately, patients and physicians pay the price in terms of new barriers to obtaining needed care," said Jeremy Lazarus, MD, vice speaker of the AMA's House of Delegates and a psychiatrist from Denver, in a prepared statement.

United has 850,000 members in Colorado, while HCA, which operates as HealthOne in the state, controls nearly 40% of the hospital beds in the Denver area. In the Miami and Tampa Bay, Fla., areas, United has nearly 1.2 million members, though HCA's market share is smaller than it is in Denver. The HCA-United contract in Colorado expired Sept. 1; the one in Florida expired Aug. 29.

Richard May, MD, president of the Colorado Medical Society, said the standoff has meant that some physicians and their patients have had to delay nonemergency care. In other cases, he said, physicians have scrambled to get privileges at non-HealthOne facilities. Others have simply lost patients to other physicians who already have those credentials.

The medical society was trying to set up a help line for physicians and patients in similar situations. Dr. May said the organization hadn't taken sides in the debate. Rather, it was urging the state insurance commissioner to get involved -- though the insurance commissioner said the law won't allow the agency to intervene -- and hoping for a quick resolution. "We just want them to get it settled."

At issue are the discounted payment rates that are negotiated between the health plan and hospitals. Each side said the rates they were seeking were fair and competitive.

"We feel pretty strongly that if we accepted these rates and passed them on as premium increases to our customers and employers that some of them wouldn't be able to afford health care coverage," said Tyler Mason, a spokesman for Minnetonka, Minn.-based United.

HCA spokesman Jeff Prescott said part of the problem was that some parts of the contracts hadn't been negotiated for several years. He said the Nashville, Tenn.-based hospital chain was asking for new rates that were in line with rising costs.

Some analysts have suggested HCA was taking a more aggressive stance in negotiations because of the pending leveraged buyout offer from a consortium of private investors. That deal was announced in late July and expected to close this fall.

Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Conn., said it would seem logical for HCA to change its tactics as it prepared to be taken over by private investors, who often seek ways to improve cash flow.

"The outcome of this particular situation may determine where these next negotiations go. Depending on whether it's a draw, whether one side can clearly declare victory, I think will write the script for other markets and other negotiations," she said.

Prescott said there is "no connection, no relationship whatsoever."

But both companies were also facing potential contract impasses in other markets as well, with HCA still trying to hammer out a new contract with Sierra Health Services in Nevada before the end of the year, and United in heated talks as a Nov. 1 deadline looms with Froedtert Hospital in Milwaukee, Wis. Meanwhile, in August, United and the UAB Health System in Birmingham, Ala., broke off talks for ending their eight-month impasse. And it's not just United and HCA -- the Chicago Tribune reported on Sept. 8 that Rush University Medical Center and Health Care Service Corp.'s BlueCross BlueShield of Illinois will cut ties as of Jan. 1, 2007.

Meanwhile, physicians and patients in the affected markets were left trying to decide if they could wait for the storm to pass.

Michael Wasylik, MD, an orthopedic surgeon in Tampa, Fla., and chair of the Florida Medical Assn.'s managed care committee, said that until the disputes are resolved, physicians run the risk of losing patients to others who can provide in-network care.

"If this goes on longer, those physicians who are not credentialed at a non-HCA hospital will have lost revenue," he said. "It's a very uncomfortable situation."

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