By Christopher Guadagnino, Ph.D

Published May 1999

PROVIDERS ESCALATE CONFLICT WITH INSURERS

• Insurance Dept. inches closer to Blues hearings

• UPMC's battle against Highmark's role in the Allegheny bailout

• React to this article in the Discussion Forum.

Provider Responses

• DVHC filed complaint with Pa. Insurance Department over IBC business practices.

• Five Jefferson hospitals threaten to drop Aetna U.S. Healthcare contracts.

• Philadelphia-area physician files class action lawsuit against Aetna alleging refusal to pay for pre-authorized services and routine payment delays.

Worsening matters is an expected $1 billion reduction in Medicare payments to area hospitals for inpatient services alone, according to the Delaware Valley Healthcare Council (DVHC).

Most hospitals suffered sizable operating losses last year: Temple University Health System lost $24.7 million, Jefferson Health System lost $30.5 million, Crozer-Keystone Health System lost $4.5 million and Tenet Healthcare Corp. lost $6.2 million, the Philadelphia Inquirer noted. Hospital networks are tapping their investment income to endure the losses.

Given such a grim market environment, reimbursement problems with the region’s dominant health insurers—in the form of payment delays, denials and reductions—are pushing hospitals to the point where the economic ruin of some may no longer be a hyperbolic prognosis. DVHC President Andrew B. Wigglesworth told the Pa. House of Representatives Insurance Committee that "we simply do not have the financial capacity to sustain inordinate payment delays by payors."

Health care organizations and providers are beginning to fight back in more extreme ways than ever before. A DVHC complaint against Independence Blue Cross (IBC) business practices is pending with the Pa. Insurance Department. Five Jefferson Health System hospitals have threatened to drop their Aetna U.S. Healthcare contracts if reimbursement terms are not improved. A physician from southeastern Pa. is seeking class action status for a lawsuit against Aetna U.S. Healthcare alleging that it refused to pay for pre-approved services and routinely delayed reimbursement. Hospital systems are willing to consider emergency avenues of recourse if payor reimbursement patterns don’t improve, and are not ruling out lawsuits against IBC and Aetna.

The legislative salve of Pa.’s Quality Healthcare Accountability and Protection provisions in Act 68 may not offer much solace to providers. The provisions authorize the Insurance Department to impose a per annum ten percent penalty on payors for clean claims not paid within 45 days and may entail a $5000 fine per violation, but the wording of the provisions may not guarantee their promised restitution.

A recent DVHC survey of hospital accounts receivables indicated that the region’s payors are routinely taking over 60 days to pay outstanding claims, while millions of dollars in payments are taking over 180 days to be paid, notes DVHC Vice President Len Carp. According to Pa. Insurance Dept. data, for example, average days of claims payable for Keystone Health Plan East has grown from 37.9 days in 1994 to 61.7 days in 1997, Carp adds, noting that the pattern has not improved since Act 68 went into effect last June.

The DVHC filed a complaint with Pa. Insurance Dept. Commissioner M. Diane Koken last July against what it called "coercive, illegal conduct" on the part of IBC and requesting that the Department perform a market conduct investigation of IBC’s practices relating to hospital and provider contracts. The complaint alleged that IBC "has sufficient market power in the Delaware Valley to dictate the fate of many area hospitals."

DVHC filed the complaint shortly after IBC announced reimbursement cuts for several hospital services, including outpatient procedures, emergency room visits and laboratory and radiology services, says Carp. The complaint charged that IBC unilaterally changed hospital contracts, violating state law requiring Insurance Dept. approval of such changes and violating the Pennsylvania Unfair Insurance Practices Act.

Carp says that the foundation of the complaint has not changed since it was filed and notes that DVHC has had several discussions with the Insurance Dept. and is waiting for a final decision.

The future of the complaint seems unclear, given that the Insurance Department says that it is waiting to receive from DVHC further documentation about the complaint that the Dept. says it requested three months ago, according to Insurance Dept. Deputy Press Secretary Melissa Fox. Responds Wigglesworth, "We’ve provided the Insurance Dept. with extensive information on the matter over the past three months. The complaint is still pending before the Insurance Dept. and they have not appropriately adjudicated."

In the meantime, Carp says DVHC has been meeting with health insurance medical directors and hospitals to work out process issues such as how to fill out claims forms accurately and completely to expedite payment, but Carps adds that there is still a large lag in payment time and a high level of denials of payment.

The severity of those problems has prompted more immediate and provocative actions by hospitals and providers.

Five hospitals in the Jefferson Health system whose Aetna U.S. Healthcare contracts expire July 1 have countered Aetna’s proposed reimbursement decreases by asking for an average payment increase of 55 percent over last year and have threatened to drop the contracts altogether if contract terms don’t improve. The hospitals include Lankenau, Bryn Mawr and Paoli hospitals, Bryn Mawr Rehab and Albert Einstein Medical Center.

In an unprecedented public campaign apparently designed to garner support from the health care purchaser and consumer communities, Jefferson CEO Douglas Peters has written editorials in both the Philadelphia Business Journal and the Philadelphia Inquirer and sent letters to patients of each of the hospitals highlighting the impact of Aetna’s reimbursement cuts. Peters claimed that Aetna pays an average of 65 percent of cost for patient care at the hospitals and even lower for some procedures, e.g., 37 percent of cost for a hip replacement at Einstein Hospital and 50 percent of the cost for a heart valve replacement with a cardiac catheterization.

In the editorials and letters Peters warned patients and the public that the five Jefferson hospitals cannot operate under such a contract with Aetna without degrading its level of care quality, clinical research and education. The letters informed patients that Jefferson hoped to have new contracts in place before June 30 and is having weekly negotiations with Aetna. They listed Aetna’s toll-free number for patients to exert pressure on Aetna. "If you are concerned," the letter stated, "you have the right to contact your employer, benefits manager, or Aetna/US Healthcare directly and tell them that you want to maintain your access to all Jefferson Health System hospitals, and that you support a new contract between Aetna/US Healthcare and JHS. You can also ask your employer to make other health plans available to you..."

Peters’ Inquirer editorial even mused about whether a partnership between government and the private sector, or even a single payer model, would be needed in the long term to guarantee access to health care.

Hospitals may need to resort to "end game" tactics like Jefferson’s because they have few alternatives in a monopolistic health insurer environment besides lawsuits and lobbying, says health care analyst Jeffrey Fox of Medimetrix. Large blocks of providers, like the Main Line hospitals, could bring the negotiating leverage of large geographic provider coverage, Fox believes. "Part of the reason people choose a health plan is choice of hospitals, and both employers and employees could exert effective pressure on health plans," Fox notes.

That geographic "end game" approach was successfully played in early April by Columbia HCA in Florida where Humana Inc. agreed to a 15 percent reimbursement increase to Columbia’s hospitals after Columbia threatened to cut Humana contracts. Humana also agreed to pay Columbia HCA $5 million to settle disputes over its previous Columbia hospital contract. The new agreement settled a contract dispute on the day that contracts were set to expire with 56 Columbia HCA hospitals, affecting 1.3 million Humana members. Humana said it agreed to Columbia HCA’s terms to avoid having its subscribers "greatly inconvenienced by a termination of services," according to the Associated Press.

An end game approach taken in the Delaware Valley market may be riskier because "IBC and U.S. Healthcare have deeper pockets for a game of chicken than any health system in the region," notes Marc Benoff, a director at Dan Grauman Associates, Inc. consulting firm in Bala Cynwyd.

Should Jefferson and Aetna fail to reach a contract agreement, Main Line and Einstein physicians must be positioned to admit their patients to other Jefferson hospitals. The beginning of such contingency plans was addressed at an Einstein medical staff meeting in mid-April at which Germantown Hospital physicians were welcomed, according to a physician who attended. Germantown’s acute care services were recently subsumed by Einstein. Physicians at the meeting were reportedly concerned about losing Aetna patients and about how to maintain continuity of care at other facilities, given that recredentialing physicians at other hospitals takes time and the Aetna contract expires July 1.

A danger to Jefferson is that Main Line and Einstein physicians could develop relationships with non-Jefferson hospitals in order to retain their patients and minimize inconvenience and dislocation of services.

Other providers are pursing a course of legal redress in the face of reimbursement problems. Payment delays and denials by Aetna U.S. Healthcare have prompted former chief of plastic surgery at MCP-Hahnemann University Hospital Mark P. Solomon, M.D., to file a lawsuit last month in Philadelphia’s Common Pleas Court. Solomon said he has documentation that Aetna has routinely delayed payment over 60 days and failed to pay for pre-approved treatments to Aetna subscribers on a number of occasions, behaviors which the lawsuit alleges represent a pattern of fraud and negligence.

Solomon says his attorneys hope to win class action status for the lawsuit, which would allow it to be joined by physicians and hospitals throughout Pa. whom Aetna has not fully reimbursed for pre-approved services. Winning class action status, Solomon notes, could take three to six months.

Other health systems in the region have yet to tip their hand as to how they hope to heal their acute financial wounds. The University of Pennsylvania Health System lost $90 million on operations in 1998, and its deficit last year was substantially greater than its 1997 operating deficit of $15 million, the Inquirer reported. "We have three to four times greater accounts receivables compared to one year ago," says David Shulkin, M.D., Penn’s chief medical officer and chief quality officer.

As Penn tries to get its operating budget to break even, says Shulkin, it will try to honor the capital spending commitments it has already made, but will look at other spending projects with "increased scrutiny."

Penn is holding "lengthy discussions" with payors to work out any bureaucratic blockages to timely claims payments, Shulkin says, emphasizing the complexity and amount of information that has to be transferred to settle payment claims. Penn is attempting to negotiate a cash advance with insurers until procedural corrections can be made to the claims process, he notes.

"I don’t believe that it’s in the payors’ best interest not to pay us for services we provide," says Shulkin, who does not see dictating low rates and withholding payments as a rational way for payors to dismantle health care delivery systems, even in a market that analysts say is overbedded by 50 percent. "I’m not sure how delaying payments accomplishes reductions in utilization and bed capacity," he says. More meaningful tools exist for that purpose, he notes, such as medical management and risk relationships.

"HMOs essentially have an interest-free loan when payments are delayed, and all insurance companies have a piece of their profits that depends on a lag in paying out policies," notes Benoff. Additional profit accrued from that lag may result in HMOs underestimating their costs and underpricing their products, Benoff adds.

Whether claims denials and delays are caused by claims processing obstacles or willful withholding by the insurers, Shulkin observes: "The end result doesn’t matter. This problem is one of our highest priorities and we’re not willing to put it on the slow track."

If no progress is made to iron out claims processing obstacles, "We have a series of fallback positions to protect our interests. But nobody wins if dialogues break down," Shulkin declares. Asked if Penn would consider joining Solomon’s lawsuit if it became class action, or whether Penn would consider filing its own lawsuit against insurers, Shulkin says that the best scenario is for Penn to resolve the reimbursement matter directly with the payors but adds, "We would not exclude any other options."

Penn has been watching with interest the HMO product formed by the University of Pittsburgh Medical Center and would not rule out such an undertaking, says Shulkin, who notes that forming such a product is a serious capital endeavor and that Penn’s desire is to remain with its core competencies of providing patient care.

As for approaching health care regulators and requesting that they enjoin objectionable business practices of payors, Shulkin says, "This will be a critical year for us to come to a conclusion on that question."

A key reimbursement problem, Shulkin says, is the large differences of opinion between insurers and providers on what constitutes a "clean claim." Shulkin notes that the 45-day clean claim payment provision of Act 68 has not helped Penn, adding that a significant part of Penn’s accounts receivables—totaling tens of millions of dollars—is caused by disputes over the accuracy of claims submitted as clean.

While the Pa. Insurance Dept. has the authority to enforce the clean claims provisions of Act 68 with or without additionally promulgated regulations, it is up to the health plan’s discretion to determine whether submitted claims are clean claims, according to the Department’s Deputy Press Secretary Melissa Fox. Act 68 excludes from the definition of clean claim "a defect or impropriety," including "lack of required sustaining documentation."

Regulations could, however, remove the ambiguity of Act 68’s definition of clean claim. HAP is lobbying the Pa. Legislature to require payors to accept the UB-92 or the national uniform claims form for hospital services and a HCFA 1500 form for physician services. HAP also hopes regulations will limit payors’ requests for supporting claims documentation to abstracts of patients’ medical records.

The effectiveness of provider recourse through Act 68 comes down to what the Insurance Dept. is willing and able to do, notes Charles Artz, Esq., of Charles I. Artz & Associates in Harrisburg. Artz believes that the reimbursement rules in Act 68 were written too simply to provide firm statutory basis for effective recourse. "The only hammer you have is to aggregate provider claims and go to court, using a litigation recourse that exists right now," says Artz.

How the reimbursement end game will play out in the region may not spell good news for hospitals. Market studies such as Standard & Poor’s indicate excess hospital capacity and cost in the region at a time when hospital systems are hard-pressed to negotiate timely payments, much less payment increases.

Not many excess beds in southeastern Pa. have been taken out of the market yet, notes analyst Jeffrey Fox, who believes that financial pressures may lead to more acute care hospitals converting to outpatient centers skilled nursing and long term care facilities, as happened to Germantown Hospital.

Hospital closures may occur, especially in poorer parts of the city, unless government steps in to prevent them, and hospitals with the highest occupancy levels and strongest physician relationships are most likely to prevail, Fox predicts. Hospitals may best focus their efforts on improving hospital services for physicians to solidify allegiances, e.g., offering convenient operating room schedules, expediting lab results and making efficient use of physician time.