Baptist Health of Little Rock is in a tough position, it told Arkansas Business recently in a statement: It cannot continue to accept low reimbursements from commercial health insurance companies and still deliver sound health care to Arkansans.
Baptist, the state’s largest health care provider, says it and other hospital groups have faced “unprecedented” costs to cover wages, supplies and pharmaceuticals since the pandemic, but has seen stingy reimbursement deals from insurers.
The insurers, in turn, say that they can no longer pass along ever-higher health costs to employers and policyholders.
In its Jan. 4 statement, Baptist Health said it had reached agreements with all large payers in Arkansas for 2024 with one big exception: UnitedHealthcare of Minnetonka, Minnesota.
As a result, Baptist has been out of UnitedHealthcare’s insurance network since Jan. 1. Hospitals are still struggling nationwide, even though their margins improved last year. Margins have not yet returned to pre-pandemic levels, according to Kaufman Hall of Chicago, a consulting firm that advises health care and education organizations and collects data from more than 1,300 American hospitals.
Through November, the operating margin index for U.S. hospitals was 2%; before COVID, it was 3.5%, according to Erik Swanson, Kaufman Hall’s senior vice president of data and analytics.
Bo Ryall, president and CEO of the Arkansas Hospital Association, said that hospitals and health systems are turning to commercial payers for increased rates to keep up with inflation.
“And some are responding and negotiating and some are not,” Ryall said. “Medicaid is not going up any, and Medicare has gone up a couple of percentage points. So it puts pressure on looking at those commercial insurance contracts to make sure that they’re paying the cost of care for our patients in the hospital.”
Hospitals are also negotiating on being paid in a timely manner, he said. “A lot of commercial insurance can be slow pay, no pay, or they can just opt to deny the care, which affects the payment rates as well,” Ryall said. “We’re seeing them trying to maximize their profits on the backs of hospitals.”
Hospitals rely on commercial payers to offset the shortfalls from patients covered by government programs such as Medicare and Medicaid.
“But even in the aggregate, I think you’ll find with the commercial payers, hospitals in general are struggling to just break even at this point,” said Colleen Hall, senior vice president of revenue cycle at Kodiak Solutions of Indianapolis. Hall was an author of a May 2023 report that analyzed data from 1,800 hospitals and 200,000 physicians. It found that commercial payers might provide higher reimbursement rates to providers for care to their members, but getting them to pay is another story.
As a result, hospitals like Baptist Health are taking a stand.
“And so now they’re out of network, which is unfortunate because that does then just pass some additional burden on to their patients,” Hall said.
Conditions at Baptist
Baptist Health’s statement said that for the past five years it has been open with insurance payers about the economic challenges Arkansas hospitals have faced. “These challenges are largely driven by Arkansas hospitals having the lowest overall reimbursement rates in the nation by a significant margin,” said Cara Wade, a company spokesperson.
While Baptist Health said it improved operational efficiencies and controlled costs, it hasn’t been enough to overcome rising expenses. In the first nine months of 2023, Baptist Health reported an operating loss of $13.5 million, and during the same period in 2022, the operating loss was $22.7 million. (The final operating loss for 2022 was $5.4 million.)
Baptist Health has 12 hospitals in Arkansas and more than 100 primary and specialty care clinics in the state.
While Baptist Health’s offer to UnitedHealthcare “includes reimbursement rates that meet immediate needs,” the offer is “still well below the national average, and [is] below what UnitedHealthcare already pays to other hospitals in surrounding cities,” such as Texarkana, Texas; Springfield, Missouri; Shreveport; Tulsa; and Memphis, Wade said in the Jan. 4 statement.
UnitedHealthcare said in a statement on its website that Baptist’s current rates are already higher than the average rate it pays other hospitals that participate in its network in Arkansas.
“Yet the health system proposed a one-year, 15% price hike and recently communicated to us it would also be seeking a double-digit rate increase in the second year of our contract,” a UnitedHealthcare spokesman said in a Jan. 4 email. “We have proposed a multi-year contract that includes meaningful rate increases that ensure Baptist is reimbursed at more than fair and reasonable rates.
“We ask that the health system either finalize the terms of our proposal or provide a reasonable proposal Arkansans and local employers can afford,” the spokesman said via email.
On its website, UnitedHealthcare said that Baptist’s request comes at a time when many Americans and companies are struggling financially. “Baptist continues to request double-digit price hikes that are neither affordable nor sustainable for families and employers across Arkansas,” the statement said.
Baptist Health accused United Healthcare of posting “misleading and negative information that does little to address the undisputed reimbursement challenge that has developed over many years,” Wade said in the statement.
The AHA’s Ryall said that while health insurance premiums have risen through the years, hospital payment rates have remained flat. “We’re not the ones who are increasing premiums,” he said. “Those are going up anyway without paying us more.”
Baptist Health wasn’t the only hospital system that didn’t accept UnitedHealthcare’s rates. Conway Regional Health System initially left UnitedHealthcare’s network on July 1 after tough negotiations over reimbursement rates failed to produce an agreement. In August, Conway Regional announced it had a new deal with UnitedHealthcare.
Commercial Payers
Kodiak Solutions’ Hall said that while commercial payers will pay higher reimbursement rates for the same service compared with government payers, “it is more challenging to actually receive the payment from the commercial payers because of the administrative burdens that they then also placed on the health systems.
“So in the end, when you tack on the additional expenditure required to fight a denial or obtain prior authorization, or follow up on the aging accounts receivable multiple times, and the list continues to go on, how much more is it really that they’re getting paid, because it’s cost so much more to actually obtain those dollars that the hospital is entitled to receive?”
She said the rate of authorization and precertification denials is rising with commercial payers compared with Medicare.
In 2022, the percentage of prior authorization denials by commercial payers was 2.8% compared with 2.4% the previous year. In the first quarter of 2023, the denial rate had climbed to 3.2%, according to the May report by Crowe Revenue Cycle Analytics.
Meanwhile, Medicare’s claim denial rate remained 0.2% during that period. (Crowe RCA operated under Crowe Healthcare Consulting, which has since been sold and now operates under the company name Kodiak Solutions.)
Hall added that providers aren’t getting all the money they expect to get from commercial payers. There are three reasons for these nonpayments. First, 2% of them are attributable to bad debt from policyholders who have high-deductible plans but can’t pay their portion of the deductible. Second, 3% stems from a final denial. And third, 3% is a “takeback,” when a payer pays a provider for services but then determines the payment wasn’t justified and claws back the payment.
“So out of every dollar, 8 cents is expected to have to be given back to the payer in some way, shape or form,” she said. “And that doesn’t even account for the additional expense to manage this population as well to receive payment. … Even though people think commercial is so much better, it isn’t really in the end.”
Hospitals Improving
While operating margins continue to improve, the gap is widening between the top-performing hospitals and the lower performing ones, said Kaufman Hall’s Swanson.
“What we are seeing is that the higher, stronger performers are tending to do better and better,” he said. “The weaker, lower performers are doing worse and worse.”
The top performers tend to be the larger organizations in urban areas and have established outpatient facilities. “Additionally, many of these as well also have an employed physician or medical group associated with them. And those characteristics together, if they’re doing it well, tend to help the organizations,” Swanson said.
Most health care organizations have reduced the amount of contract labor, which has helped improve margins, although margins still remain tight relative to pre-pandemic levels, Swanson said.
More patients also are seeking care in an outpatient setting, where it’s less expensive to deliver care than in a hospital.
The hospitals that are struggling tend to be small, rural hospitals, he said, and this year could be a make-or-break year for some of those facilities.
“On the whole, I think things will improve slightly,” Swanson said. “But the caveat here is when we talk about that bottom third [of hospitals], they are still in a very tenuous position. And I think we should still expect some significant challenges for that bottom third.”
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