shutterstock_50485129The fee-for-service world of professional reimbursement (compensation for services) is, essentially, the following economic transaction between payer and provider:

  • Provider point of view: In exchange for patient volume being directed (Steered) into my practice I will allow for a discount off my billed charges.
  • Payer point of view: we will direct patients into your practice via patient cost share amounts, in and out of network benefit differentials, etc. in exchange for an agreed to reimbursement schedule.

Reimbursement amounts are sensitive to, among other things, the law of supply and demand. In larger urban areas the supply of a given specialty needed for the payers network dictates the reimbursement level. Where providers are in perceived short supply the price goes up. Where they are perceived to be in overabundance the prices go down or stay stagnant.

In some markets and specific to some specialties there is an overabundance of providers in a given specialty that has been tolerated for a variety of reasons: it keeps patients happy (patients like choice), it spreads out risk, it allows for stagnation of reimbursement, etc.

shutterstock_177677333There is a tipping point however! Payers, who have fully insured customers, partially funded and self-funded customers (Employers and increasingly Affordable Care Act/Exchange membership) simply pass along the cost of care, one way or another, to their customers. Those customers (i.e. employers) have for far too long simply absorbed the increasing costs (or they have passed it along to their employees in the form of higher premiums, higher and higher cost share, deductibles, co-payments, etc.) and now we are seeing a rebellion. Why?…because they now can!

The payers and the traditional way their “product” (health insurance coverage) and “services” (paying claims, developing a network, medical management, etc.) are sold is going through just as much change as is being felt on the provider side.  The brokers and direct sales people are having their commissions cut, employers are revolting – threatening to just allow their employees to go at it alone through the ACA and all of this is combining with the latest generation of work force who no longer stay with an single employer for very long and thus do not value the very expensive benefits lavished upon them. The young and healthy (those we need in the insurance system so desperately) tend to be very transient and don’t feel the handcuffs of great benefits.

The market is changing! The tipping point has arrived (depending on your specific location and your specialty). Health plans no longer want or need a large network of providers. They never did need a large network they just tolerated it for patient convenience and for rate pressure. The trouble with allowing large networks for so long (especially in a market that is more PPO than HMO) is that it is hard to dismantle it. Employers and more so patients have enjoyed having a lot of choice. Today (the tipping point) employers and patients pay more attention to the intolerable cost of premiums! Rates are out of control!

If and when a payer can shrink its network they will, especially if the payer can take credit for it. (“look at us, we dropped the most expensive providers from our network” or “We have identified for you the most expensive providers with our rating system”) Once upon a time providers could (and some did so successfully) get together in larger groups and use market dominants to demand higher fee-for-service reimbursements. Today (with some latitude to the specific market) that strategy only allows a health plan an excuse, the chance and the positive public relations to shrink its network size and push more volume into fewer providers.

shutterstock_82001416Change always brings opportunity: The fee-for-service “beat our chests” and demand more days are over for most specialties, especially those which are in abundance. Such chest beating will simply play into the hands of the payers who are looking for an excuse to shrink their big networks.

The real opportunity exists in looking not at the rates providers receive but rather at the much larger overall Spend. Physicians receive roughly 16% of the Spend on any case, diagnosis, course of treatment (rough number). Physicians (and other provider colleagues) have, however, control of the other 84% of the Spend! Control it, take credit for its control and demand a piece of the larger number! The play is not in trying to make the smaller number bigger…The real play is getting a piece of the larger number.

More to come…