Inflation-Dogged Health Systems Confident Payers Will Concede Higher Rates In 2023 Contract Negotiations

Health systems confident payers will concede higher 2023 rates

Source: Fierce Healthcare, by Dave Muoio

Executives from some of the country’s largest for-profit health systems say it’s likely their organizations will be able to pass rising cost pressures along to commercial insurers during the next round of contract negotiations.


Speaking to investors during earnings calls this past week, the hospital chains each reported limited non-COVID volumes, supply chain interruptions and pricey contract labor rates that are expected to persist through the end of the year.

Those challenges took their toll on the for-profit health systems, which have across the board adjusted their financial projections downward or, in Community Health Systems’ case, led to a second consecutive quarter of losses.

These hurdles have only been exacerbated by skyrocketing inflation rates that have recently struck the country and are expected to continue in the near term. But here, at least, the health systems say their commercial contracts can help blunt the damage.

HCA Healthcare’s Sam Hazen told investors that the company is “pretty much contracted for 2022.” Those agreements have terms that provide “some protection in the short run” that “allows us to reposition some of our pricing as we move through the next few years to reflect more accurately the inflationary pressures that we’re seeing,” he said.


Looking to the coming year’s commercial negotiations, Hazen said HCA has already seen “some early success and recognition by the payers” and that some of its recently renegotiated contracts reflected higher price escalation than those of the past.

“I think it’s reasonable to assume that we were in 3.5% to 4% zone previously with our commercial pricing,” he told investors. “We’re in a competitive positioning as a company globally and that allows us to negotiate based upon the inflationary pressures. … I believe our relationships will allow us to get to a number that makes sense for both organizations, but I do anticipate it being somewhere around the mid-single-digits.”

Universal Health Services Chief Financial Officer Steve Filton said his company is “aggressively” looking to trim under-earning managed care contracts and seek out higher prices in the coming year.

Both its acute and behavioral care hospitals are identifying contracts that “are not even remotely” keeping pace with inflationary and labor pressure and giving those payers notice of terminations “at a pace faster than, quite frankly, I can really remember,” he told investors.


The country’s largest health insurance company has already signaled some pricing flexibility.

During UnitedHealth Group’s investor call a few weeks back, CEO Andrew Witty, for instance, said the payer will be “very, very respectful of the kind of underlying phenomena within the cost trends of the environment.”

Brian Thompson, CEO of UnitedHealthcare, echoed those comments with respect to inflation and providers’ labor costs with a warning that those factors will have “more impact” on contract pricing in 2023.

Filton said those were the first such acknowledgments he could recall ever coming out of the massive payer—blood in the water for hospitals gearing up to negotiate.

“It struck me, at least, that there was a different tone from some of the payers,” he told investors. “So, our expectation is that payers will be more receptive to [rate increases] in 2023, but we’ll also continue to be aggressive and try and grab the bull by the horns where we’re able to and wrangle rate increases from reluctant payers where we can and where we can’t.”

The ink has already dried on negotiations between Tenet Healthcare and UnitedHealthcare, with the former announcing its hospitals, ambulatory facilities, physicians and other providers all contracted straight through 2025, Tenet Healthcare shared during its earnings call.

Tenet CEO Saum Sutaria, M.D., wasn’t able to share the contract’s specific terms but told investors his company is “pleased with the terms.” While the pricing of managed care isn’t going to cover this year’s 8% to 9% consumer price index increases, he said the arrangement does include escalators and removes some uncertainty surrounding long-term pricing.

As for the remainder of its contracts for 2023 and beyond, Sutaria said he expects inflation to be a central focus of negotiations.

“Every conversation we are having with plans, [the] inflation environment is obviously top of mind,” the CEO said. “Overall, where do we think rates will be? … We see rate increases [in the] 3%, 4%, 5% type of range.”

Elsewhere in the industry, Fitch Ratings warned in a recent research note for the nonprofit hospital market that commercial payers will likely earn some wins in the fight on rate increases due to their often larger size and the inflationary pressures affecting their own bottom lines.

“Nevertheless, providers may be able to pursue rate increases above those achieved in recent years, considering the interdependent relationship of providers and payers,” Fitch wrote.

Less Competition on Health Insurance Exchange Could Lead to Higher Rates

Consumers could see higher premiums since the state’s three largest health insurance companies will continue to dominate the health insurance market in the California. Blue Cross, Blue Shield, and Kaiser are in the health exchange. United Healthcare, Aetna, and CIGNA say they will not participate in the exchange, and the law prevents them from reconsidering joining for the next two years. “When smaller companies step aside, the Big Three insurers gain even more power over prices in the health insurance market,” said Jamie Court, president of Consumer Watchdog. In some states with rate regulation in place, health insurance companies have proposed higher rates than necessary and lowered them when confronted by regulators and competitors with lower prices, he noted.

Last Updated 08/10/2022

Arch Apple Financial Services | Individual & Family Health Plans, Affordable Care California, Group Medical Insurance, California Health Insurance Exchange Marketplace, Medicare Supplements, HMO & PPO Health Care Plans, Long Term Care & Disability Insurance, Life Insurance, Dental Insurance, Vision Insurance, Employee Benefits, Affordable Care Act Assistance, Health Benefits Exchange, Buy Health Insurance, Health Care Reform Plans, Insurance Agency, Westminster, Costa Mesa, Huntington Beach, Fountain Valley, Irvine, Santa Ana, Tustin, Aliso Viejo, Laguna Hills, Laguna Beach, Laguna Woods, Long Beach, Orange, Tustin Foothills, Seal Beach, Anaheim, Newport Beach, Yorba Linda, Placentia, Brea, La Habra, Orange County CA

12312 Pentagon Street - Garden Grove, CA 92841-3327 - Tel: 714.638.0853 - 800.731.2590
Copyright @ 2015 - Website Design and Search Engine Optimization by Blitz Mogul