Ferd MitchellAmid the increasing financial pressures resulting from the ongoing implementation of the Affordable Care Act, hospitals face a growing concern: They must cope with insurer companies’ use highly restrictive networks for the plans that they sell.

Many insurance companies are responding to intense regulatory and competitive pressures by creating more restrictive provider networks and attempting to reduce the amounts that they pay for covered services.

Cheryl MitchellThis national trend has been the subject of much discussion in the media.a  Hospitals and organized systems of care must decide how much to reduce their charges and whether to sign on with more restrictive networks that will place all charges under intense scrutiny.

Across the country, some hospitals are choosing to redesign their cost and care structures to “opt in,” while others are “drawing a line” and refusing to cut charges beyond a certain point.

The result will be difficult for both patients and providers. Many patients will lose access to the hospitals that they prefer. Hospitals may have to adapt to reducing charges or serving fewer patients.

This change is emerging for 2014, and is likely to accelerate in 2015 as more employers reduce the amounts that they are willing to pay for health insurance.

As a result of financial pressures on individuals and employers, and therefore on insurance companies, hospitals are likely to struggle with determining how extensively they should make financial and operational changes.

This challenge may be an issue for many years. So how should hospitals respond?

Certainly, more efficient operations are part of the answer, but these changes can go only so far.

At what point will hospitals choose to say “no,” and what price will they pay for doing so? And what will happen to relationships within the hospital community, as some hospitals accept new insurance demands while others refuse these demands?

Hospitals will need to make fundamental decisions about their purposes and missions. Each hospital must decide how it wants to adapt, and how it will cope with financial pressures from regulators and insurance companies.

Clearly, such important and complex decisions should not be made lightly. Rather, as part of a deeply deliberative process, hospitals should develop and apply a protocol for evaluating network proposals and guiding responses. This protocol should be clearly understood by leadership throughout the organization to help prevent internal conflict and misunderstanding. The protocol should be designed to guide evaluations of network relationships and define the strategies the hospital will pursue based in its decisions, whether positive or negative. 

A protocol strategy can start with the financial circumstances of a hospital. The "income budget" at present may be modified to show the results with and without a new network commitment—which can be estimated based on increased or decreased patient-days. "Expense budget" options may then be prepared for the current situation and for circumstances with or without the new network, taking into account changes in staffing, services, and capital investment required to meet operational targets.  

Community impact can be estimated in terms of increased or decreased numbers of patients, how physicians are likely to respond, and how relationships within the larger community will be affected. Then, hospital preferences for relationships with all providers, large and small employers, and dominant insurance companies should all be evaluated. Finally, hospital values may be considered: How does the organization see itself evolving in the future, and which relationships are essential to achieve this future?


a. See, for example, Hancock, J., Kaiser Health News; and Landen, R.,  Modern Healthcare.

Ferd H. Mitchell is an attorney, Mitchell Law Office, Spokane, Wash., and a member of HFMA’s Washington-Alaska Chapter.

Cheryl Mitchell is an attorney, Mitchell Law Office, Spokane, Wash.

Publication Date: Monday, December 09, 2013