Addressing Asymmetric Power Dynamics and Ethical Concerns in Healthplan Contracting
A Discussion Paper
In the evolving landscape of healthcare, value-based contracts are increasingly promoted as mechanisms to improve patient outcomes, reduce costs, and enhance the quality of care. However, the implementation of these contracts has raised significant concerns, particularly in relation to the power dynamics and ethical considerations involved. This discussion paper aims to address these concerns by examining the impact of asymmetric information, moral hazard, adverse selection, and bait-and-switch tactics in health plan contracts. The goal is to propose a more equitable approach that aligns with the stated objectives of improving healthcare quality while ensuring fairness and sustainability for all parties involved.
Asymmetric Power and Information
A critical issue in the current contracting process is the asymmetric power and information (1) between Healthplans and healthcare providers. Healthplans typically hold more bargaining power and access to detailed data, which they can leverage to craft contracts that heavily favor their interests. Providers, on the other hand, often have limited access to the same level of information and fewer resources to negotiate more favorable terms. This power imbalance enables health plans to enforce "take it or leave it" contracts, which can place providers in a precarious position, forcing them to accept unfavorable conditions to continue serving their patients.
Moral Hazard and Ethical Concerns
The concept of moral hazard (2) is particularly relevant in the context of health plan contracts. Health plans, driven by the objectives of maximizing profits and minimizing risks, may engage in practices that offload financial and operational risks onto providers. This can include the implementation of contracts that seem beneficial on the surface but contain hidden clauses or conditions that significantly disadvantage providers. Such practices not only undermine the ethical foundation of healthcare but also jeopardize the long-term sustainability of healthcare providers, potentially leading to decreased access to care for patients.
Adverse Selection and Market Impact
Another critical concern is adverse selection (3), where the terms of the contract may inadvertently encourage only certain providers to participate, often those who are less informed or more financially vulnerable. Providers who recognize the risks and low benefits of the contract may opt out, leaving a network of providers who may not be fully equipped to deliver the high-quality, patient-centered care that the contract ostensibly promotes. This selective participation can result in a degradation of care quality across the network, ultimately harming patients and contradicting the value-based care principles that the health plan seeks to uphold.
Bait and Switch: Erosion of Trust
The use of bait-and-switch tactics (4) in contract negotiations is another area of concern. Healthplans may initially present contracts as aligned with evidence-based, patient-centered goals, only to alter the terms once providers have committed. These changes often reveal conditions that are far less favorable than initially presented, placing additional burdens on providers and eroding trust. Such practices can have long-lasting negative effects on the relationship between health plans and providers, making it difficult to foster the collaboration necessary for achieving genuine improvements in healthcare quality and efficiency.
Risk Shifting: Disproportionate Burdens on Providers
A recurring theme in these contracts is the shifting of financial risks (5) from the health plan to the providers. Healthplans often design contracts that protect their own financial interests while exposing providers to significant downside risks. For example, providers may face penalties for failing to meet certain metrics that are challenging to achieve, while health plans reap the benefits of any cost savings or efficiency gains without facing comparable risks. This disproportionate burden can strain providers, potentially leading to burnout, reduced service quality, and ultimately, a decline in patient care standards.
Summary
The current practices in Healthplan contracting, characterized by asymmetric power dynamics, moral hazard, adverse selection, bait-and-switch tactics, and risk shifting, raise serious ethical and practical concerns. To truly achieve the goals of value-based care—improving quality, enhancing patient outcomes, and controlling costs—health plans must adopt a more transparent and equitable approach to contracting. This involves ensuring that contracts are fair, risks are appropriately distributed, and all parties have access to the information and resources necessary to make informed decisions. By addressing these issues, Healthplans can build stronger, more collaborative relationships with providers, ultimately leading to better outcomes for patients and the healthcare system as a whole.
Recommendations
Given the systemic nature of unfair contracting practices throughout Oregon and the Pacific Northwest, healthcare providers must adopt both strategic and collaborative approaches to protect their interests and ensure fairer contract terms. One key strategy is forming or joining provider coalitions to increase bargaining power, allowing providers to negotiate as a group and resist "take it or leave it" contracts. These coalitions can also advocate for legislative or regulatory changes that address power imbalances between health plans and providers. Engaging in legal and regulatory actions, such as seeking legal counsel to challenge unfair practices or filing complaints with state regulators, is another critical step. Providers can also pursue legislative changes by working with lawmakers to draft and promote laws that require transparency in contracts and prohibit deceptive practices.
Exploring alternative care models, such as direct primary care or bundled payment arrangements, can offer providers more control and predictable revenue streams. Participating in Accountable Care Organizations (ACOs) is another option, as ACOs often have greater leverage in negotiations due to their focus on coordinated, high-quality care. Enhancing provider education on contract nuances and investing in data analytics can strengthen providers' negotiating positions by allowing them to better track performance metrics and outcomes. Building public awareness about the challenges posed by current health plan practices through education campaigns and partnerships with patient advocacy groups can also pressure Healthplans to adopt fairer practices.
Developing contingency plans is essential to prepare for potential disruptions, such as contract termination or reimbursement delays. This may involve diversifying revenue streams or exploring non-traditional sources of income, such as telemedicine or concierge services. Collaborating with other stakeholders, like employers and unions, can influence Healthplan selection and contract terms by educating these groups about the negative impacts of unfair contracts. Additionally, providers can propose pilot programs that test new, fairer contracting models in partnership with Healthplans, demonstrating the feasibility of more balanced arrangements. By adopting these recommendations, providers can better protect themselves from unfair practices, promote equitable contracts, and contribute to a healthcare system that prioritizes patient care and provider sustainability.
Definitions
Asymmetric Power and Information: A situation where one party in a transaction has more power or access to critical information than the other, leading to an imbalance that can result in unfair outcomes.
Moral Hazard: A situation where one party is incentivized to take risks because they do not bear the full consequences of those risks, often leading to failure, unethical or undesirable behavior.
Adverse Selection: A scenario where only certain participants—often those with less favorable characteristics—are attracted to a contract or market, leading to suboptimal outcomes.
Bait and Switch: A deceptive practice where favorable terms are initially offered to attract participants, only to be replaced with less favorable terms after commitment has been secured.
Risk Shifting: The practice of transferring financial or operational risks from one party to another, often from a more powerful entity to a less powerful one, resulting in an uneven distribution of burdens.
For more definitions see:
Definitions For Healthy Contract Design.
https://www.mentorresearch.org/healthy-contracts-bill-definitions
Discussion Outline
1. Asymmetric Power and Information
Healthplan as the Dominant Party: The Healthplan holds significantly more power and access to information compared to the healthcare providers. This allows the health plan to design contracts that disproportionately favor its own interests—maximizing profits and minimizing risks—while leaving providers with less favorable terms.
Information Disparity: Providers may not fully understand the long-term implications of the contract or may lack the resources to negotiate better terms. This power imbalance enables the health plan to enforce a "take it or leave it" contract, knowing that providers have limited alternatives.
2. Moral Hazard
Health Plan’s Risk-Shifting Behavior: The Healthplan, aware that it bears little downside risk, might engage in practices that secure its financial benefits while offloading the potential negative consequences onto the providers. This could include offering contracts that initially appear fair but later impose significant financial or operational burdens on providers.
Ethical Concerns: Similar to how an AI might flood a town to keep the water at profitable level, the health plan might push providers into untenable positions to optimize its own objectives, potentially at the expense of patient care and provider sustainability.
3. Adverse Selection
Selective Participation: Providers who recognize the risks and low benefits of the contract may opt out, leaving the Healthplan with a network of less informed or more desperate providers. This could lower the overall quality of care, as the most competent or financially stable providers may refuse to engage with such exploitative contracts.
Market Impact: Over time, this could lead to a concentration of lower-quality care within the network, undermining the Healthplan’s stated goals of improving patient-centered care and increasing quality.
4. Bait and Switch
Deceptive Contract Terms: The Healthplan presents the contract as being aligned with evidence-based, patient-centered goals, but after providers commit, the terms are altered to reveal much less favorable conditions. This tactic not only exploits the providers but also erodes trust and can lead to financial instability for those locked into the contract.
Strategic Manipulation: The Healthplan leverages its information and power asymmetry to enforce these changes, knowing that providers have limited recourse once they’ve committed to the terms.
5. Risk Shifting
Disproportionate Risk Allocation: The Healthplan minimizes its own financial risks adn are not afraid to maximize risks for providers. For example, providers may face penalties for failing to meet certain metrics that are difficult or costly to achieve, while the health plan enjoys the benefits of any cost savings or increased efficiency without facing comparable risks.
Impact on Providers: This creates a precarious situation for providers, who must either accept the unfavorable terms or exit the network, which could limit access to care for patients and reduce competition in the market.
Given the long standing systemic nature of these practices throughout Oregon and the Pacific Northwest, healthcare providers must adopt both strategic and collaborative approaches to protect their interests and ensure fairer contract terms.
Recommendation Discussion Outline
1. Forming or Joining Provider Coalitions
Strength in Numbers: Providers can increase their bargaining power by forming or joining incorporated coalitions, practice associations or group practices that represent their interests collectively. By negotiating as a group, they can resist unfair "take it or leave it" contracts and push for more equitable terms.
Advocacy and Lobbying: These coalitions can also advocate for legislative or regulatory changes that address the power imbalance between health plans and providers, ensuring that contracts are fair and transparent.
Groups joining Group: Incorporated groups may consider joining a incorporated independent practice association as means to increase their bargaining power.
2. Engaging in Legal and Regulatory Actions
Seek Legal Counsel: Providers should consult with legal experts specializing in healthcare contracts to identify and challenge unfair or deceptive practices. This can include seeking injunctions against unfair contract terms or filing lawsuits if necessary. This however can have a prohibitive costs who small groups cannot afford.
File Complaints with Regulatory Bodies: Providers can file complaints with state insurance commissioners, the Oregon Health Authority, or other relevant regulatory bodies to address systemic issues in health plan contracting. This can lead to investigations and potentially new regulations that protect providers.
3. Pursuing Legislative Change
Advocate for Legislation: Providers can work with legislators to draft and promote laws that address the imbalance in health plan contracts. This could include requiring transparency in contract terms, prohibiting bait-and-switch practices, and ensuring that risk is more equitably distributed between health plans and providers.
Push for Value-Based Contracting Reforms: Providers can advocate for reforms that ensure value-based contracts truly reflect the principles of patient-centered care, quality improvement, and fair provider compensation. This can take more than a year and considerable effort or expense to hire a lobbyist.
4. Developing Alternative Care Models
[These options are not feasible in Oregon.]
Explore Direct Contracting Models: Providers might consider alternative models, such as direct primary care (DPC) or bundled payment arrangements, where they contract directly with employers or patient groups. These models can offer more predictable revenue streams and greater control over care delivery.
Participate in Accountable Care Organizations (ACOs): Providers can join or form ACOs that operate under more favorable value-based contracts. ACOs often have more leverage in negotiations with health plans due to their focus on coordinated, high-quality care.
5. Enhancing Provider Education and Resources
Increase Contractual Savvy: Providers should educate themselves on the nuances of health plan contracts, including understanding the risks and benefits of value-based models. This knowledge can help them identify and negotiate better contract terms.
Utilize Data Analytics: By investing in data analytics, providers can better track performance metrics and outcomes, giving them stronger negotiating positions and the ability to demonstrate their value to health plans.
6. Building Public Awareness and Support
Raise Public Awareness: Providers can engage in public education campaigns to inform patients and the broader community about the challenges posed by current health plan practices. Public support can be a powerful tool in pressuring health plans to adopt fairer practices.
Partner with Patient Advocacy Groups: Collaborating with patient advocacy groups can amplify the message and create a unified front advocating for healthcare reforms that benefit both patients and providers.
7. Developing Contingency Plans
Prepare for Disruptions: Providers should develop contingency plans to handle potential disruptions, such as contract termination or reimbursement delays. This could involve diversifying revenue streams, reducing reliance on a single health plan, or securing alternative funding sources.
Explore Non-Traditional Revenue Sources: Providers might consider expanding services that are less dependent on health plan contracts, such as telemedicine, wellness programs, or concierge services.
8. Collaborating with Other Stakeholders
Engage with Employers and Unions: Providers can work directly with employers and unions, who often play a significant role in selecting health plans. By educating these stakeholders about the consequences of unfair contracts, providers can help influence health plan selection and contract terms.
Partner with Health Plans on Pilot Programs: Providers can propose pilot programs that test new, fairer contracting models. Success in these pilots can demonstrate the feasibility of more balanced arrangements and potentially lead to broader adoption.
DISCLAIMER and PURPOSE: This discussion document is intended for training, education, and or research purposes only. The information contained herein is based on the data and perspectives available at the time of writing. It is subject to revision as new information and viewpoints emerge.
For more information see: https://www.mentorresearch.org/disclaimer-and-purpose