The insurance company signs contracts with doctors and hospitals agreeing on their relationship. These agreements include the maximum amount the plan will pay for a given service, and may also specify much more, depending on how many patients the plan can promise to refer to (or withhold from) the doctor.

If an insurer has a lot of power in a market -- by insuring a large number of patients who use a doctor or hospital -- it can insist on a lot of details to its advantage. For doctors, the contract may specify that they cooperate with the cost control strategies of that HMO. It will typically prevent the doctor from discussing precise details of how the HMO pays for your care, and may prohibit him from saying anything that makes you more likely to change to a different insurer. Some will even try to make your doctor agree to pay the HMO's legal expenses out of her own pocket if you sue the HMO.

For hospitals, it may pay a flat daily rate to the hospital for all services provided, even if a patient needs so much care that the hospital loses money for that day. It may refuse to pay for a day if it thinks nothing went on that couldn't have been done in a nursing home (it assumes all your doctors will drive out to visit you in the nursing home every day) and may prohibit the hospital for billing you for denied days -- even if the fact that you didn't leave was because you had no way to pay for the nursing home and the hospital had no choice but keep you. If you just don't want to go to a nursing home, the hospital is expected to have you expelled for trespassing or else eat the charges itself.

Since the daily rate is basically a guess of how many services the average patient will need on the average day during the next contract period, it is common for hospitals and insurers to disagree on what is a reasonable payment rate. Only the most in-demand hospitals can afford to walk away if the insurer won't offer a price that allows them to provide proper care.

This is good for patients if the hospitals they use are inefficient and overpriced, because it keeps that from driving up the premiums they pay. But it can and does force hospitals into bankruptcy -- especially teaching hospitals, whose inefficiencies are due in part to the time and money spent training the doctors who will be caring for you in ten or twenty years. (Frankly, medical education is suffering because the teaching doctors are expected to see enough patients themselves to bring in more of these discounted payments to cover expenses, instead of spending that time teaching.) Services like nursing care are being cut at hospitals everywhere, because they can no longer afford to have a nurse immediately answer every patient pushing the call light for a glass of water -- even though that same call light is the only way the patients can summon help if having chest pain or watching a roommate having a cardiac arrest.



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©2000 Eileen K. Carpenter, MD