Tenet Shows Hospitals Will Cut Prices For Exchange Patients — But Only So Much

How much will hospitals reduce prices in an effort to win what are expected to be millions of newly insured patients under the Affordable Care Act? A little, not a lot, if deals disclosed this week by Tenet Healthcare are any indication.

The Dallas-based hospital chain told analysts that its first contracts to treat patients buying policies in the ACA’s online marketplaces next year include total discounts of less than 10 percent compared with existing business. The agreements were made with three Blues plans in undisclosed locations.

“At an investor conference in January, there was some talk about the possibility of deeper discounts in pricing — at [low] Medicare and Medicaid levels,” Tenet CEO Trevor Fetter told stock analysts on a Tuesday conference call. “Our recent negotiations should reassure you that this is not the case and that this market is turning out as expected.”

What insurers pay for hospital care will be a key factor in the affordability of plans for people seeking coverage in the ACA marketplaces, also known as exchanges. With the health act’s requirement that everyone obtain insurance, exchanges are projected to furnish coverage for 24 million by 2016. But even with generous subsidies for those on lower incomes, questions loom about whether those lacking coverage will feel they can afford the plans on the exchanges or will choose to pay relatively low penalties for remaining uninsured.

Insurer-hospital contracts are rarely made public. Tenet disclosed only outlines of the Blues contracts, and only for three deals. Still, those details suggest that insurers can’t cut that deep a bargain even by promising patient volume in return for discounts at select hospitals. Many have expected insurers to fight hospital consolidation and pricing power by steering patients into “narrow” provider networks with attractive prices, including in the exchanges. One of the Blues/Tenet deals involves a narrow network; the others are tiered networks, a variation on the same theme.

For Tenet shareholders and hospitals generally, Tenet’s ability to land what’s likely to be substantial Blues exchange business with moderate price concessions seems like good news, even for an industry accustomed to raising prices for private payers, not lowering them.

“We believe the movement to exchanges will eventually lead to a more price-competitive environment” for hospitals, Leerink Swann analyst Jason Gurda and colleagues wrote in a report to clients. “However, we expect the pace of change to be slow and we see little risk to aggregate commercial [hospital] rates over the next few years.”

Consumers who will pay hospitals’ prices via their exchange plans, on the other hand, might be wishing that the Blues had had a sharper pencil.