This is a real life example of the dynamic that regularly plays out between health insurers and health care providers. It involves Oxford Health Plans, a subsidiary of UnitedHealth Group and MediSys Health Network . You can read about it in the New York Times. Here’s the short version.

In 2004 Oxford and Medisys, which operates two hospitals in Queens, New York, negotiated increased rates in their managed care contract. However, time passed and Oxford never paid at the new, increased, reimbursement amounts. After awhile MediSys says, "what’s going on? Why aren’t you paying at the increased rates?" Oxford says, "oh, yeah. Well, tell you what, we’ll pay the new rates we agreed to pay a few months ago if you get that group of anesthesiologists at one of your hospitals to agree to accept contracted rates instead of insisting on payment at their billed charges." MediSys says, "hey, they go their own way; we don’t have control over them. Besides, that has nothing to do with you and us. Pay us the money you owe us and negotiate with the anesthesiologists yourselves." In response, Oxford not only continues to ignore the new payment rates but terminates the contract with MediSys’ Jamaica hospital. Of course, this was quite upsetting to the Jamaica hospital, its doctors and the Oxford insureds receiving treatment there. Things are now in court.

From my experience insurers have been remarkably effective at kneecapping providers in this way. Kenneth E. Raske, President of the Greater New York Hospital Association, said that if Oxford’s strategy works, "every financially troubled hospital is at the mercy of any major insurer that does not want to honor its contract." That pretty much hits the nail on the head.

Hopefully, the court will hold Oxford’s feet to the fire and require it to live up to the terms of the contract. An insurer who gets away with the type of bad faith Oxford is demonstrating here will simply be encouraged to do it again and again. And so will the competitors of that insurer.

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