Hospital-Health Plan Contractual Feud Goes Public

Today’s Managing Health Care Costs Indicator is 3%.

Dear Business Partner:

Tufts Medical Center and NEQCA Are Terminating from Our Network
The single biggest piece of health care spending is what doctors and hospitals are paid to care for patients. About 90 cents of each premium dollar goes toward medical services. When these costs increase, premiums go up. In our meetings with hospitals and doctors over the past several months, we made it clear that we want to pay them the reasonable costs of caring for our members, while being responsive to the community's expectations about affordability.

Regrettably, both Tufts Medical Center (TMC) and the New England Quality Care Alliance (NEQCA), an organization that represents doctors, have told us they do not want to participate in our provider network at the rates we offered to pay. We still hope to reach an agreement with these providers. However, if we do not, these providers will be terminating their HMO Blue^®, HMO Blue New England^SM, and PPO contracts with Blue Cross Blue Shield of Massachusetts, effective January 17, 2012. These providers will be terminating their Indemnity contracts effective March 31, 2012.

With these words, Blue Cross of Massachusetts set in motion the latest salvo in provider-health plan contractual wars. Tufts Medical Center and its affiliated physicians care for  somewhere between 88,000 (WBUR) and 200,000 (Boston Herald) Blue Cross Blue Shield members – so this is a big deal. 

It’s a good opportunity to review some of the underlying issues in the intricate dance of health plan - provider contracting.  

1. Why do these contract disputes become public in the fall?

Fall is open enrollment season – when many patients have the option to change their insurance plan.   Providers in general feel that they have a higher amount of leverage at the time when health plans worry that members will switch to competitors.

However, many members now have only a single insurance health plan available through their employer, so the opportunity to shift from BCBSMA to a competitor is much lower than a decade ago. 

2. If Tufts Medical Center leaves the Blue Cross Blue Shield network, will that lower health care costs?

Click image to enlarge 

Not likely.  Tufts Medical Center is paid substantially less than other academic medical centers, and even less than some community hospitals.   See this graphic from the recent Attorney General Report.  (Find Tufts under “New England Quality Care Alliance” about 1/3 from the left on the graphic below).  Here’s a link to my post from June when this report was released, which shows Tufts (as NECQA) always below the middle of the pack in terms of expense. Here’s a link to the AG report. Ironically, this type of transparency might have encouraged Tufts Medical Center to demand higher rate increases. CEO Eric Beyer says Tufts asked for a 3% increase.

However, BCBSMA wants to send a signal that it is serious about not offering large rate increases – so this public negotiation could strengthen the health plan’s hand in private negotiations with other delivery systems.

3. Who goes public with a contractual dispute?

Usually, parties go to the public when they feel they have more leverage.  On the other hand, BCBSMA states that it was legally obligated to go public because it must inform clients and members 60 days before a provider leaves its network.

4. Who has more leverage in this negotiation?

I have no inside information.   Generally, asymmetry of influence determines leverage.  BCBSMA could easily represent a fifth of Tufts Medical Center’s income (if Medicare represents about half, and considering that BCBSMA represents almost half of the commercial market), while Tufts Medical Center represents only about 2% of hospital discharges for the state – so is unlikely to represent more than 3-4% of total BCBSMA business.  (Data from 2006 – most recent I could quickly find)

Provider leverage is diminished by the movement from HMOs (where patients have no coverage outside the network) to PPOs (where patients can go outside the network but must pay deductible and coinsurance).  There is increasing acceptance of narrow networks – which also diminishes provider leverage.  The demand for all-inclusive provider networks in the 1990s helped gain many hospital systems large increases during that decade.

The total amount of the disagreement is reported by the Boston Globe as $11 million in a $1.2 billion contract.   That’s not much – so I’m guessing that 88,000 (or 200,000) patients will not have to scramble for new providers in January.

Uwe Reinhardt has a commentary this month in Health Affairs suggesting that we should do all-payer rate negotiation, which would mean that each provider would be paid the same for similar services.  I'll be talking about that idea in a future post.