Evidence of a Policy of Intimidation in Contract Negotiations between Hospitals and BCBS
Executive Summary
The following article was written during the 2006 BCBS controversy with Piedmont Hospital of Atlanta.
These Blue Cross companies exhibit a deliberate policy of brinkmanship in their contract disputes. As demonstrated in the examples below, these Blue Cross companies consistently refuse to negotiate in good faith, they cut off negotiations arbitrarily and refuse to return to the bargaining table, and they demonstrate little regard for the welfare of the patients and policy holders, either medically or financially. The very profitable Blue Cross systems know full well the hospitals will lose money on the contract and be forced to raise prices to other insurance companies, or shift the losses to the uninsured or the taxpayers.
These contract disputes can even be seen as a tactic to increase Blue Cross’s short term profits. Some of these contract disputes last for months. While premiums continue to roll in unabated, hundreds of individuals delay or postpone surgery, hoping that eventually they can have their operation performed by “their” doctor in “their” hospital. In other words; revenues steady, costs down, profits up.
Blue Cross also profits when high cost policy holders who need expensive medical care are so inconvenienced by the contract dispute that they drop Blue Cross as their insurer. Healthy persons who do not need expensive medical care are not as inconvenienced by these disputes.
Insurance companies only “lease” policy holders for a few years. A for-profit insurance company’s primary fiduciary obligation is to their stockholders, not their policy holders. The Blue Cross business policy of intimidation through contract termination is clear proof that for-profit health insurance companies have a conflict of interest with their policy holders.
This BCBS tactic has been utilized for decades. The Federal government has successfully sued the largest health insurance companies for engaging in racketeering before and needs to do so again.
Now in 2014 Atlanta, it is Grady Hospital's turn to suffer BCBS's outrageous negotiating tactics.
Grady Hospital almost certainly will not receive support from the state Attorney General or the state Insurance Commissioner. However, the Atlanta City Attorney might be interested in examining the business practices of BCBS in so far as they might be engaged in racketeering or extortion. The local Federal Attorney General might also be interested in examining BCBS business practices.
The fifteen examples below took place between the years 2000-2006. It isn’t likely that BCBS has since reformed their business ethos.
More below the fold
Evidence of a Policy of Intimidation in Contract Negotiations by Blue Cross Insurers?
July 20, 2006. Many citizens are wondering about the origins of the contract dispute between Atlanta’s Piedmont Hospital and Blue Cross of Georgia. They don’t understand why the two sides can’t come to an agreement of some sort for the good of the patients, and some citizens even blame Piedmont Hospital. Blue Cross has stated that their drastic efforts to hold down reimbursement rates for medical care are necessary in order to save money for Blue Cross policy holders.
The contract between a hospital and a health insurance company defines the relationship between the two and gives the insurance company a discount off the amount that the hospital ordinarily charges for medical services. An insurance company can demand “quantity” discounts because the company delivers a large number of patients to the hospital as customers. After a hospital and an insurer agree to terms and sign a contract, the hospital is “in network.” Patients are free to go to “out-of-network” hospitals and doctors, but the costs to the patient are considerably higher.
However, the contract must be mutually beneficial. And apparently, the Blue Cross family of health insurance companies has a policy of abusing the contracting process. Consider the following examples.
According to Christopher Guadagnino, Ph.D., in an online article which was published July, 2002 in the Physicians News Digest, “Payer-provider Conflict Escalates,” Chester County Pennsylvania Hospital filed a federal antitrust lawsuit against Independence Blue Cross (IBC) in May 2002. The hospital accused Blue Cross of using dominant market power to coerce the hospital into signing a provider contract and to provide care at prices which were below cost. The suit alleged that Blue Cross violated antitrust and related laws by acquiring and abusing its dominant market power in southeastern Pennsylvania. The lawsuit sought damages in excess of $60 million and a breakup of Independence Blue Cross into separate companies. Blue Cross filed a countersuit against Chester County Hospital in June 2002, accusing the hospital of breach of contract and asked a federal judge to terminate the agreement.
In 2001, Indendence Blue Cross sued Grand View Hospital in Bucks County for slander and for negotiating in bad faith two weeks before the reimbursement contract between the two entities was to expire, alleging commercial disparagement and breach of duty to negotiate in good faith, libel and slander.
Grand View Hospital countered that it had lost millions of dollars over the past several years because Blue Cross did not reimburse the hospital for the entire cost of its services. Grand View estimated that it would likely lose $5 million in the coming year if was reimbursed under the inadequate terms of the contract that was expiring.
In early 2000, the Jefferson Pennsylvania Health System threatened to terminate its hospital contracts with Blue Cross. Jefferson claimed that it had lost millions of dollars treating Independence Blue Cross members under the old contract. Blue Cross called Jefferson’s request for payment increases unreasonable and said that they would cause health insurance premiums to escalate in double digits. The two ultimately agreed to a contract.
During the same time period, Blue Cross sought the dismissal of a lawsuit brought by Children’s Hospital of Pennsylvania, which sought reimbursement for full billing charges after a reimbursement contract between the two organizations had lapsed the previous summer. The suit was filed after months of failed contract negotiations. The lawsuit also alleged that Blue Cross made unilateral payment reductions in its contract and the Hospital sought contractual guarantees from Blue Cross for payments within 45 days and also asked for 10 percent penalties for late payments. Negotiations lasted 19 months and an agreement was reached only after a seven-month battle in federal court.
UPMC Health System and Highmark Blue Cross Blue Shield engaged in a highly publicized contract dispute as they approached a June 30, 2002 contract expiration deadline. The local media discussed the need for contingency plans in the event Highmark Blue Cross patients could not obtain health care in UPMC’s hospital network.
Highmark Blue Cross also sought regulatory approval to summarily penalize hospitals that don’t offer it their best prices. Blue Cross filed with the Pennsylvania Insurance Department for blanket permission to insert "fair payment" provisions in any of its western Pennsylvania hospital contracts, which would require hospitals to give Blue Cross at least the lowest prices it gives other insurers or accept penalties. Eventually, Blue Cross moderated their request by saying they would try to negotiate such rates in individual hospital contracts. UPMC labeled Highmark’s demand a "most favored nation" provision and called it anti-competitive.
According to the article by Guadagnino, a market power imbalance exists between physicians and health insurers in Pennsylvania because of the lack of competition in the health insurance markets in Pittsburgh and Philadelphia. "I don’t see physicians as having the wherewithal to take on the reimbursement issue. If an insurer has 40 to 60 percent of one’s patient population, where is the leverage?" asks Deborah Robinson, Esq., a health care attorney with Houston Harbaugh in Pittsburgh. (Christopher Guadagnino, Physician's News Digest, Inc, July, 2002)
An online article by Louise Esola, staff writer for the North County Times, published January 6, 2006, noted that beginning on Jan. 1, 2006, the three-year contract between Tri-City Medical Center and Blue Cross of California expired without a new contract being signed.
As a result, thousands of Blue Cross customers in coastal North County were faced with the choice of either going to other doctors and other hospitals for non-emergency services, or paying out-of-network prices for care at Tri-City.
A Blue Cross spokeswoman said that no negotiations for a new contract were under way at that time and negotiators had not scheduled any meetings.
Spokespersons for both Blue Cross and the Tri-City Medical Center declined to provide details on the expired contract or say what issues had led to a stalemate. Neither side would provide figures on how many people living within Tri-City's service area were insured by Blue Cross.
According to Esola, when the previous contract expired in 2002, about 19,000 Blue Cross members stood to lose access to Tri-City, a hospital official told the North County Times in May 2002.
According to the article, in the summer of 2005, when San Diego hospital giant Sharp Healthcare and Blue Cross of California terminated their relationship, negotiations lasted for over a month before a new contract was finally signed. (Lois Esola, staff writer. North County Times – Lee Enterprises. nctimes.com)
In an online article by Bill Case, HSC News Service, “WVU Hospitals’ Blue Cross/Blue Shield Contract Expires,” West Virginia University Hospital in Morgantown, W. VA.’s three-year contract with Blue Cross Blue Shield had expired, and hospital officials expected to be classified as an out-of-network facility for Blue Cross policyholders as of May 1.
“We will continue to provide the same high level of care to Blue Cross patients as we always have – but there will be changes in how your hospital bill is processed,” said WVU Hospitals President and CEO Bruce McClymonds.
McClymonds said that WVUH had requested renewal negotiations with Blue Cross for many months. However, it was clear that the insurance company was not willing to adjust its payment rates to WVUH to align more equitably with what other insurers pay WVUH, or with Blue Cross payment rates with the two West Virginia hospitals that provide similar services, Charleston Area Medical Center and Cabell-Huntington Hospital.
William MacLean, who led the hospital team negotiating with Blue Cross, said negotiating was a frustrating process. “During the three-year contract term our average Blue Cross discount more than doubled,” he said. “Our inpatient discount almost tripled. No other private insurer is demanding these sorts of steep discounts, and we consider an adjustment long overdue and fully justified.”
“We asked that the renewal discussions begin early, and told Blue Cross some time ago the results under the expiring contract would not allow us to extend it beyond its termination date,” he said. “We’ve also proposed a one-month extension with only a token increase in rates, to allow negotiations to continue, but Blue Cross had been very unresponsive.” (Bill Case, HSC News Service, (304) 293-7087 casew@rcbhsc.wvu.edu)
In an online article published February 21, 2001, “Sutter and Blue Cross OK Deal, Accord Puts End to Dispute on Rates” Victoria Colliver, staff writer, San Francisco Chronicle writes, “Blue Cross of California and the Sutter Health network of hospitals and doctors reached an agreement, ending a protracted dispute that forced thousands of patients to change plans or switch doctors.”
The two sides signed a two-year contract retroactive to Jan. 1, when the previous contract expired.
But before the agreement was reached, Blue Cross transferred about 30,000 health-maintenance organization patients to non-Sutter Hospital doctors. (Victoria Colliver. San Francisco Chronicle, February 21, 2001)
An online article published by the Wake Forest University School of Medicine and North Carolina Baptist Hospitals in 2005 gives details about the dispute between North Carolina Baptist Hospital and Blue Cross of North Carolina.
North Carolina Baptists’ three-year contract with Blue Cross was set to expire in February of 2004. Hospital officials attempted to negotiate with Blue Cross for a new contract in order to replace the outdated reimbursement rates in the existing contract. But, according to the hospital, more than a year later, Blue Cross had refused to negotiate new and fair rates.
According to the hospital, the existing rate did not cover the hospital’s costs, and the hospital was losing $1 million a month on Blue Cross patients. In March of 2005, after Blue Cross made what it said was its final offer – a single-digit increase that still did not cover the hospital’s costs – Baptist Hospital gave notice that it would cancel its primary contracts with Blue Cross, effective June 4, 2005.
According to the hospital, Blue Cross had increased its reimbursement rate to Baptist by only 5.1 percent since Feb. 1, 2001, and paid by far the lowest reimbursement rate of all private insurance companies under contract with the hospital, even lower than Medicaid.
Blue Cross asserted that paying a “fair” reimbursement rate would cause premiums to go up. Hospital spokesmen said that “premiums have already gone up 94 percent over the same period in which hospital reimbursement rate rose only 5.1 percent.” The hospital concluded that the premium increases were not being passed on to medical care providers.
Blue Cross asserted that it already pays Baptist a rate 10 percent higher than other academic medical centers in North Carolina. The hospital replied, “This is a common ploy by Blue Cross and something they tell all hospitals. Obviously, they can’t pay everyone 10 percent higher than everyone else.”
The hospital noted that Blue Cross of North Carolina had been criticized recently for hoarding hundreds of millions of dollars in excess profits, overpaying its executives, and sending 275 executives, sales staff, brokers and guests on a Caribbean island vacation. At the same time, Blue Cross of North Carolina spent only about 77 cents of each of the premium dollars for actual health care delivery, (a 77 percent medical loss ratio) The hospital said the national average was 11 cents higher. (Wake Forest University School of Medicine and North Carolina Baptist Hospitals. Winston-Salem, NC)
In an online article datelined Woomsocket and published July 11, 2006, “Hospital Mulls Legal Action” Joseph Fitzgerald, staff writer, The Call, writes that contract negotiations between Landmark Medical Center and Blue Cross & Blue Shield of Rhode Island had hit an impasse, leaving hospital officials prepared to take possible legal action against the health insurance provider to get fair and adequate insurance reimbursement rates for services provided by the hospital.
At a special meeting Monday, Landmark Medical Center’s board of directors voted to authorize Landmark Medical Center President and CEO Gary Gaube to "take all steps necessary" to ensure fair margin reimbursement rates and to recoup upwards of $5 million in unpaid retroactive payments from fiscal 2002 to fiscal 2004.
According to Gary Gaube, Blue Cross & Blue Shield was offering reimbursement rate increases of only 4.2 percent for fiscal 2007 and 3.8 percent in fiscal 2008. Yet, filings Blue Cross submitted to the Rhode Island Health Division of Insurance show that other community hospitals could get between 9 and 12 percent reimbursement rate increases. (Joseph Fitzgerald, The Call. July 11, 2006)
In an online article published by the AAMC Reporter August 2005, “Academic Medical Centers Clash with Insurance Providers,” Whitney L.J. Howell, notes that contracts between academic medical centers and insurance providers reach their termination dates each year, and most are renewed without incident. But in the past year a small spate of contract disputes had occurred, and not all have been resolved easily or harmoniously.
Although the players involved in the disputes are located in different states, the contract discussions have similarities. In most cases, the hospital systems questioned how the insurance companies categorized physicians or the amount of reimbursement the companies paid for services rendered.
According to the article, in late 2004, the University of Iowa (UI) Hospitals and Clinics, affiliated with the University of Iowa Roy J. and Lucille A. Carver College of Medicine (UICM), notified Wellmark Blue Cross Blue Shield of Iowa of their intent to terminate their contract effective January 1, 2006. UI hospital administrators said Wellmark did not offer sufficient reimbursement for services rendered to the 900,000 patients seen annually in university hospitals and the two sides could not agree on the terms of the contract.
According to local news reports, the UI institutions said rising health care costs created a multi-million-dollar gulf between Wellmark Blue Cross reimbursements and actual charges. According to the article, university hospital administrators had requested the opportunity to give Wellmark Blue Cross more detailed information about the facility's yearly costs incurred from providing specialized services in order to receive higher reimbursement payments. (Whitney Howell, whowell@aamc.org AAMC Reporter, August 2005)
In an on line article published by the Times-Standard, June 22, 2005, “Mad River Community Hospital May be in Jeopardy,” staff writer Sara Watson Arthurs says local physicians have written to Blue Cross demanding better payment rates with Mad River Community Hospital. Otherwise, the physicians say the hospital is in danger of going out of business.
“The hospital’s contract with Blue Cross is about to expire, and so far negotiations for a new contract haven’t been productive, said Director of Strategic Planning and Safety Tom Ayotte.”
“The cost of everything from staff to workers’ compensation to materials has risen in the last several years, Ayotte said, but the Blue Cross’ reimbursement rate hasn’t.”
“We’re not looking for big profits. We’re not looking for big margins,” Ayotte said. “We’re just looking for fair reimbursements.”
On Tuesday the board of the Humboldt-Del Norte Medical Society wrote Blue Cross stating that Blue Cross reimburses Mad River Hospital at a significantly lower rate than the other local hospital, St. Joseph, is reimbursed, and that if it continues, “it is doubtful whether the hospital will be able to stay in business.”
Dr. David Gans, Mad River’s chief of staff, said Blue Cross is reimbursing the hospital at such a low rate that the hospital can’t make money seeing Blue Cross patients.
(Sara Watson Arthurs. Times-Standard, June 22, 2005)
In an online article published May 9, 2003, “Contract expirations spell opportunity for Medical Center” Paul Govern writes that Vanderbilt University Medical Center hopes to serve Middle Tennesseans affected by the recent breakdown of contract negotiations between area hospitals and health care insurers.
As of May 9, 2003, Blue Cross Blue Shield of Tennessee and the HCA network of hospitals haven’t had a commercial contract since Feb. 1, 2003.
The expiration applied to 900,000 Blue Cross members statewide, but only about 200,000 of them lived near HCA hospitals, which are clustered around Nashville and Chattanooga.
At the urging of employers and other concerned citizens, Blue Cross and HCA agreed to participate in negotiations for a contract again, but in April their mediation process broke down.
HCA has announced that, until the end of the year or the end of employers’ insurance reenrollment periods, its hospitals will continue to serve these BlueCross members without charging out-of-network penalties. Nashville area HCA hospitals include Centennial Medical Center, Horizon Medical Center, Skyline Medical Center, Summit Medical Center, Southern Hills Medical Center and Hendersonville Medical Center. (Vanderbilt University Medical Center. 2006. reporter@www.mc.Vanderbilt.Edu)
And of course, the contract dispute between Blue Cross and Atlanta’s Piedmont Hospital has been ongoing now for seven weeks. The dispute is a carbon copy of the other incidents cited above.
Conclusion
This is not a complete or exhaustive list of hospitals which believe they have been mistreated by the various Blue Cross Blue Shield Insurance companies. Out of regard for the interests of their patients, many hospitals “cave” to Blue Cross’s unreasonable demands at the last minute. It also seems obvious that Blue Cross likes to “make an example” of a hospital occasionally, to show them who’s boss, and to facilitate contract negotiations with other hospitals.
Although the Blue Cross companies in each state are ostensibly independent corporations, some Blue Cross companies seem to share certain negotiating tendencies and lamentable corporate values.
These Blue Cross companies exhibit a deliberate policy of brinkmanship in their contract disputes. As demonstrated in the examples above, these Blue Cross companies consistently refuse to negotiate in good faith, they cut off negotiations arbitrarily and refuse to return to the bargaining table, and they demonstrate little regard for the welfare of the patients and policy holders, either medically or financially. The very profitable Blue Cross systems know full well the hospitals will lose money on the contract and be forced to raise prices to other insurance companies, or shift the losses to the uninsured or the taxpayers.
These contract disputes can even be seen as a tactic to increase Blue Cross’s short term profits. Some of these contract disputes last for months. While premiums continue to roll in unabated, hundreds of individuals delay or postpone surgery, hoping that eventually they can have their operation performed by “their” doctor in “their” hospital. In other words; revenues steady, costs down, profits up.
Blue Cross also profits when high cost policy holders who need expensive medical care are so inconvenienced by the contract dispute that they drop Blue Cross as their insurer. Healthy persons who do not need expensive medical care are not as inconvenienced by these disputes.
Thus, as a result of their contract dispute with Piedmont Hospital, Blue Cross may well earn five to ten percent higher profits each month that the controversy continues.
According to the Form 10 Q for the first quarter of 2006 of WellPoint Inc., Blue Cross Georgia’s parent company, WellPoint says they will be “focusing on profitable enrollment growth…” Eliminating unprofitable enrollment is an easy method for increasing profits.
While Blue Cross has raised premium rates by double digits to policy holders over the last several years, the Blue Cross companies in most of the cases cited above offered increases in reimbursement rates to hospitals of only 3 to 5 percent.
Over the last few years, several million Blue Cross policyholders were inconvenienced and their health care disrupted in the 15 incidents listed above. As health insurance companies continue to consolidate as they have over the past few years, this situation will only get worse.
How does Blue Cross and other health insurance companies get away with this pattern of intimidation and financial brinkmanship? Blue Cross knows that the hospitals will eventually surrender, because medical care providers actually care about the welfare of their patients. Doctors and hospitals establish a life long relationship with their patients.
Insurance companies only “lease” policy holders for a few years. A for-profit insurance company’s primary fiduciary obligation is to their stockholders, not their policy holders. The Blue Cross business policy of intimidation through contract termination is clear proof that for-profit health insurance companies have a conflict of interest with their policy holders.
The fifteen hospitals and hospital systems involved in contract disputes with Blue Cross Blue Shield are listed in chronological order below.
Jefferson Health System, Pennsylvania, 2000
Children’s Hospital of Pennsylvania, 2000
Sutter Health Network, California, 2001
Bucks County Hospital, Pennsylvania, 2001
Chester County Hospital, Pennsylvania, 2002
University of Pennsylvania Medical Center, 2002
HCA hospital network, Tennessee, 2003
University of Iowa Hospitals and Clinics, 2004
Mad River Community Hospital, California, 2005
Sharp Healthcare, San Diego, California, 2005
North Carolina Baptist Hospital, Winston Salem, NC, 2005
West Virginia University Hospital, Morgantown, W.Va., 2005
Landmark Medical Center, Rhode Island, 2006
Tri-City Medical Center, North County, California, 2006
Piedmont Hospital, Atlanta, 2006
Jim McMeans
Danielsville, GA 30633
jmcmeans@windstream.net