Spectrum Stinging The Blues

August 9, 2002
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GRAND RAPIDS — The area’s largest health-care provider has notified the state’s largest insurer that it will no longer participate in three of its four health plans.

Spectrum Health made that decision known last week, claiming it costs more to treat Blue Cross Blue Shield members than the insurer pays the provider.

In response, the Blues is offering to continue negotiations — despite saying that the rate increases that Spectrum wanted were out of line.

The move by Spectrum could have the biggest impact on the local health care market since Butterworth Hospital and Blodgett Memorial Medical Center merged in 1997 to form Spectrum. With Spectrum owning 70 percent of the market and choosing not to participate with Blue Cross, the decision could push the insurer out of the marketplace.

For the Blues to replace Spectrum’s hospitals, it would likely have to lower its rates to entice subscribers to use out-of-town providers. And if the Blues eventually agree to higher rates in order to keep its contracts with Spectrum, it would likely mean higher premiums for employers.

The decision by Spectrum also may push employers to Priority Health, the area’s largest managed care company and part of the Spectrum system. But if Blue Cross does have a lower discount with Spectrum than Priority does, a switch to Priority also could mean higher premiums for companies.

Spectrum said last week it will not honor the insurer’s Preferred Provider Organization and Point of Service plans starting on Sept. 1 at the Butterworth and Blodgett campuses in Grand Rapids and at Hackley Hospital in Muskegon, and the traditional Blue plan on Nov. 1 at Butterworth and Blodgett and next April 1 at Hackley.

In addition, Hackley will drop the Blue Care Network, the insurer’s HMO, beginning on Oct. 1. The Grand Rapids hospitals are likely continue to accept Blue Care Network until September 2004 because all HMOs have the same reimbursement schedule, a payment agreement that was part of the merger consent decree.

The decision by Spectrum officials affects nearly 318,000 subscribers to the Blue Cross plans, not including the HMO product, in Kent, Ottawa, Muskegon, and Allegan counties.

“We’ve informed Blue Cross that we cannot continue to provide these services at the current levels of payment,” said Spectrum CFO Michael Freed in a statement.

“Blue Cross pays us 11 percent less than what the other health plans pay us for the same services, including our own Priority Health. They pay Hackley Hospital 29 percent less than other health plans pay Hackley Hospital for the same services,” he added.

Blue Cross Regional Vice President Dale Robertson told the Business Journal last week that Spectrum demanded a 15 percent hike for its Grand Rapids hospitals and a 30 percent increase for Hackley.

“We responded that that would add increases to already high premiums and could not, in good conscience, agree to that,” he said.

Robertson also said that he would open the Blues books to an independent auditor to show that the insurer was paying a fair return to Spectrum, and called for the provider to do the same. He added that Spectrum earns profits on Blues business that is four to five times that of other hospitals in the state.

“We believe that we are providing them a fair return, given our position in the market,” he said.

Robertson felt the main reason Spectrum demanded the hikes is that the provider is being hurt financially from the care it gives to indigent patients through an under-funded Medicaid program. Spectrum officials said its hospitals are the largest providers of this care in the region, second largest in the state, and they expect the system to lose $30 million this year from serving patients who are unable to pay for the care they receive.

“We said our members already pay taxes for that and we don’t think they should be paying twice for that,” said Robertson, while adding that Spectrum received more than a 10-percent rate hike from the Blues for FY01.

Robertson said subscribers would soon be receiving a letter explaining what the decision means for them, along with a list of other hospitals that Blue Cross has contracts with. The traditional Blue plan has 160 hospitals, while the PPO has about 140. He also said that Blue Cross would assist its members with travel to other hospitals, if necessary, and that he would contact other providers in the area.

The decision by Spectrum does not affect agreements Blue Cross has with doctors.

“We’re always willing to continue discussions,” said Robertson. “We will continue to try to resolve this, if we can, and as expeditiously as we can.”

Freed said the Spectrum system will operate on a margin of 1.5 percent for the current fiscal year, and that he expects Butterworth and Blodgett hospitals to lose money this year. He also noted that Spectrum has honored the merger agreements it made five years ago, which have saved the community $373 million in health care costs.

“At the same time, operating expenses for all hospitals and health systems are rising,” he said. “For us to continue to provide our level of services and care to the underserved, we need to ensure that we are being paid fairly by insurers.”          

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