Blues Vs Spectrum Wide Fallout

August 16, 2002
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With Spectrum Health preparing to separate from most of Blue Cross Blue Shield of Michigan’s products, other health care providers across the region are examining the potential fallout for their operations.

Referral patterns from hospitals and physicians to Spectrum facilities, as well as where patients may go to procedures such as elective surgery, could feel the effects of the Spectrum/Blues dispute, especially with the insurer vowing to steer subscribers to competing providers. Blue Cross Blue Shield is even looking at paying transportation and housing for subscribers if there is no viable option in the market for a procedure.

Executives at hospitals in West Michigan say they are watching the dispute because of potential ramifications for everybody.

“There’s no question; everybody in West Michigan is looking at it. This is not a small thing,” said Linda Bailey, executive director of Westshore Health Network, the physician-hospital organization at Mercy General Health Partners in Muskegon.

The dispute could affect thousands of Blue Cross Blue Shield subscribers in West Michigan. The Blues hold a market share of 35 percent in Kent County, 31 percent in Muskegon County and insure of four persons in Ottawa County.

Hospital executives say they are preparing to take in patients who are covered by Blues policies.

“Saint Mary’s is certainly fully prepared to provide services to patients who, in coordination with their doctor, would wish to receive care here,” said Dave Baumgartner, vice president of medical affairs at Saint Mary’s Mercy Medical Center.

Hospitals and physicians also are discussing how the dispute may affect patient referrals.

As the dominant health system in the market, and the only tertiary care facility, Spectrum receives numerous referrals from competing hospitals in the region. If Spectrum and the Blues, the state’s largest health insurer, are unable to reach new participating agreements, patients who face having to pay a significant out-of-pocket cost for their care if they go to a Spectrum facility will start wanting options.

The Spectrum-Blues dispute elevates the importance of the need for physicians to discuss with their patients the financial aspects of their care and where and when they have a procedure performed.

“They’re going to have to work with their patients to get the best economics and the best care,” said Steve Pirog, vice president of finance at Saint Mary’s.

But referring a patient to another hospital is far more complex than it appears, said Dr. James Buzzitta, the head of Michigan Medical PC, a Grand Rapids-based physicians’ group.

Spectrum provides numerous services that other hospitals in the region do not. Even where there is a competing option for a service, physicians may not be comfortable with that setting because of their unfamiliarity with that hospital’s procedures. With Spectrum perceived as offering the best quality health care in the region, issues involving quality and outcomes may come into play, Buzzitta said.

“It’s much more complex. Physicians, I don’t believe, aren’t just going to get up and change referral patterns,” Buzzitta said. “They’re going to send people to the best care, and Spectrum has some of the best programs in the area, clearly.”

MMPC, which makes about 80 percent of its referrals to Spectrum facilities, is analyzing the issues involved in the dispute and will take a position in the weeks ahead, Buzzitta said.

“It’s clearly something we’re talking about internally,” he said. “We don’t know where it’s going to play out yet.”

Spectrum Health plans to end its participation agreements Sept. 1 with BCBSM’s Community Blue/Blue Preferred preferred-provider organization, the insurer’s No. 1 health plan, and the Blue Choice point-of-service product unless new agreements are reached that increase Spectrum’s reimbursement payments. Spectrum will end its participation in the Blues’ traditional health plan as of Nov. 1 if a new agreement is not reached.

At Spectrum’s Hackley Hospital in Muskegon, participation in the traditional plan won’t end until March 31, 2003, with the PPO and POS products coming to an end Sept. 1 this year. Hackley will also end its participation in Blue Cross Blue Shield’s Blue Care Network HMO on Oct. 1.

At the center of the dispute is a simple contention: Spectrum’s claim that price discounts provided to Blues subscribers are too great and cause financial hardship for the health system, which in its previous fiscal year posted an overall profit of $38.6 million on revenues of nearly $1.2 billion. Spectrum expects to post a “very slim” margin for the 2003 fiscal year that started July 1, and projects that its two primary care hospitals in Grand Rapids will lose money as expenses outpace revenues.

Spectrum claims it loses $30 million providing care to indigent persons and that Blues payments contribute nothing to covering the cost of indigent care. The health system, contending it now receives 11 percent less from the insurer than what other health plans pay for the same services, wants the Blues to pay more.

“Unfortunately, the financial burden has become too much to continue to participate in these plans,” Spectrum Chief Financial Officer Mike Freed said. “For us to continue to provide our level of services and care to the underserved, we need to ensure we’re being paid fairly by insurers.”

But Blue Cross Blue Shield of Michigan is equally as adamant that it simply can’t afford to pay Spectrum more. The Blues say Spectrum is demanding a 15 percent increase in payments for its Grand Rapids hospitals and a 30 percent increase for Hackley Hospital in Muskegon, which joined Spectrum health last year and contends it loses $1 million annually providing care to Blues subscribers.

Agreeing to the higher payments would add three percentage points to annual premium increases that are already running in the double-digit range for employers, said Dale Robertson, vice president for the Blues in West Michigan.

“We could not in good conscience agree to such an increase,” said Robertson.

BCBSM has agreed to bring in an independent accountant to review the situation and how much Spectrum profits from or loses on Blues subscribers.

While the two sides try to work out a new participating agreement, administrators at care providers and other hospitals continue to prepare in case the disputes become prolonged. At this point, they say it’s difficult to gauge the fallout.

Mercy General Health Partners is in a position to see an increase in patient volumes for one big-ticket procedure as a result of the Spectrum-Blue dispute: heart surgery. Mercy General is one of two hospitals in the Kent-Ottawa-Muskegon county region with an open-heart surgery program. The other is Spectrum.

Mercy General, which competes directly with Spectrum’s Hackley Hospital, should have the ability to absorb additional capacity if Blues subscribers choose to go there, Bailey said.

“We will try to accommodate that patient flow any way we can so that patient is not left hanging,” she said.

North Ottawa Community Hospital in Grand Haven doesn’t expect to see much change occurring in referral patterns in the short-term, Marketing Manager Heather Johnston said. But North Ottawa, which splits its heart surgery patient referrals between Spectrum and Mercy General, will likely look at sending patients who need heart surgery and have Blue Cross health coverage to Muskegon or another facility that accepts the Blues.

“We’re going to make every effort to place them in a Blues hospital, but we want it to be the best choice for the patient and in consultation with the patient and their physician,” Johnston said.

At Metropolitan Hospital in Grand Rapids, a key question is whether the facility has the capacity to handle increased patient volumes, Chief Financial Officer Bob Smedes said. Metro runs many services near or at capacity, he said. The situation, if it occurs, is “bound to” cause capacity issues in some clinical areas for Metro.

“But we are planning and trying to organize in such a way we can accommodate that pressure,” Smedes said.

On the other side of the equation, 90 percent of the referrals Metro makes for tertiary care are to Spectrum, raising concerns about access and affordability for patients, Smedes said.           

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