Spectrum Blues Issues Remain

August 30, 2002
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GRAND RAPIDS — A new participating agreement between Spectrum Health and Blue Cross Blue Shield of Michigan prevents the kind of collateral damage that would have resulted if the battle had gone on much longer.

But underneath are far larger issues affecting health care that represent the root causes of the dispute. With peace at hand, many say it’s now time to start addressing them from a local level.

They are the kind of questions that go to the heart of how health care in America operates and how the cost of care is paid, particularly given consumers’ insatiable appetite for health care and rapidly rising costs that are driven by innovations in medical technology and pharmaceuticals and rising utilization rates brought on by an aging population.

“The immediate issue is settled. The larger debate is to take place,” said Ed Murphy, a principal in the health care practice at the Detroit office of Mercer Human Resource Consulting, which represents several large employers in the Grand Rapids area.

Among the issues that industry players and observers say the dispute sheds light on are cost-shifting the cost of care, the complex manner in which rate discounts and reimbursement payments between hospitals and insurers and HMOs are set, access to care when these kinds of disagreements involving a dominant payer or health system in a community arise, and the inadequacy of Medicaid and Medicare payments to care providers.

Lody Zwarensteyn, president of the regional health care planning organization Alliance for Health in Grand Rapids, hopes the battle between the Blues and Spectrum will lead to an examination of those and other issues on the local level.

“Hopefully we’ll be able to talk about some of the larger issues now that the immediate problem is behind us. There is a larger agenda to come,” Zwarensteyn said.

Spectrum and Blue Cross Blue Shield of Michigan reached terms last Thursday on a new participating agreement that avoids major disruptions in how thousands of people in West Michigan access and pay for their care.

The health system had been preparing to drop participation from three Blues health plans at its Grand Rapids hospitals and Hackley Hospital in Muskegon unless the insurer agreed to increase reimbursement payments to help cover a $30 million loss that Spectrum says it incurs annually to provide care for Medicaid recipients and uninsured persons. Spectrum also contended that the Blues paid less than other health plans it accepts.

Blue Cross Blue Shield resisted the demand, saying it would lead to even higher premium increases for employers that are now running in the double-digit range. The Blues also pointed to increases provided in 2000 and 2001 and contends it pays a fair share for indigent care.

John Brown, president of the Grand Rapids Area Chamber of Commerce, called the settlement a “tremendous relief” for employers who hold Blue policies.

“No one’s happy that the dispute erupted, but there’s a great sense of relief that both parties got together. That supports people’s confidence in both organizations,” said Brown.

The dispute, he said, shook many business owners’ confidence in both Spectrum Health and Blue Cross Blue Shield “to the core.”

Brown said his organization now plans to delve into the underlying issues further and shift attention to helping both Spectrum and the Blues address on a state level some of the problems that may have contributed to the dispute.

The Blues, as the insurer of last resort in Michigan that must provide coverage to all who apply, has been pushing for reforms in the insurance market in Michigan to enable it to better compete with commercial carriers it accuses it of cherry-picking healthier employee groups that are less costly to insure.

For Spectrum, the issue is Medicaid reimbursements from the state to cover care for indigent persons.

“Now it’s time for the chamber to pull up its sleeves and look at a couple of these issues,” Brown said. “The failure of the state to adequately reimburse Spectrum has resulted in increased cost pressures to the community.”

Executives from both Spectrum and the Blues declined to offer financial details of the new participating agreement, but “obviously the agreement was mutually acceptable,” stated a joint statement issued Thursday morning by Spectrum Health and Blue Cross Blue Shield of Michigan.

This is good news for everybody. Good for patients and members. Good for the community,” the statement said. “The agreement meets our objectives of keeping rising health care costs in check while also giving financial support to local hospitals so they can continue to provide high quality health care to the community.”

Lacking specifics on the financial aspects of the agreement makes it hard to judge the affects on health premiums paid by employers and Blues subscribers, although a Blues spokeswoman was quick to emphasize the “mutually acceptable” language in the joint statement.

“We were obviously looking at the effects for our customers and we believe that we have an agreement that is beneficial to the community and our customers,” said Helen Stojic, Blue Cross Blue Shield’s manager of media relations.

From a broader perspective, the dispute is symptomatic of the profound issues surrounding health care and its financing mechanisms, Murphy said. Rather than focus on who pays for what and how much, the debate needs to move toward how care is delivered, evaluating outcomes and rewarding the best performers, he said.

“Can we afford health care the way it’s been delivered?” said Murphy, noting that health care is now the second largest expense for employers behind payroll.

Paul Brand, president of Real Health, an employer-owned health plan based in Grand Rapids with 33,000 subscribers, has been a highly vocal advocate of reforms that place a higher emphasis on health care value, the balancing of cost versus outcome.

“There is not enough money to fund the system as it is. The system has to change. We’re just moving money from one pocket to another,” Brand said. “As it’s currently structured, employers don’t win, no matter what happens.”

In response to the dispute, and at the behest of the Blues, other hospitals and care providers were marshaling their forces to accept increased patient volumes generated when people holding a Blues health policy steered away from Spectrum, as well as expediting credentialing processes for physicians who would likely have to refer patients elsewhere.

The Alliance for Health’s Zwarensteyn said new business alliances and relationships may still result between Spectrum’s competitors in the market.

“You will see re-alignment and you will see people trying to see opportunity where they can,” Zwarensteyn said.

Also not disappearing for some time are the questions about Spectrum’s size and share of the market and monopoly of some major clinic services.

“By virtue of placing so many of our resources in one organization, there is a question of does that put the community at risk if there is a dispute that happens again,” he said. “Those are questions that have to be looked at, and they will for some time.”           

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