Priority Health Pennock Still At Odds

December 10, 2002
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HASTINGS — It’s not the battle of titans that Grand Rapids saw a few months ago.

But the issues are the same for Hastings’ Pennock Health Services and managed-care company Priority Health: An inability to come to terms on a new participating agreement.

As a result, Priority Health is preparing to steer its HMO subscribers who use Pennock Health Services to other care providers in the region.

“We regret it very much, but we will be redirecting those patients to get their care elsewhere,” said Rob Pocock, vice president of marketing and corporate communications at the Grand Rapids-based Priority Health.

Pennock, bidding for increased reimbursement payments, informed Priority Health in late October that it wanted to rework an existing 10-year-old participating agreement, Pocock said.

The hospital found the new terms offered unacceptable and recently gave notice of its intention to drop participation in Priority Health’s HMO product as of Feb. 1. Other existing participating agreements with Priority Health’s preferred-provider organization (PPO) or point-of-service (POS) health plans remain unaffected, and Pocock does not expect the dispute to disrupt agreements with physicians in the Hastings area.

Pennock CEO Dan Hamilton declined to discuss the dispute, referring instead to a recent letter sent to the community.

“Be assured that the Priority Health proposal would severely jeopardize the ability of our institution to provide the high standard of care that our community expects and deserves,” Hamilton’s letter stated. “The hospital board, medical staff, employees and volunteers are committed to ensuring this invaluable asset is here for generations to come and must place the interest of the whole community ahead of those interests of one managed care organization.”

Just as Priority Health plans to direct HMO subscribers to hospitals other than Pennock, Hamilton’s letter encouraged people to consider other managed-care plans that “offer comparable coverage to Priority Health, yet maintain fair compensation for services rendered.”

A subsequent letter sent to Hastings-area employers provided contact numbers for six other managed-care plans that Pennock accepts. The Nov. 20 letter also criticized Priority Health’s stance.

“Despite our good-faith negotiations, Priority Health has not made a fair, or even complete proposal,” Hamilton wrote. “Their proposal includes inadequate compensation, a complicated mix of reimbursement terms, undefined incentives and untenable risks.”

Priority’s Health executives are puzzled by Pennock’s position. Priority Health has the same kind of participating agreement with all 27 hospitals in its service area “that think it’s fair and one that doesn’t,” Pocock said. Hospitals can receive more under the standard contract if they meet certain quality measures, he said.

Priority Health is not in a position to offer different terms in a contract with one hospital and not provide the same to others, Pocock said.

“We don’t do different contracts with anyone,” he said.

The Pennock-Priority dispute is reminiscent of the battle in Grand Rapids last August in which Spectrum Health, the dominant care provider in Kent County, planned to pull out of three plans offered by Blue Cross Blue Shield of Michigan, the state’s largest health insurer, if it did not receive better reimbursement terms. The dispute, typical of a growing number of battles around the nation between care providers and managed-care companies and health insurers, was settled in late August, avoiding a major disruption in the local care network for thousands of Blues subscribers.

Though similar in issues, the Pennock-Priority situation is far different when the size disparity of the two parties is considered.

Priority Health is growing and has become the second-largest HMO in Michigan, with more than 366,000 subscribers in its HMO and PPO products in a 27-county region of western Michigan. Priority Health has about 4,500 subscribers in Pennock’s home market of Barry County who account for a small percentage of the managed-care company’s annual reimbursement payments to care providers, Pocock said.

Pennock is a small, 88-bed facility with revenues of $62.4 million in its 2001 fiscal year, although the hospital is the only one in town and small-town hospitals do tend to generate a high level of loyalty among their consumers.

Priority Health, which is majority-owned by Spectrum Health, plans to refer HMO subscribers to other facilities in the region, Pocock said. They include Metropolitan Health’s health plaza in Caledonia and Spectrum’s Cutlerville campus for diagnostic tests and other outpatient procedures, as well as hospitals such as Allegan General and Holland Community.

Priority Health remains open to negotiating a settlement, although Hamilton has refused to meet again, Pocock said.

“We’re going to commit to do our best to make it happen, but it does take two people,” Pocock said. “We think it’s probably a done deal.”           

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