Spectrum Blues Do Battle

January 10, 2003
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(Editor’s note: One of 10 stories profiling the finalists for Thursday’s Business Journal Newsmaker of the Year Award.)

GRAND RAPIDS — The agreement announced on a Thursday morning in late August brought to a close, at least for now, the pitched battle between the state’s largest health insurer, Blue Cross Blue Shield of Michigan, and West Michigan’s biggest health care provider, Spectrum Health — a battle that caught the attention of the health care industry throughout Michigan.

While the two sides averted a scenario that nobody wanted to see, the dispute was in many ways symptomatic of some of the problems plaguing health care. Many believe it also served as a prelude for things to come across the state, as well as represents what’s occurring nationally between insurers and care providers as health care finance becomes even more difficult.

“Health care is costing employers more, and that’s a problem, and providers are suffering, and that’s a problem, so naturally the two are butting heads,” said Mike Freed, chief financial officer at Spectrum Health.

“These things are happening all over the United States,” Freed said.

The Spectrum-Blues dispute, as well as a similar battle in Lansing between the Blues and Sparrow Health Systems, brought into the public eye locally many of the core issues that are behind the growing number of payer-provider skirmishes across the country: 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 arise involving a dominant payer or health system in a community, and the inadequacy of Medicaid and Medicare payments to care providers.

The general view is that many more payer-provider battles are to come.

“This next year, you’re going to see a lot of this,” said Joe Wald, vice president of community services for Lansing-based Sparrow Health System, which toward the end of the year became embroiled in a reimbursement dispute with the Blues that’s reminiscent of the Spectrum-Blues battle.

“The exact same thing is going to happen around the state, and we think this is the beginning of a trend,” he said.

As health systems and hospitals face tightening budgets and cuts in Medicaid and Medicare payments from the federal government, a possible source for new revenue is in reworking agreements with private payers and seeking higher payments to cover the shortfall from public programs.

When faced with that scenario, Blue Cross Blue Shield of Michigan is simply unwilling to give in, Media Relations Director Helen Stojic said.

“We know hospitals are going through difficult times, so there may be more extensive discussions,” Stojic said. “We know where we are and we know our customers expect us to be the guardians of their dollars.

“No hospital should be able to put in extra charges to compensate for Medicaid and Medicare.”

As far as standoffs over payment levels, Stojic isn’t ready to say whether it’s a trend or that the Blues expects to see such situations occur more frequently.

“We’ll see,” she said. “It can happen. How much of it would happen depends on what happens with health care in the next year now.”

Spectrum, citing a $30 million annual loss in providing indigent care to people without insurance and to Medicaid recipients, sought a new participating agreement from Blue Cross Blue Shield that included higher reimbursement payments that would have covered the shortfall.

The Blues refused to budge, contending that giving in to Spectrum’s request would only lead to an even larger increase in already skyrocketing health premiums. For 2003, the statewide average increase for Blues subscribers is 22 percent for small businesses with less than 100 employees that maintain the existing benefit package. That’s on top of the double-digit increases of recent years, including a 15.8 percent rise in 2002, and all forecasts indicate employers can expect similar annual increases for the foreseeable future.

Lacking a new deal, Spectrum planned to drop out of the Blues network for its preferred-provider organization (PPO), point-of-service (POS) and traditional health plans. Without an agreement between the two, Blues members who received care for an injury or illness at a Spectrum facility would have had to cover the difference between what the heath system bills and what the insurer pays — an amount that for certain procedures can become quite sizeable, given the discounts that are negotiated into agreements between hospitals and health insurers.

The dispute, which came as employers were preparing to renew their Blues health plans for 2003, potentially had far-reaching fallout in the local health care market.

Referral patterns from hospitals and physicians to Spectrum facilities, as well as where patients chose to go to for medical procedures such as elective surgery, would have been significantly altered, especially with the insurer vowing to actively steer subscribers to competing health care providers. Blue Cross Blue Shield even looked at paying transportation and housing costs for subscribers if there was no viable option within the market for a medical procedure, particularly the kinds of tertiary care that Spectrum offers.

Executives at hospitals throughout West Michigan watched the dispute closely because of the potential far-reaching ramifications for everybody. Some began to talk about how they could team up to exploit the situation and steer new business their way.

And then, as quickly as the dispute became public, it suddenly ended.

A joint news release issued the Thursday before Labor Day weekend stated the two sides had reached a “mutually acceptable” agreement that “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.”

Neither would discuss terms of the deal, although a Blue Cross representative later conceded that it would likely end up “as close to cost-neutral as it can be” for Blues subscribers who are already struggling to cope with escalating health premiums.

“The resolution is not going to be responsible for any specific increases in the rates,” said Rich Cole, the insurer’s senior vice president of corporate communications. “The forces that are driving up rates are so massive and so large, this specific resolution is not going to be responsible for increasing the rates.” 

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