“My observation is, it’s about time,” said David Sillivan, executive director of the Physicians’ Organization of Western Michigan Inc. (POWM), a Grand Rapids-based coalition of 625 doctors that serves a four-county area.
“We are supportive of Spectrum’s actions in trying to level the playing field in West Michigan. The leadership at Spectrum should be supported by the community in this,” he said to the Business Journal last week.
Spectrum executives told Blues officials that starting on Sept. 1 the system’s hospitals in Grand Rapids and Muskegon would no longer accept the insurer’s PPO and POS plans and would drop the traditional Blue plan on Nov. 1 and April 1, respectively, unless Blue Cross agreed to a 15-percent rate hike for care given at the Butterworth and Blodgett campuses and to a 30-percent increase for services at Hackley Hospital.
The reason? Spectrum CFO Michael Freed said it costs more to treat a Blues subscriber than the insurer pays for the care. Blue Cross Regional Vice President Dale Robertson took exception with the hospital’s assessment and said the insurer gives Spectrum a fair return.
“When Dale Robertson talked about increasing premiums by 3 percent, in addition to the 20-percent increase they just passed, it was because they lost money,” said Sillivan.
“The fact is over eight years Blue Cross has lost money because of a business activity that they put in place eight years ago to buy market share. It isn’t because they are the insurer of last resort. That’s the PR spin they put out.”
Sillivan said Blue Cross knew that it would lose money and did so on purpose because state law requires the nonprofit insurer to divest itself of any capital reserve over an amount either determined by the insurance commissioner or one that exceeds 11.5 percent of the previous year’s total incurred claims and incurred expenses, whichever is greater.
“They knew they were going to lose money. Because, under Public Act 350, when their surplus, their capital reserve, reaches a certain amount they must then write rebate checks back to their policy holders, what they call contract holders. Well, they don’t want to do that,” he said.
“What they do is they lower their premiums below the actual cost to provide services. Thus, they lose money, but it burns off their surplus. That is another way of doing it, but they don’t lose market share.
“What they really didn’t say is that they’ve built market share on these losses. Instead of increasing premiums by 5 or 6 percent over the last eight years, they’ve decided to do it all at once.”
Although many of the POWM doctors have privileges at Spectrum hospitals, Sillivan said the docs don’t consider the dispute an issue. He said his own Physician’s Care product and Spectrum’s managed care company, Priority Health, insure many POWM patients, while Medicare covers others.
“Even though Blue Cross insures a lot of patients on an aggregate basis throughout western Michigan, the makeup of any one physician’s practice is that the patients insured by Blue Cross are in the minority of their total patient base,” said Sillivan. “The nice thing is, there are options out there that employers can switch to.”
Stuck in the middle of the rate fight are the consumers — the employers and employees who have coverage with Blue Cross and are patients of doctors who only have privileges at Spectrum facilities.
“The patient who does not want to be balanced-billed, or does not want to have that total out-of-network bill, which could be very considerable, is going to have to find a different doc or is going to scream like heck,” said Lody Zwarensteyn, president of the Alliance for Health, a local health care watchdog.
“If the consumer is caught in the middle, they are fighting a battle through someone else,” he added. “Spectrum would assume that the relationships would be pretty stable and physicians and their patients would stay where they are. Yet, if that’s the case, then in the interim until they come to an agreement, consumers could be financially harmed.”
If the Blues’ PPO goes out-of-network at Spectrum, the plan would cover $70 a day of an in-patient care cost that can range from $1,000 to $2,500 per day. If the same happens to the Blues traditional plan, a subscriber would be billed the full amount and then would have to submit the bill to Blue Cross, which would likely pay the discounted rate.
“So, again, the consumer is going to get hit with the difference and that will hurt,” said Zwarensteyn.
If the issue isn’t resolved, a consumer basically has three options. One is not to use Spectrum facilities, as Blue Cross has contracts with other hospitals. Two is switch to a doctor who has privileges at another hospital. Three: leave Blue Cross for another insurer.
“Spectrum is betting that consumers want to stay with their docs and that their docs want to stay where they are. Blue Cross is suggesting that the financial burden on their subscribers is going to be such that they’re probably going to want to do some things to protect themselves,” said Zwarensteyn.
“That’s why it’s so important for both to get to the table and get this thing resolved.”