Spectrum And The Blues Negotiate


    GRAND RAPIDS — Representatives for both Spectrum Health and Blue Cross Blue Shield of Michigan are hopeful the two can reach an agreement that spells out reimbursement rates the state’s largest health insurer pays the region’s largest health system.

    Spectrum and the Blues recently began renegotiating their participating agreement after the Grand Rapids-based health system notified the insurer last month that it planned to discontinue its existing arrangement later this year, said Lois Servaas, BCBSM manager of media relations in Grand Rapids.

    The move by Spectrum, if it occurs, would affect the Blues’ preferred provider organization (PPO), point-of-service (POS) and traditional health plans, Servaas said.

    “We received a letter and now we’re in discussions,” she said. “They had issues they wanted to discuss and that’s what we’re doing.”

    While many see the letter by Spectrum as a negotiating ploy, it has caused some uneasiness among the business community and employers who purchase Blues policies for their employees.

    Under a participating agreement, a health care provider agrees to accept a health plan’s pre-established fees for a medical service.

    Without an agreement between the two, Blues members who receive care for an injury or illness at a Spectrum facility would have to cover the difference between what the health system bills and what the insurer pays — an amount that for certain procedures can become quite sizable given the discounts that are negotiated into agreements between hospitals and health insurers.

    John Brown, president of the Grand Rapids Area Chamber of Commerce, called the reaching of a new participating agreement between Spectrum and the Blues “critically important.”

    “We would encourage both parties to stay at the table with each other to work out their issues,” Brown said. “That is very much in the best interests of the community at large and the business community in particular.

    “Spectrum’s presence in this community is a very large one and we need these two parties to work together,” he said.

    About 1,000 of the Grand Rapids chamber’s 3,200 member companies use Blue Cross Blue Shield policies to provide health coverage for their employees, Brown said.

    The renegotiation of the Spectrum-BCBSM participating agreement comes at a time when both organizations are facing significant financial challenges that may leave little room for give and take.

    The Blues, Michigan’s largest health insurer with 4.8 million subscribers statewide, or about half of the state’s population, has sustained heavy losses in recent years in the small group market that accounts for a quarter of its business and provides health insurance to 1.3 million employees at small businesses with a workforce of 100 or less. The Blues lost $20 million in 2001 in the small group market, down substantially from $66 million the previous year, and more than $400 million in the previous five years.

    The insurer, which by law must accept all parties seeking health insurance regardless of their age or health status, has been pushing state lawmakers for reforms in the insurance market that would enable it to better compete with commercial carriers it accuses of cherry-picking the healthiest customers. That leaves the Blues with a subscriber base that is more costly to insure.

    Spectrum Health, meanwhile, is facing tight finances in the next two years, the result of rising costs and an inability to implement a corresponding increase in charges, which compare quite favorably to competitors for major medical procedures.

    Under a court decree that allowed the 1997 merger of the former Butterworth Hospital and Blodgett Memorial Medical Center that created Spectrum, the health system remains under a cap that only allows prices to rise each year through the 2005 fiscal year at the average Consumer Price Index for the region, which this year stands at 0.5 percent.

    For the FY 2003, Spectrum Health was budgeting a margin of just 1 percent, the lowest margin since the Butterworth-Blodgett merger. In a June annual meeting, executives indicated that in the coming fiscal year, growth in expenses would begin to outpace revenues and that it was difficult to squeeze much additional cost efficiencies from the merger.

    Spectrum Health spokesman Bruce Rossman declined to characterize the negotiations, although he was hopeful the two can reach a new participating agreement.

    “Both sides are confident the discussions we are having with them will be fruitful,” Rossman said. “We’re hopeful we’ll be able to come together.”

    Negotiations between health systems and insurers on participating agreements have become increasingly difficult in recent years, as both sides feel financial pressures from rising health care costs, said Alwyn Cassil, public affairs manager of the Center for Studying Health System Change, a Washington, D.C.-based health policy think tank.

    Hospitals typically are trying to get higher payments from insurers to cover rising expenses that include having to raise wages and benefits in the wake of a national nursing shortage, as well as to offset declining Medicaid and Medicare reimbursements.

    Insurers, looking to provide subscribers relief from double-digit premium increases of recent years, aggressively push for lower reimbursement payments, Cassil said.

    “Hospitals are under some real financial pressures,” Cassil said.

    In markets where a single health system is the dominant health care provider, hospitals tend to have the upper hand in the negotiations, Cassil said. The potential result for consumers is higher health premiums if the insurer ends up having to pay higher reimbursement rates.

    The negotiating process also can generate a certain level of discomfort and uncertainty for policyholders.

    “What sometimes happens is things go down to the 11th hour and often they work out with neither side getting what they want,” Cassil said.

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