In 2006, Blue Cross Blue Shield created a contentious contract dispute with Piedmont Hospital in Atlanta. BCBS offered Piedmont impossibly low reimbursement rates and then refused to negotiate in good faith. I wrote the following article to show that BCBS has a business philosophy to engage in such disputes for reasons that will be detailed below.
This matters because today BCBS is engaged in just such a contract dispute with Grady Hospital, Atlanta's hospital of last resort for many low income residents. Grady also is the preeminent Trauma and Stroke facility in the state.
The state refuses to support Grady, just because.
The article below is relevant because it demonstrates that from 2000 to 2006, BCBS was engaged in this same type of questionable business practice around the nation.
I will be posting several more diaries on this topic. More below the fold.
The Blue Cross Piedmont Contract Dispute is the Result of a Deliberate Policy by Blue Cross to Shed Costly Policy Holders.
In the controversy between Blue Cross Blue Shield and Piedmont Hospital, the media’s attempt to be fair and balanced leaves the impression that there is a moral equivalency between the positions of the two disputants. Nothing could be further from the truth. Blue Cross is not a member of the health care industry, but the finance industry. Like all for-profit health insurance companies, Blue Cross is in it “for the money.” And everyone knows what the love of money is the root of.
Piedmont is a non-profit hospital system with over 400 associated physicians whose sole rationale is to provide medical care to those who need it.
Blue Cross Blue Shield of Georgia is a for-profit corporation with no soul whatsoever.
Piedmont Hospital and its employees and associates are similar to other businesses which provide goods or services in the marketplace. Piedmont provides medical care to patients for which they hope to collect “fair” payment. Medical care providers like Piedmont Hospital have a moral and legal obligation to provide medical care to patients, even if the patient is indigent and unable to pay.
As a for-profit corporation and a subsidiary of WellPoint Inc., the insurance company with the largest number of policy holders in the nation, the primary legal and fiduciary obligation of Blue Cross is to the WellPoint stockholders, not the Blue Cross policy holders.
Because of this legal obligation to the shareholders, Blue Cross has an obvious and blatant conflict of interest with their own policy holders. Unlike most businesses that earn money when they provide goods or services to the consumer, for-profit insurance companies only make money when they collect premiums. Blue Cross insurers lose money when they provide the services they are contractually obligated to provide, that is, when they pay large medical claims to hospitals. This inverse relationship explains why a health care payment system dominated by the for-profit insurance industry has resulted in a dysfunctional health care system. No other nation is the world is so foolish as to allow for-profit health insurance companies to create a system that puts the profits of health insurance companies ahead of patients and medical care providers.
Insurance companies have absolutely no incentive to provide “good customer service,” that is, paying the reimbursement claims to doctors and hospitals in a fair and timely manner. In fact, the opposite is true. Moreover, a policy holder who requires an insurance company to perform its contractual duty of paying a large medical claim is an unprofitable customer and therefore a “bad customer.” And in order to maximize return on investment, health insurance company executives have a fiduciary duty to their shareholders to eliminate bad customers, even potential bad customers, from their list of policy holders.
The media has neglected to mention that during the time when Piedmont and Blue Cross were unsuccessfully negotiating a contract, Blue Cross’s parent company WellPoint, Inc., set aside 3 BILLION dollars in “surplus capital” for a Stock Repurchase Program. If WellPoint had so much surplus capital, why didn’t WellPoint offer a bonus to Georgia hospitals for quality health care outcomes, or lower the premiums of the several million Blue Cross policy holders in Georgia? Just kidding.
During this period when WellPoint was buying back billions of dollars worth of their own stock, which only benefits large shareholders and corporate executives, Blue Cross of Georgia was raising the premiums of many of their Individual health insurance policy holders by 100%. That’s not a typo, that’s One Hundred Percent. Individual policy holders who raised their deductibles by $1000-$1500 received only 35 to 40 percent premium increases.
In order to fulfill their legal obligation to their shareholders, for-profit health insurance companies utilize a variety of unsavory business strategies to minimize the likelihood of fulfilling their contractual obligation to pay medical claims for the policy holders, including cherry picking, churning and closed pools.
Cherry picking means that only people who don’t need health insurance are allowed to buy health insurance. Churning is a method used by insurance companies to induce policy holders who might need health insurance to drop their policy by imposing outlandish premium increases. Closed pools are a legal, but not moral, churning technique which allows the insurance company to raise premiums and induce policy holders to drop their policy before they file a large claim.
The Blue Cross family seems to have discovered another method of churning its sicker policy holders, Punitive Contract Disputes. Since 2000, various Blue Cross Affiliates around the country have engaged in at least fifteen contentious and potentially ruinous contract disputes with hospitals and hospital systems in nine states, affecting several dozen hospitals. During these disputes, millions of Blue Cross policy holders were denied the use of their hospital and doctor at affordable in-network rates.
These fifteen contract disputes all seem to follow the same script or plan.
First, Blue Cross selects a victim and offers a lowball reimbursement price, refusing to budge even though Blue Cross might be reimbursing other hospitals in the area a larger sum, sometimes the amount the other local hospitals receive is more than the amount that the victim hospital is asking for. In years when medical inflation averages nearly ten percent, Blue Cross offers increases of less than five percent. In the standard three year contract, Blue Cross offers a reimbursement percentage that falls even lower in the second and third year. When the hospital refuses to accept such ruinous terms, Blue Cross breaks off negotiations. Finally, Blue Cross refuses to restart negotiations, but takes the dispute to the local press, and blames the hospital. These disputes always last at least a month and sometimes three months or longer. Usually, regulators or business leaders have to step in to broker an agreement.
Regardless of the outcome, Blue Cross raises the premiums of many of their policy holders an average of ten to fifteen percent. The public never learns the final terms of the contract, but the terms are not important to Blue Cross anyway. The dispute is a business strategy which has other goals that are more important than mere reimbursement rates.
Blue Cross knows from experience that because most patients trust their regular doctor and hospital, many patients will delay expensive medical treatment until the contract dispute is settled. Therefore, for as long as the dispute lasts, Blue Cross collects premiums, but pays out less in claims. With premiums steady and costs down, profits go up.
But as nice as it is for Blue Cross to bump up quarterly profits at the expense of their policyholders and medical care providers, there is another equally important reason to engage in these contract disputes.
For the healthy policy holder, that is, the good policy holder, the dispute is academic. The healthy policy holder is not inconvenienced by these disputes because the healthy policy holder does not require expensive medical care.
But circumstances are different for the sick patient, the “bad customer.” The sick policy holder is seriously inconvenienced by these contract disputes. And if the sick patient is fortunate enough to have health insurance paid for by a large employer and has the opportunity to make a choice, the sick patient will be highly motivated to change insurance companies.
The frequency of these disputes and the similarity of the methods that Blue Cross uses in all of them suggests that these punitive contract disputes represent a deliberate policy. These disputes are a win/win situation for Blue Cross. As a result of these disputes, Blue Cross increases short term profits, intimidates other hospitals and medical care providers into accepting lower reimbursement rates, and reduces their number of high cost customers.
Is this deliberate Blue Cross strategy working in Atlanta?
According to an article written by Erin Moriarty and published online on July 16, 2006 in the Atlanta Business Chronicle, Atlanta law firm King & Spalding is adding an insurance plan from CIGNA Corp., “so that employees who depend on Piedmont can continue using the provider at in-network rates.”
Fayette County, which depends on Piedmont Fayette Hospital for hospital care, immediately switched from Blue Cross to CIGNA when the contract expired. Blue Cross knows that many Americans with health problems obtain government jobs because it’s the only way for them to obtain health insurance.
In other words, Blue Cross has gotten rid of hundreds of money losing policy holders and put the burden on one of their main rivals, CIGNA. That’s a win/win situation for Blue Cross.
Continuity of care is one of the most important factors in achieving good health outcomes in chronically ill, that is, expensive patients. Yet, every year Blue Cross instigates contract disputes in several states which disrupts the care of sick policy holders and causes a significant increase in the patient’s stress level. Millions of policy holders have been victimized by these disputes over the last five years.
While the motto of practically every for-profit health insurance companies could be: “Patient Beware, We have no Shame,” the for-profit Blue Cross companies are clearly health insurance industry leaders when it comes to setting new standards for callousness.
The fifteen hospitals and hospital systems involved in contract disputes with Blue Cross Blue Shield are listed in chronological order below.
Jefferson Health System, Pennsylvania, 2000
Children’s Hospital of Pennsylvania, 2000
Sutter Health Network, California, 2001
Bucks County Hospital, Pennsylvania, 2001
Chester County Hospital, Pennsylvania, 2002
University of Pennsylvania Medical Center, 2002
HCA hospital network, Tennessee, 2003
University of Iowa Hospitals and Clinics, 2004
Mad River Community Hospital, Louisiana, 2005
Sharp Healthcare, San Diego, California, 2005
North Carolina Baptist Hospital, Winston Salem, NC, 2005
West Virginia University Hospital, Morgantown, W.Va., 2005
Landmark Medical Center, Rhode Island, 2006
Tri-City Medical Center, North County, California, 2006
Piedmont Hospital, Atlanta, 2006
For an examination of the details on these BCBS contract disputes, see my article, “Evidence of a Policy of Intimidation in Contract Negotiations Between Hospitals and BCBS” on Dailykos.com/jmcmeans
2006. Jim McMeans
Danielsville, GA 30633
jmcmeans@windstream.net