10/27/13 — Seeing blue: It's all about the bill

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Seeing blue: It's all about the bill

By Matthew Whittle
Published in News on October 27, 2013 1:50 AM

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Wayne Memorial Hospital at twilight. Negotiations between the hospital and Blue Cross and Blue Shield of North Carolina are at a standstill, and could result in a contract termination on Dec. 5.

Wayne Memorial Hospital's new Emergency Department.

WMH President and CEO William Paugh

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BCBS President and CEO J. Bradley Wilson

With Wayne Memorial Hospital and Blue Cross and Blue Shield of North Carolina staring down a Dec. 4 deadline to come to a new contract agreement, negotiations have now been stalled for nearly two months.

According to both sides, after 18 months of discussions, the primary sticking point is a single provision -- one that hospital officials believe will jeopardize WMH's "long-term viability" if accepted, despite the insistence of Blue Cross officials that it is now the "industry standard."

The provision is one that deals with how much Blue Cross would actually pay for outpatient services, and how those allowable rates would be determined.

Under the current contract, which has been in effect since 1995, Wayne Memorial Hospital can set whatever basic charge it determines necessary for a given outpatient procedure. The allowable rate for Blue Cross patients -- the maximum amount BCBS will pay for a service -- is a fixed percentage of that charge. What that means -- and what Blue Cross officials are trying to change -- is that whenever the hospital raises a charge, that allowable rate also increases.

The new contract being sought by Blue Cross would eliminate the ability of the hospital to unilaterally raise those allowable rates. The hospital would still be able to set its basic charge at whatever price point it deems necessary, but under the proposed contract, the insurance company and the hospital would negotiate a fixed allowable rate over a certain number of years, at the end of which it could be renegotiated.

And therein lies the problem for the hospital -- the reason it has refused to agree to Blue Cross' terms, which has led to BCBS threatening to terminate the contract on Dec. 5, pushing Wayne Memorial into out-of-network status.

"It's important that we maintain the right to adjust our rates to reflect the true cost of the service we're providing," said Bill Paugh, Wayne Memorial CEO. "We think Blue Cross is trying to muscle us into agreeing to this new contract that will jeopardize our long-term viability as a community hospital."


However, officials at Blue Cross contend that not only is Wayne Memorial clinging to an old way of doing business, its high outpatient costs are making that untenable for the insurance company.

"We can't sustain the status quo," said Mark Werner, BCBS corporate director in charge of negotiating contracts with hospitals. "Wayne Memorial has a very outdated provision in their contract that allows them the ability, as often as they want, to unilaterally increase their rates."

And that, he said, not only impacts Blue Cross, but also its customers.

"We've accepted as many rate increases as we can. Wayne Memorial Hospital is driving up the cost of health insurance for all Blue Cross and Blue Shield of North Carolina customers in Wayne County -- individuals and businesses," Blue Cross officials said in a recent presentation to county employer groups.

The provision to negotiate those allowable rates, explained Lew Borman, a company spokesman, is one that Blue Cross has negotiated into "the majority" of its 115 hospital contracts over the last 15 years. However, he would not specify the exact number of those contracts or how many are currently under negotiation.

Nearby, he said, Lenoir Memorial Hospital recently accepted such a provision, while Wilson Medical Center is expected to with negotiations currently ongoing, said officials there.

"Wayne Memorial is the only one unwilling to move off this," Werner said.


Hospital officials say they have a good reason, though, for their refusal to accept Blue Cross' terms -- their interpretation of the provision is different. While the language, which has not been made public, may provide room for the hospital and Blue Cross to negotiate a mutually agreed rate, in practice, hospital officials believe this provision will allow the insurance giant the ability to simply dictate to them what it will pay.

"It's Blue Cross coming in and saying 'We're the dominant player in the community,'" Paugh said. "We're aware of other places that had this type of contract with Blue Cross that have not been allowed rate increases due to medical inflation."

And he and the hospital's board of directors are concerned that if they accept the low rates they expect to be offered by Blue Cross, the hospital will be faced with a "slow death."

"We don't have huge margins. We're trying to be as efficient as we can be. We've got to have a provision that allows us, as costs go up, to recoup the costs of the services we provide," he said.

And being handcuffed by this contract, Paugh continued, would make it harder for Wayne Memorial to continue to be the "top tier hospital that we are now," potentially compromising its ability to improve facilities, to add new services, to hire highly qualified staff and "to be progressive."


Blue Cross officials say, however, that such a characterization isn't accurate -- that it would seek to work with the hospital to not only keep rates reasonable for all parties, but to help it find other efficiencies and ways to cut costs.

To them, the concern that Blue Cross would force allowable rates so low as to damage the hospital's ability to provide care, much less stay open, is unfounded.

"Shame on us if we would do that," Werner said. "Give Blue Cross a chance to prove itself."


For now, though, negotiations are at a standstill.

Blue Cross officials say that any contract must include this provision.

Wayne Memorial officials say they will not agree to this contract -- as is.

"This is Blue Cross' doing. They've more or less said, 'Take it or leave it.' This is not our doing, and we're uncomfortable that Blue Cross has chosen this path. I'd much rather be hammering out an agreement that's fair for both sides," Paugh said, noting that this original agreement was one designed by Blue Cross. "If Blue Cross was really concerned about their customers, then why are they not at the table? I don't care if it's an old contract or a new contract, I just want a fair contract."

And to that end, he said, he is willing to continue negotiating to find a "creative" solution -- perhaps one in which Blue Cross compromises in another area, such as inpatient procedures, to help offset the decline in outpatient revenue this provision would cause.

"We're trying to find common ground -- to put something together that will serve the needs of the people in this community who use this hospital," Paugh said, noting that he has a meeting scheduled Monday with Blue Cross and Blue Shield of North Carolina President and CEO Brad Wilson.

If they can't come to an agreement, though, Paugh said he is hopeful that Wayne County businesses and residents will consider switching insurance providers.

"What we're finding from folks is a lot of concern, a lot of misinformation. We're trying to get the correct information out -- that they will still be able to receive care here.

"We're also trying to communicate to the community that there are alternatives to Blue Cross and Blue Shield that offer a superior product. Insurance is expensive, and I think people will want a product that best meets their needs as they determine them, not as somebody else determines them. We think in this market, people will look around."