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Read Making a Killing

home / healthcare / in the media

Los Angeles Times
Dec 31, 1998

by Kenneth Reich

An Equal Chance: Hospitals Need Backbone to Cut Deals with Health Plan

One of the most hard-nosed of all the health plans, Blue Cross of California, has yielded ground in recent negotiations with three San Gabriel Valley hospitals, agreeing to raise its reimbursements for medical procedures.

The new three-year contract signed in the last two weeks with Huntington Memorial in Pasadena, Methodist in Arcadia and Huntington East Valley in Glendora was subject to the confidentiality provisions that Blue Cross always insists upon, but some details have been leaking out.

They show that big health plans are willing to negotiate, so long as medical providers are willing to be tough enough.

Blue Cross, according to hospital statements, initially proposed in the negotiations to keep reimbursements at the same low level they had been since 1995, when they were substantially reduced from before. With inflation and new technology, this would, in fact, have represented a decrease.

But Blue Cross didn't get away with it. Other hospitals, doctors and medical providers should take note.

The three hospitals followed the lead of two big hospital chains based in Northern California--Sutter Health with 26 hospitals and Catholic Healthcare West with 48--which successfully brought Blue Cross to terms last spring and summer.

One thing was common in the approach taken by negotiators for all these hospitals: After weeks of fruitless talking, they issued blunt press releases saying there was an impasse and setting a date for terminating their arrangements with Blue Cross.

Kevin Fickenscher, chief medical officer at

Catholic Healthcare West, explained, "When we discussed internally whether we were willing to walk away from Blue Cross, it was a serious decision. We take very seriously the role of being the provider. We're the ones who are holding the hands and touching the people who need the care. But we had come to the conclusion that if we couldn't provide the quality of care we felt was essential . . . it was important to walk away."

But, in all the cases, shortly after the hard-line positions were publicly announced, Blue Cross agreed to the larger reimbursements. The new press releases it agreed to fuzzed this point.

Two hospital officials indicated that an average increase of 8% is close to what their negotiators won. Blue Cross, still struggling, termed this too high.

A retired Times political writer, Richard Bergholz, a volunteer at Methodist Hospital, says a negotiator for the San Gabriel Valley hospitals, Bruce Young, told him that those hospitals got about 98% of everything they wanted.

Young declined to say anything. "I've been instructed that I don't have any comment," he remarked.

Stephen A. Ralph, president of Huntington Memorial and of the parent company for all three hospitals, Southern California Healthcare Systems, which negotiated the deal, indicated that the figure given Bergholz was fairly accurate.

"I hate putting a 98%, a 97% or a 99% figure on it. People go back and forth," he said in an interview.

Ralph added that he felt the higher reimbursements were fair and would not hurt consumers. Health care plans such as those sold by Blue Cross have been raising premiums, he said, "and they should pass some of these increases on to the providers. The providers have to be paid fairly."

Andrew Allocco, a Blue Cross senior vice president who said he had been in on the negotiations, was forthcoming up to a point.

"If they said they got 98% of what they wanted, that's fine," he remarked. "From my standpoint, that's great. We attempt to have a win-win situation."

Allocco insisted that Blue Cross always realized it would have to raise reimbursements to providers somewhat.

And he asserted that confidentiality is as much in the interest of the hospitals as of Blue Cross.

When I chanced to mention that my own dentist recently told me that he's gone more than four years without any increase in Blue Cross reimbursements, Allocco turned a little less gracious.

"Well, certainly you wouldn't want to pay higher premiums so your doctor could collect more," he said.

But I do believe in an equal chance for everyone, including health care providers. Allocco seemed a little skeptical when I told him I was willing to pay a little more to be fair to my doctors.

I talked the matter over with Walter Zelman, president of the California Assn. of Health Plans, who speaks for the managed care industry.

"One of the reasons the providers and the health care firms are consolidating is to get better leverage against each other," Zelman observed.

"It's a natural balancing act," he said. "The providers accept lower payments for a while, but then they can't take it anymore."

Zelman said he feels that the rises in reimbursements may result in "a slight increase in premiums" for policyholders and that that "may be appropriate."

Critics of the managed care system are not so sanguine and are not ready to accept such a rationalization, or a system that allows those tough enough to negotiate effectively to do much better with the health care firms.

Jamie Court, director of Consumers for Quality Care, remarked of Blue Cross:

"It's really disconcerting when a company doesn't have a standard set of payment policies, but only pays providers more when they have the clout to put a gun to the company's head. This leaves the family physician who still has a shingle on the door out in the wind to dry."


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