BCBSIL Refuses to Negotiate Jointly With “Affiliated” Providers. Now What?

ILACO

Tensions between health plans and care providers have taken an fascinating turn in Chicago. Blue Cross Blue Shield of Illinois (BCBSIL) is refusing to allow care providers “affiliated” through a clinical integration agreement to negotiate contracts jointly.

The ramifications for future network contracts are significant and could play out very differently in other health care markets.

Background

In February 2014 Advocate Health Care and Silver Cross Hospital announced a clinical integration affiliation agreement. Advocate is the state’s largest hospital network and Silver Cross is an independent, suburban hospital. The Chicago Tribune reported on details:

Under terms of the affiliation, which is slated to last a minimum of five years, about 300 doctors who practice at Silver Cross will join Advocate Physician Partners, a 4,400-doctor organization jointly governed by Advocate and the physicians…

Although the hospital will retain its brand, board and balance sheet, it will enter into contracts with insurance companies and government programs under Advocate, and its physicians will fall under Advocate Physician Partners. Advocate will treat the hospital like any of its other 11 facilities financially, assigning pro-rata costs to the Silver Cross in the same way it would Advocate Christ in Oak Lawn or Lutheran General in Park Ridge.

As noted a February article in Crain’s Chicago Business,  the intent of the agreement had been to allow Silver Spring to participate in Advocate’s accountable care organization network and to negotiate contracts jointly:

For New Lenox-based Silver Cross, the deal means participation in programs in which providers and hospitals are paid in part for good outcomes rather than volume. It wouldn’t have been able to launch these on its own due to the hefty investments needed to start from scratch. “It’s a make-or-buy decision,” said Ruth Colby, Silver Cross’ senior vice president of business development and chief strategy officer. “When we saw that we could do an affiliation, we felt we could rapidly get ready for changes in reimbursement.”

However, the state’s dominant health insurer has said “Not so fast”.  The headline of an October 8 article in Crain’s Chicago Business read “Blue Cross delivers blow to small hospitals”

Blue Cross won’t negotiate reimbursement rates with affiliations created by separate health systems that clinically integrate rather than those under common ownership, Dr. Lee Sacks, chief medical officer of Downers Grove-based Advocate, said during a meeting yesterday with the Crain’s Chicago Business editorial board.

So, what we have here is a new slant on an old issue — the fight for market power among health plans and care providers. Health plans will prefer a “divide and conquer” strategy, while providers will prefer a “united we stand” strategy toward pricing and contract negotiation.

Why It Matters

The Illinois scenario is a pretty good prototype of market dynamics in many other markets across the U.S. — a dominant health plan,  a strong regional delivery system, and a smaller independent hospital. Similar affiliation scenarios are likely to play out in markets across the country, but will the results be the same?

Market conditions do vary. Depending on relative market strengths and strategies of health plans, delivery systems and independent hospitals, I  foresee a potential for differing results in other markets.

Important questions are raised by the BCBSIL decision NOT to negotiate jointly with providers that simply “affiliate”:

Will other health plans follow? How will health plans across the country deal with this issue? I think it’s likely that most will follow the lead of BCBS IL and will insist on negotiating separate contracts.

What if the dominant health system said “Negotiate jointly or we walk”? Let’s twist the facts slightly. Consider an affiliation agreement that is between a dominant health system and a smaller system of four hospitals (instead of just one). Would the dominant system be more likely to resist a health plan’s refusal to negotiate separately? Would the dominant system go to bat for the smaller system and say to the health plan “You either negotiate with us jointly or not at all?” Then what?

Will this spur competition? Could Silver Cross try to turn lemons into lemonade? Although it’s unlikely this thinking would be verbalized publicly, their strategy might become “If we can’t join ’em, let’s beat ’em. Since we can’t negotiate pricing jointly, we’ll offer the health plan lower prices and hopefully take away some patients from the larger system. The health plan will help us because it’s in to their advantage to steer patients to lower cost care providers.”

Will this stifle growth of valuable clinical integration affiliations among care providers? Encouraging clinical integration and coordination of care has been a major goal of health reform efforts. Will hospitals say “If we can’t get the advantages of joint pricing, let’s not bother at all with clinical integration”?

Could this backfire for health plans? Now that BCBSIL won’t negotiate jointly with hospitals that simply affiliate, will this result in more hospital consolidations, i.e., formal mergers? Will smaller hospitals say “If there’s no value in an affiliation, let’s just sell out to the larger system”?

The issue of health plan decision making in negotiating with affiliated care providers will come up again…and again.  How do you see this issue playing out?

2 thoughts on “BCBSIL Refuses to Negotiate Jointly With “Affiliated” Providers. Now What?

    • Dan, Thanks for your comment. While I’d agree that patient concerns don’t seem to be at the forefront here, I think your statement is kinda sweeping, don’t you think? The hospitals would point to the benefits of clinical integration programs for patients; the health plan would point to the value of lower prices for patients. There are tradeoffs here.

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