Blue Cross and Children's Minnesota settle contract dispute

Children's Minnesota and the state's largest health plan have agreed on a new contract that restores in-network access to the state's largest pediatric hospital for people covered by Blue Cross and Blue Shield of Minnesota.

Blue Cross CEO Michael Guyette and Bob Bonar, the chief executive at Children's, offered no details about the three-year agreement during a news conference Friday in Minneapolis.

They stressed that Blue Cross subscribers once again would have in-network access to Children's — an important distinction because the hospital's out-of-network status as of Wednesday could have stuck families with thousands of dollars in extra costs if they sought care at Children's.

"A contract has been reached between the two parties," state Attorney General Lori Swanson, who helped negotiate the settlement, said at the start of the news conference.

Children's network agreement was terminated this week following an unusually public dispute that included newspaper ads, a social media campaign and allegations that both sides either were misleading or unreasonable in their public and private arguments.

Blue Cross accused Children's of being more expensive than other health care providers when it came to care for kids covered by the state's Medicaid health insurance program, which has been a source of red ink for the insurer. On Thursday, Blue Cross sent a letter to employers that expanded the focus to Children's costs for commercial customers, too, alleging that inpatient care costs at Children's are up to 25 percent higher than at the competing University of Minnesota Masonic Children's Hospital.

Guyette did not revisit those arguments during the news conference, saying: "We're happy to say that we've reached agreement on terms that are good for the employers, the Medicaid population and for children."

Children's said it was committed to providing cost-effective care, but argued during the dispute that the health insurer's proposed payment rates threatened the hospital's viability. Blue Cross initially sought a 31 percent rate reduction for Medicaid patients, Children's said, adding the demand was unreasonable since the program covers such a large share of pediatric patients.

Blue Cross said patients could be cared for at other pediatric hospitals in the state, including the U, but Children's argued those providers lacked capacity to handle all the potentially displaced patients.

During the past year, about 66,000 patients with Blue Cross coverage were cared for at Children's.

"I think Blue Cross and Children's are at peace with where we landed on the rates," said Bonar, the Children's chief executive. "Where we landed was a fair and equitable contract."

Stacey Jenkins, 39, of Eagan said she was relieved by the agreement.

Jenkins has brought her 11-year-old son to Children's for years to treat problems related to epilepsy. She hated the idea of trying to find new doctors to avoid the higher out-of-network costs, and was happy that Blue Cross agreed to extend the boy's in-network coverage even with the contract termination.

Blue Cross and Children's say they worked cooperatively to identify more than 4,000 patients whose needs for continuous care were such that they shouldn't switch providers in the near term.

On Friday, Jenkins said she felt "relief that we don't lose access to the doctors and nurses with whom we have built trust and understanding.

"I hope that kids truly were at the heart of the contract," Jenkins said, "and that this will mean kids in our community can continue to get the health care they need."

The new contract is a three-year agreement. Swanson said she got involved after hearing concerns from families that their access to the hospital would be compromised.

During the news conference, Swanson declined to comment on the substance of the negotiations.

The Blue Cross/Children's impasse was unusual in Minnesota because it resulted in a contract termination, albeit a short one. Usually, when health insurers and hospitals in the state have fought publicly over contract terms, they've settled before there's any impact on patients.

Across the country, analysts say the changing health care system could lead to more contract disputes, particularly as hospitals and health insurers bulk up via mergers to gain power in negotiations.

The dispute highlighted another trend in health care as insurers are using tight network restrictions — along with hefty "cost-sharing" requirements for using out-of-network doctors and hospitals — as a way to control costs.

At one nonprofit group in St. Louis Park, for example, the maximum out-of-pocket cost when obtaining in-network services through Blue Cross is $3,000 per year, vs. $30,000 for out-of-network care. For some individual market policies, there are no upper limits when it comes to out-of-network costs, said Jon Hess, a partner with the consulting firm Athos Health in St. Paul.

"It shows how susceptible you are," Hess said. "You sign up for a health plan at the beginning of the calendar year, assuming a network of doctors and hospitals. But that network can change in the middle of the year, and you're not allowed to switch health plans — you're stuck."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck