Rural hospitals in Minnesota protest Blue Cross reimbursement cut

Dozens of the state's rural hospitals are protesting what they see as potentially crippling changes in the way Blue Cross and Blue Shield of Minnesota pays them for medical services.

Hospital administrators say the new calculation could reduce their payments by hundreds of thousands of dollars, potentially forcing layoffs or tax increases to make up the difference in areas where residents often have to travel great distances to get medical care.

The planned change by Blue Cross and Blue Shield, the state's largest health insurance company, is set to go into effect Wednesday. It would affect about 50 rural hospitals.

"We're more than a little unsettled," said George Gerlach, CEO of Granite Falls Municipal Hospital and Manor, which stands to lose $900,000 under the new reimbursement model. "We're running on slim margins … When Blue Cross rolls in and says we're going to cut your reimbursement significantly, it's a big deal."

Attorney General Lori Swanson has intervened after hearing from a number of hospitals, said spokesman Ben Wogsland. Swanson and Blue Cross CEO Michael Guyette met on Monday, but details were not released.

"We do have concerns and are looking into the issue," Wogsland said.

The attorney general is interested in ensuring that people in rural Minnesota continue to have access to care close to home, he said, particularly with an aging population.

Blue Cross and Blue Shield of Minnesota, the dominant health plan in outstate Minnesota, says the changes are aimed at reducing wide differences in what it pays to hospitals for similar medical care and to provide more incentive for containing overall health costs.

"We recognize there will be challenges in moving away from the status quo," the Eagan-based insurer said in a statement. "However, under the old model, variation on health care prices can be in excess of 500 percent for common procedures. This needs to change."

Payment for an appendectomy can range from $2,500 to more than $25,000, according to Blue Cross. An abdominal CT scan can range from $500 to $5,700. An uncomplicated newborn delivery: $1,500 to more than $10,000.

Blue Cross said the new payment approach is a less arbitrary and more transparent way to pay hospitals based on the specific needs of the people they treat.

"At a time when escalating hospital prices are of great concern to consumers and employers alike, we believe it's important for Blue Cross to move forward with these efforts," the insurer said in a statement.

Minnesota has 79 critical access hospitals, which are regulated by the state and federal governments and are given special designation to maintain health services in rural areas. They are reimbursed at a higher rate by the federal Medicare program because they see fewer patients.

Many of the state's rural hospitals are owned by a city or county and often are the largest provider of jobs. Those that are independent face increasing financial pressure to merge with larger systems, such as the Mayo Clinic, Sanford Health, Essentia and CentraCare.

David Balto, a Washington-based antitrust lawyer who represents 23 critical access hospitals in the Minnesota Rural Health Cooperative, called the change by Blue Cross a "blatant effort to decrease reimbursement in a severe and abrupt fashion," and said he'll consider "all of our options" to try to block the rollout.

The Minnesota Hospital Association also issued a statement opposing the move, saying it would have a "devastating effect on rural health care" and "plunge rural hospitals into the red."

Former Attorney General Mike Hatch has voiced concerns and the Minneapolis law firm where he now works, Blackwell Burke, sent a letter to Swanson last week listing 18 critical access hospitals and other rural medical centers affected by the changes.

In Granite Falls, 120 miles west of Minneapolis, Blue Cross is the biggest payer behind Medicare at the city-owned 25-bed hospital. Patient revenue, which also includes proceeds from a nursing home, home care and ambulance services, was about $17 million in 2012, Gerlach said, and the hospital lost money that year.

Gerlach said he first learned of the change on Feb. 1 and has written three letters asking Blue Cross to extend the deadline to Jan. 1 for more time to absorb the blow.

"There's no negotiation going on," he said. "They said this is the new system, we're going to do it."

Kimber Wraalstad, administrator of Cook County North Shore Hospital, said Blue Cross officials estimated the Grand Marais facility would see a 12 percent reduction, or about $275,000.

"They're saying we want to pay you the same as what we pay people in the metro area," she said. " I don't have the same volume that Twin Cities hospitals have.

"What they're proposing, frankly, would be devastating to our organization."

Jackie Crosby • 612-673-7335