As Blue Cross-Children's talks fail, patients may pay heavy price

Thousands of subscribers at Blue Cross and Blue Shield of Minnesota now face the likelihood of higher costs for care at Children's Minnesota after the largest health plan in the state and Minnesota's biggest pediatric hospital failed to agree on a new contract.

In statements Wednesday announcing the termination of their previous contract, officials with Eagan-based Blue Cross and Minneapolis-based Children's left open the possibility that an agreement might still be reached that restores in-network status for the pediatric hospital.

But the parties offered no new details about how far apart they are, or how negotiations might progress in the coming days. For now, Children's is out-of-network for people with Blue Cross coverage, a distinction that could add thousands or tens of thousands of dollars to a family's medical spending if they stick with Children's.

"I am at a loss to think of an actual termination" like this in Minnesota, said Roger Feldman, a health economist at the University of Minnesota.

"Blue Cross is Children's biggest customer, and conversely Children's is the dominant pediatric provider of hospital care," Feldman said. "It seems that neither party can get along without the other one."

Blue Cross, which is the largest health insurer for Minnesota residents, says about 66,000 subscribers have received care at Children's during the past year.

The terminated contract set Blue Cross payment rates to Children's for services delivered to patients with commercial health insurance coverage, as well as those with coverage via the Medicaid program. Since the dispute went public in March, much of the discussion has focused on Medicaid, the public health insurance program for lower-income residents that's jointly funded by the state and federal governments.

In Minnesota, most people covered by Medicaid have their care managed by a private insurer such as Blue Cross.

Blue Cross said it needs Children's to agree to Medicaid payment rates that are more comparable to those received by other hospital systems. Children's has said the insurer proposed cutting its Medicaid rates by 31 percent, but Blue Cross says the proposed reduction in the later stages of negotiations was considerably lower.

Children's says it already loses 30 cents on the dollar for care provided to kids in Medicaid and would lose another 10 to 15 cents under the Blue Cross proposal. The proposed rates would force significant service cuts, Children's says, while threatening the hospital's viability.

During the past several weeks, Blue Cross granted coverage extensions for more than 4,000 patients in the middle of complicated treatments who could not be easily transferred to other health care providers. Those patients don't face an immediate decision about going elsewhere for care, since Blue Cross is extending in-network coverage for 120 days.

Blue Cross says other patients can be treated at other medical centers in the region, but Children's contends other pediatric hospitals lack capacity to handle the additional cases. The contract impasse does not block kids from being treated at Children's in an emergency.

The lack of a contract agreement creates risks for both sides.

Last year, Blue Cross paid for about 32 percent of all hospital patient days at Children's — a significant chunk of the health system's business that gives the insurer leverage in negotiations. With hospitals in Minneapolis and St. Paul as well as at 12 primary care clinics and several specialty clinics, Children's is the dominant provider of pediatric hospital services in the state, a status that typically gives medical centers a "must-have" status when employers and subscribers consider insurance options.

"It's quite a risk to say I'm going to walk away from a third of the market — it doesn't happen very often," Dave Renner, director of state and federal legislation for the Minnesota Medical Association, said. But considering how sick patients at Children's are, Renner added: "This is a huge risk for Blue Cross."

The break between Blue Cross and Children's is the highest-profile contract termination in the Twin Cities in at least a decade. While there was a termination about a decade ago between Blue Cross and a small hospital in northern Minnesota, terminations "don't happen very often around here," said Matt Anderson, a senior vice president with the Minnesota Hospital Association.

"What usually happens is they reach an agreement before this," said Feldman of the U. "Given that they failed to reach an agreement and the contract expires, they go through this period, similar to a strike in a labor dispute, and eventually settle it."

Asked for an update on Wednesday, a Children's spokeswoman said via e-mail: "Nothing to report regarding progress of negotiations. … There is still a gap, but we are unable to share specifics."

A Blue Cross spokesman wrote in an e-mail: "I can tell you that we are covering all people that were inpatient as of midnight last night at in-network rates through their hospitalization."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck