A network dispute could leave a quarter million Californians without access to a large, well respected health system, a story playing out across the country.
Northern California's Sutter Health is set to become out-of-network for some 280,000 Blue Shield of California members, if a contract that expired at the end of 2014 is not renewed.
Over the past few months, "Blue Shield of California and Sutter Health have been engaged in discussions on rates and terms for all Blue Shield plan types," the insurer told members of HMO, PPO, EPO, and Group Medicare Advantage plans in a notice. "Unfortunately we were unable to reach an agreement on new contract terms before the end of the previous contract."
With exceptions for members in one county and those continuing treatment and needing emergency care, Sutter Health's 23 hospitals, primary care doctors and specialists are set to become out-of-network this spring for some Blue Shield members in 21 Bay Area counties.
While continuing discussions with Sutter "in the hopes that a new agreement can still be reached," Blue Shield has outlined a transition plan for its members who see or are assigned to Sutter physicians and hospitals.
Blue Shield leaders maintain that Sutter Health is seeking reimbursement that is well above peers, while Sutter executives argue that the nonprofit insurer is trying to squeeze them with cuts that will harm patient care.
In a study, Blue Shield argues that Sutter Health's prices are 18 to 30 percent higher than all other hospitals in Northern California and the state as whole, not just those in the insurer's network.
From 2001 to 2013, according to the Blue Shield analysis, Sutter's average hospital cost per-day increased 166 percent, reaching $8,109 per day in 2013, while Sutter's physicians' fees have increased 33 percent in the since 2008, compared to 11 percent statewide.
In 2013, the health system's hospital income margin was double the statewide average and represents a 57 percent profit on Blue Shield plans, the insurer argues.
"We can't keep paying at that level and increasing that amount," Blue Shield president and chief executive Paul Markovich told the San Francisco Chronicle editorial board.
Sutter Health is perhaps second only to Kaiser Permanente in terms of Northern California's largest healthcare system. Led by Patrick Fry, CEO since 2005, Sutter has some of the Bay Area's most prestigious hospitals in Berkeley, Davis, Modesto and San Francisco, including the 785 bed California Pacific Medical Center, and leading physicians groups such as the Palo Alto Medical Foundation.
"Blue Shield is seeking significant rate reductions and business terms that Sutter Health cannot accept," the health system told patients in an FAQ. "It remains our strong preference to reach a fair and reasonable contract with Blue Shield and remain in the Blue Shield networks."
In late January, Sutter Health proposed a short-term agreement with Blue Shield that would extend the 2014 rates until the end of this year, giving them more time to find a long-term contract or craft transition plans for patients.
"Our proposed longer-term transition agreement would help ensure patients have continued access in 2015 to the doctors Blue Shield promised them during open enrollment," said Stephen Lockhart, MD, Sutter Health's chief medical officer. "We believe employers and Blue Shield members deserve the network they purchased."
Sutter Health is featured as the primary network for five Blue Shield individual and small group plans being sold in Covered California, and those members may have to switch if an agreement isn't reached.
"Few things are more important than the relationships patients have with their doctors, and our proposal gives patients time to consider alternative health plan options for 2016," Lockhart said. A media release from Sutther also said that Blue Shield "continues to collect rate increases from its members and employers this year of up to 23 percent."
The dispute in Northern California is similar to others across the country, if not as fractious as the Highmark-UPMC saga. Large insurers are seeking concessions from consolidating and prestigious health systems believed to be overpriced; those health systems are trying to prove their value or find other routes around large payers, like starting their own health plans.
In the Midwest, Blue Cross Blue Shield of Nebraska terminated a contract with UniNet, a physician-led network of 2,000 doctors and 30 hospitals created in 1998 and now sponsored by the faith-based giant Catholic Health Initiatives, after its acquisition of the 11 hospital Alegent Creighton Health. Blue Cross maintains that CHI Health charges 10 to 30 percent more than other hospitals in greater Omaha.
Back in the Bay Area, both Sutter and Blue Shield say they want to find a resolution, as media outlets profile patients professing loyalty to Sutter docs and hospitals and complaining over the squabble of billion dollar healthcare companies.
For Blue Shield, there may be some risk is calling Sutter's bluff. In 2013, the health system got a license for its own health plan, Sutter Health Plus.
"The way people purchase and receive health care is changing," said Steve Nolte, the health plan's CEO, and a former executive at UnitedHealthcare's Optum. "Sutter Health Plus enables the Sutter Health network to develop closer, more direct partnerships with employers and patients, make high-quality care more affordable."
Sutter Health Plus, however, is not being sold on the the state exchange, Covered California; the health plan applied for the first enrollment period, but then withdrew. It also lost more than $13 million in its first year on enrollment of about 13,000, the SF Business Times noted.