A short-lived network dispute has come to a resolution. But that doesn't mean the points of contention are going away.
Earlier this year, some 280,000 Blue Shield of California members were at risk of having to find new physicians, specialists and hospitals for in-network care, as contract talks with Sutter Health stalled.
Now, the two organizations have reached a two-year network contract that preserves in-network access to Sutter providers for all Blue Shield plans that have historically participated, including HMOs, PPOs and five exchange options offered through Covered California.
"We sincerely regret the frustration our patients experienced as the negotiations took longer than necessary, especially when the final agreement is extremely close to the reasonable offer we made to Blue Shield several months ago," said Sutter Health chief medical officer Steve Lockhart, MD.
Amid the negotiations, Blue Shield had a range of cost issues that it wanted to address in a new contract with Sutter Health, which includes 23 hospitals as well as clinics and physicians groups.
Blue Shield leaders argued that Sutter Health was seeking reimbursement well above peers, while Sutter executives argued that the insurer was trying to squeeze them with cuts that will harm patient care.
In a market analysis circulated during the talks, Blue Shield argued 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 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, according to the insurers, which keeps profit limited to 2 percent of revenues.
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. How many changes the new contract includes remains unknown, but the deal is only for two years, meaning that the Sutter and Blue Shield customers could be in for more uncertainty in early 2017.
In the era of value-based health, payer-provider disputes may become less common -- or they could increase, as the organizations delve into the question of what value really means.
Across the country, there are places where insurers and health systems are reckoning with this, especially as large insurers seek concessions from consolidating and prestigious health systems believed to be overpriced.
In Indiana, UnitedHealthcare and Indiana University Health went through a dispute similar to the Sutter-Blue Shield spate. In early 2014, after in-network negotiations that nearly fell apart, the companies agreed to renew a contract for two years covering 400,000 United members.
Elsewhere 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.