Blue Cross Blue Shield of Minnesota (BCBS) has thrown Cook County North Shore Hospital & Care Center what appears to be a curve ball, and it may threaten the facility’s ability to continue as a Blue Cross Blue Shield provider.
A letter from BCBS dated February 4 states that the company would be requiring an entirely different method of billing effective March 1 and asks the hospital to sign a contract amendment acknowledging the change. A letter dated March 8 stated that while the new billing system would not go into effect until May, it would go into effect without the hospital signing anything or even agreeing to it.
Since 1983, the Center for Medicare and Medicaid Services has been using a “prospective payment system” (PPS) that reimburses according to expected costs, a payment schedule based on about 500 different “diagnosis-related groups” (DRGs). DRGs are a way of classifying hospital cases into various categories that are believed to predict the amount of care that will be needed with a given diagnosis and set of circumstances.
Insurance companies use prospective payment systems, too, but they are not necessarily the same as Medicare’s.
Critical access hospitals have been exempt from being reimbursed according to diagnosis-related groups. They have been paid according to percentages related to the actual cost of providing services because they would not get enough volume to afford to stay open if they were paid according to diagnosis-related groups.
As an example, St. Luke’s Hospital President John Strange told the North Shore Hospital Board on March 21, 2013 that under the prospective payment system, St. Luke’s got paid $77,000 for a patient stay that cost the hospital a million dollars.
Rather than reimbursing North Shore Hospital according to diagnosis-related groups, BCBS has been paying a percentage of what the hospital has been billing, although in bigger hospitals BCBS pays according to DRGs. The new method of payment would require staff to prepare bills in a very different way. For hospitals that have already been billing according to DRGs, this would require new processes, but for hospitals like Cook County’s, the change is daunting.
“My analogy regarding this transformation,” Hospital Administrator Kimber Wraalstad wrote to BCBS on March 21, “is that for organizations currently being reimbursed using DRGs and OPPs [outpatient prospective payment systems], the transition is from a Chevrolet to a Cadillac, while for our organization the transition is from a tricycle to a Cadillac. You are setting this organization up to fail!” She called the new amendment “a material change” and “a breach of the existing contract.”
According to Wraalstad, the information provided by BCBS regarding the impact of the new billing system shows that the hospital could expect a reduction in reimbursement of about $238,000, or over 10 percent, a year. This is significant because in five of the last six years, the hospital has had a negative operating margin.
“Under any reimbursement model, it is imperative that the fixed costs of an organization be recognized,” Wraalstad wrote to BCBS. “It is neither reasonable nor appropriate to expect that Cook County North Shore Hospital and Care Center will provide significantly more services to offset the reimbursement reductions being imposed by Blue Cross.”
Wraalstad told the hospital board on March 21, 2013 that she thinks BCBS would be bundling health issues under the new system and dropping payments for some elements of care. Because of this bundling, however, the hospital can’t verify exactly what and how much BCBS would be paying for under their new system. BCBS provided the hospital with what they projected the financial impact would be based on the hospital’s 2011 billings, but this information was comprised of only two pages for inpatient and two pages for outpatient.
Wraalstad told the Cook County News- Herald that hospitals do not discuss their prices with each other because insurance companies could accuse them of price fixing. She has talked to other hospitals about whether they got the letter from BCBS, however, and it seems that the first wave of letters went out to critical access, independent, stand-alone hospitals rather than big facilities. She wrote in her letter to BCBS, “Unfortunately, you have chosen to begin the implementation of a new reimbursement methodology with Critical Access Hospitals (CAHs) who have the least experience with prospective payment system reimbursement.”
North Shore Hospital is asking BCBS for more detail before making a decision about continuing as a provider. Wraalstad said in her letter that the hospital would be willing to implement the new payment system if it had until January 1, 2014 to prepare for it and if an acceptable payment rate could be negotiated.
BCBS works out network agreements so that people can access care in a lot of places and not have to travel great distances to receive it. Giving up BCBS provider status would require patients to travel great distances to access BCBS providers.
“By imposing the unilateral reimbursement methodology and reimbursement rates, despite the concerns highlighted and discussed with Blue Cross,” Wraalstad wrote, “you leave us no recourse but to terminate our status as a Blue Cross participating provider. We hope that you would choose to work with Cook County North Shore Hospital and Care Center to create a contract amendment that advances your goal of payment transformation yet does not irreparably harm our organization.” She awaits their response.
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