Two of the Twin Cities' healthcare powerhouses are seeking nonbinding arbitration to settle a dispute over prices for hospital services.
Blue Cross and Blue Shield of Minnesota wants Minneapolis-based Allina Health System to cut its prices for hospital care by 10% next year. The plan says Allina's prices are 8% to 9% higher than prices charged by other area hospitals to Blues customers. Allina, in turn, is offering the Blues plan a two-year freeze on prices.
Both the Blues plan and the system are facing financial pressure to hold down costs and increase revenues. Also turning up the heat in the standoff is the fact that Allina must toe the line on prices because of a previous state antitrust settlement.
The move to mediation comes after weeks of negotiations failed to resolve the dispute. The contract between the parties was set to expire on Dec. 31, but they extended it through January. The contract affects rates for Allina's 14 Minnesota hospitals.
Both sides have submitted to each other a list of seven names of healthcare experts to act as mediators.
The rift is dangerous for both companies. Allina earned about 12% of its 1995 hospital revenues treating Blues enrollees. Meanwhile, Blues enrollees were admitted to Allina hospitals about 18% of the time.
Neither company can afford to lose business. Allina recently asked 2,000 employees to participate in a voluntary severance program as part of an effort to cut system overhead by 15%, or $37 million, next year. The Blues, meanwhile, will end 60 jobs and slash its advertising budget, among other steps, to reduce its administrative costs by 7%, or $20 million, in 1997.
Michael Morrow, a Blues spokesman, said the plan can't afford Allina rates unless it increases its own premiums. He accused Allina of trying to subsidize its own HMO and clinics with higher hospital charges. Allina executives deny the allegations.
Allina offered a two-year rate freeze, which would be a financial "stretch" for the system, said William Gedge, Allina vice president of payer relations.
Gedge said he doesn't believe the system is out of line with market prices. And any premium is justified by the higher acuity of patients Allina treats, he said.
The Blues plan is committed to reaching an agreement with Allina, Morrow said. The plan backed off testifying in a state hearing on Allina hospitals last week to avoid straining relations further.
The hearing was part of a state process to determine how to regulate Allina hospitals in the future. HealthSpan, the Allina hospital subsidiary, received a state antitrust exemption in 1994 to complete a merger and has been subject to state monitoring.
State officials hope to decide how to supervise the system later this year.