Two Twin Cities healthcare powerhouses reached a mediated agreement last week on hospital prices, ending what one party called a "potential nuclear meltdown."
Blue Cross and Blue Shield of Minnesota and Allina Health System, both based in Minneapolis, entered nonbinding arbitration in late December in an unusual move to preserve their relationship.
The Blues had asked for a 10% rate reduction from Allina's 14 Minnesota hospitals. The system contended even its offer of a two-year price freeze would be a financial stretch.
Both sides said they made concessions in the new contract, but they declined to disclose specific terms.
Allina, however, came away with a major victory in negotiating terms covering its hospitals as a single group. The Blues had asked to split metropolitan and outlying hospitals into separate groups for contracting purposes. Many healthcare executives believe such a move would erode the value of systems.
The new agreement, effective retroactively to Jan. 1, covers two years.
Neither Allina nor the Blues could afford a rift. 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.
Blues executives couldn't recall the last time-if ever-the plan had entered mediation over provider prices. For Allina, the experience is extremely rare. A predecessor of its HMO was ordered into mediation by the state a decade ago when it disagreed with St. Cloud, Minn., providers.
"We wanted to settle this thing with the Blues," an Allina spokeswoman said. "We had reached a mutual inability to communicate. The only way to avoid wholesale and large-scale disaster was to try an unusual strategy."