Five months after two North Carolina hospital systems merged to keep their services more affordable, they raised their prices at two of their eight hospitals, including a flagship facility.
But that bold move landed the merged not-for-profit system in court last week in a rare example of a payer challenging a system's exercise of market power.
Blue Cross and Blue Shield of North Carolina sued the fledgling Novant Health System for imposing a new price structure that increases prices at two of its hospitals.
Novant was created July 1 through the merger of Winston-Salem-based Carolina Medicorp and Charlotte-based Presbyterian Healthcare System.
On Nov. 1, Novant launched case-rate pricing at 726-bed Forsyth Memorial and 68-bed Medical Park hospitals, both in Winston-Salem. Under the new structure, the hospitals charge a uniform rate according to the type of medical case. Previously, they followed a schedule of charges for 17,000 individual procedures.
In a news release, the Durham, N.C-based Blues contended that the new pricing system will increase its total inpatient costs at the hospitals by almost 19%.
The Blues said the action masks cost shifting from government programs and violates a consumer's right to know how much they are being charged for a particular service.
"They're flexing their muscle," said Blues spokesman Bill Bennington. "It's the consumer ultimately that's going to pay a price."
Greg Beier, president of Novant's Triad region, said case-rate billing provides predictability for patients and puts the hospitals at risk for resource consumption, as well as simplifying hospital paperwork. He said Novant intends to use case rates at its six other hospitals.
Beier said inpatient revenues at the two hospitals will increase by less than 2% under the case-rate system. "We would say this is not a material rate increase," he said.
In its lawsuit, filed in Durham County (N.C.) Superior Court, the Blues alleges that the implementation of case-rate pricing violated various agreements and that the hospitals should have provided the health plan with a charge schedule, hospital budgets, financial statements and financial projections.
According to the Blues, the cost of a coronary bypass with cardiac catheterization would increase from an average of $24,033 to a set rate of $32,931, and back and neck procedures, not including spinal fusion, would increase from an average of $3,921 to $5,905.
A normal delivery without complications would drop from an average of $2,428 to $2,400 while charges for a Caesarean section without complications would increase from $3,433 to $4,649. Forsyth is the only hospital in Winston-Salem that provides maternity care, Bennington said.
Novant contends other health plans have not complained about case-rate billing, which was implemented for all but the Blues on Nov. 1. Novant began billing the Blues according to case rates on Dec. 1.
Beier said Novant attempted to work with the Blues but was told its computer systems could not accommodate case rates. He said alternatively the hospitals offered to accept a capitated rate of 95% of the Blues' current per-enrollee per-month costs for hospital and physician services, but the plan refused.
In addition to other problems, Bennington said, case-rate billing does not provide the health plan with data on what procedures are performed. He said the Blues needs a year's notice to change its computer system and renegotiate contracts that require such data.
Beier said the hospitals haven't raised rates since 1993 and need a slight hike to meet increasing costs. He said Novant anticipates an operating margin for the year ending June 30, 1998, of about 3%, which is a slight decrease from last year and about average for the state.
In 1996 the two systems that now make up Novant had combined revenues of about $1.1 billion.
However, the Blues contends that healthcare prices statewide are trending downward. Recently, the plan has slashed payments to primary-care physicians including those employed at Novant.
Beier said there's been speculation that the Blues has toughened its stance with providers because of "efforts around moving to proprietary status."
But the Blues' spokesman stressed that plan has "no plans" whatsoever to change its not-for-profit status.
Novant maintains headquarters in Charlotte and Winston-Salem.