Blue Shield of California scored another victory this month when, after protracted negotiations, longtime hold-out University of California Davis Medical Center in Sacramento agreed to join the insurer's controversial tiered hospital network.
The contract is significant because it marks the first time Blue Shield has agreed to use criteria other than cost when deciding into which of its two categories to place a contracting hospital. Until now, the San Francisco-based insurer has refused to budge on the discounts it requires hospitals to grant to be considered a preferred provider.
Under Blue Shield's Network Choice system, launched on April 1, enrollees who choose to receive care from its list of preferred or "choice" hospitals won't pay any more than their current fees. But those who opt to go to the other "affiliated" hospitals in the insurer's network will face extra copayments of $100 or more per admission.
Health plans are promoting such tiering as a way to contain soaring medical expenses by forcing patients to be more cost-conscious when deciding where to get hospital care. PacifiCare Health Systems, Santa Ana, Calif.; Tufts Health Plan, Waltham, Mass.; and Blue Cross and Blue Shield of Massachusetts have rolled out similar plans in recent months. Premera Blue Cross, Seattle, and Cigna Corp., Philadelphia, are considering tiered strategies of their own.
UC Davis, however, has led the charge against tiered networks, arguing that they overlook such important variables as quality and breadth of service. After being relegated to Blue Shield's lower tier earlier this year, the 528-bed medical center had decided it would terminate its contract with the insurer as of July 1.
But the parties managed to strike an 11th-hour deal on June 6 after Blue Shield agreed to consider factors besides rates when ranking hospitals. The two sides agreed in concept to use quality criteria and patient-satisfaction surveys to round out the assessment, but further details have not yet been worked out, said UC Davis Associate Director Nabil Musallam.
"We don't deny that we are an expensive hospital, but we have always maintained that rates alone do not tell the whole story," he said. "We are the only academic medical center in the area and the region's only safety-net hospital to provide care for the indigent. So for people to compare us to neighboring hospitals on cost alone was completely unacceptable."
Under the new contract, UC Davis will be placed in Blue Shield's "choice" HMO tier without having to reduce its rates, Musallam said. That concession matters a lot to UC Davis because it guarantees that the hospital's 8,800 Blue Shield HMO members may continue to see their doctors without having to pay extra fees next year.
"We hope that other insurers will see the same light," Musallam said.
The deal is also important to Blue Shield, which has been working to secure its provider network in anticipation of a flood of new business from the California Public Employees Retirement System. The insurer stands to take on as many as 350,000 new members next year when CalPERS, the nation's second-largest purchaser of health benefits, drops PacifiCare and Health Net, Woodland Hills, Calif., from its list of HMOs. At that point, Blue Shield and Kaiser Permanente, Oakland, Calif., will be the only two statewide health plans serving the pension fund's 960,000 HMO beneficiaries.
Until now, Blue Shield has played hardball with hospitals miffed by its tiered strategy. However, Blue Shield is now moving toward a more comprehensive tiering system that takes into account quality, patient satisfaction and breadth of service as well as cost. It plans to announce the new criteria as soon as the details are hammered out, said Blue Shield spokesman Tom Epstein.
"We don't consider this a policy shift so much as an evolution," Epstein said. "The whole idea behind Network Choice has been to give consumers more information so that they can make better healthcare decisions. We never intended to rely exclusively on cost."