Skip to main content
Sister Publication Links
  • ESG: THE IMPLEMENTATION IMPERATIVE
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Digital Health
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Transformation
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Unwell in America
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • Data Center
    • Data Center Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Not-for-Profit Hospitals
October 22, 2020 04:42 PM

CommonSpirit's CHI St. Luke's threatens to end contracts with two major insurers

Tara Bannow
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Modern Healthcare Illustration / GEtty Images

    CommonSpirit Health's CHI St. Luke's is threatening to end its contracts with two major health insurers if they don't agree to higher prices.

    Houston-based CHI St. Luke's, which operates 16 hospitals in Texas, says it will go out-of-network with Blue Cross and Blue Shield of Texas and Molina if the organizations can't reach agreement by Dec. 16 and Nov. 25, respectively. The termination warnings from CHI St. Luke's follow months of unsuccessful negotiations with both insurers.

    CHI St. Luke's took the unusual step of asking for prices increases in the middle of the contracts; the BCBSTX contract lapses at the end of 2021. Disputes like this don't typically crop up until contracts are nearing renewal.

    "It's a bold maneuver," said Dr. Mike Schatzlein, a former health system executive and principal of the consultancy Schatzlein Solutions Group.

    It's not happening because of the COVID-19 pandemic, which has devastated the finances of many healthcare providers. Rather, Doug Lawson, CEO of CHI St. Luke's, said his team asked for the increases following a sweeping analysis of its finances in late calendar 2019 that turned up issues with its payment rates from BCBSTX and Molina. Both contracts allow for termination with adequate notice.

    Lawson declined to say how much of a rate increase his system is seeking, but said it's not a step the system takes lightly. He said the increase is necessary so the system can pay its staff fairly, invest in technology and provide the services patients expect.

    "It's certainly not the norm," he said, "but the reality is we're significantly underpaid relative to other similar hospital systems across the Houston market. The significance of the variance led us to reopen the negotiations with Blue Cross Blue Shield and Molina."

    Shara McClure, divisional senior vice president of healthcare delivery for BCBSTX, called the proposed price increase "egregious." She declined to say how much of an increase the health system is seeking, but said it's in the double digits and is multiples of the organizations' common negotiations.

    BCBSTX, which has 65,000 members who use CHI St. Luke's, has warned its members that CHI St. Luke's could go out of network. McClure said the rate increases would hurt employers the most, as 60% of its members are self-insured.

    "It comes directly out of their expenses since they're paying the healthcare costs," she said.

    CHI St. Luke's is struggling financially, having lost $204 million on operations on $2.3 billion in operating revenue in fiscal 2020, which ended June 30, a -9% operating margin. Its parent system, the massive, 137-hospital CommonSpirit, lost $550 million on operations in its fiscal 2020, which ended June 30.

    BCBSTX members represented about 10,500 hospitalizations at CHI St. Luke's and 158,000 outpatient visits. Molina members represented about 1,000 hospitalizations and 10,700 outpatient visits.

    Chicago-based CommonSpirit has struggled to make money since its early 2019 merger, and its Houston market has been a drag on its performance since CMS cut off Medicare funding for heart transplants at Baylor St. Luke's Medical Center in 2018. CMS recently restored that funding.

    The COVID-19 pandemic has been a dramatically different situation for providers and insurers. The shutdowns effectively cut off a crucial source of provider revenue for a time: elective procedures. That area continues to suffer. The sluggish return has been coupled with higher expenses from pulling in contract workers during spikes and inflated supply costs.

    For insurers, it's been a very different picture, with several reporting higher profits as claims expenses decline and premium revenue continues to roll in.

    The parent company of BCBSTX, Health Care Service Corp., raked in $2.6 billion in net income in the first half of the year, up 14.5% over the same period in 2019, a recent Modern Healthcare analysis found.

    Molina, which did not return a request for comment, posted $454 million in net income in the first half of 2020, compared with $394 million in the prior-year period, a 15% increase.

    It's common for providers and insurers to get into a "game of chicken" during contract negotiations, and it almost always gets resolved at the last minute so that patients aren't harmed, Schatzlein said. Publicly threatening termination, however, is an extreme maneuver that's not often taken, he said.

    McClure, of BCBSTX, said she's heard CHI St. Luke's argument that CommonSpirit is having financial problems during the pandemic.

    "Well you know what? All of our customers are having a financial problem during this global pandemic as well," she said. "It's not a good time to be asking for significant increases at the expense of our customers or our members and frankly, I don't see the market bearing this for them."

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Dr. Rhonda Medows
    Dr. Rhonda Medows of Providence Health: ‘We embrace that old adage: It doesn’t count unless you measure it’
    iStock-1203342306_WEB_i.jpg
    ProMedica fundraising $20M to invest in underserved Michigan city
    Most Popular
    1
    More healthcare organizations at risk of credit default, Moody's says
    2
    Centene fills out senior executive team with new president, COO
    3
    SCAN, CareOregon plan to merge into the HealthRight Group
    4
    Blue Cross Blue Shield of Michigan unveils big push that lets physicians take on risk, reap rewards
    5
    Bright Health weighs reverse stock split as delisting looms
    Sponsored Content
    Modern Healthcare A.M. Newsletter: Sign up to receive a comprehensive weekday morning newsletter designed for busy healthcare executives who need the latest and most important healthcare news and analysis.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Digital Health
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Unwell in America
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • Data Center
      • Data Center Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing