Behind the scenes, St. Luke's and Blue Cross of Idaho fight for pricing power
If you instead went to
Based on the Aetna cost estimator -- which cautions users that its numbers are just estimates -- the negotiated discounts for a knee replacement at hospitals in South and
Why such a difference? There are a handful of reasons, but once-secret documents released after a successful antitrust lawsuit against
Hospitals have contracts with health insurance companies. The insurer agrees to pay the hospital a certain amount on your behalf. The hospital wants the most it can get from the insurance company, and the insurer wants to pay as little as possible.
Both sides use negotiating tactics to get what they want. The outcome can determine whether you pay
Documents from the federal antitrust lawsuit lifted the curtain on those negotiations. They detail the strategies used by hospitals and insurance companies, including
The FTC and other plaintiffs also said St. Luke's would have too much bargaining power over
"I would argue that (insurance negotiation is) one of the big impetuses for a lot of the mergers and acquisitions that are taking place today," said
"Now, often these hospitals that are doing these mergers and acquisitions argue that they're doing it for the benefit of better patient care. They say, 'We will be better able to manage care across the continuum of care -- primary, secondary, tertiary, rehabilitation and everything else ... and we'll have electronic medical records,' " Levy said. "And there's an element of truth in that. But underlying it is a business proposition, which is they want to get big enough to get better rates."
THE POWER STRUGGLES
About six years ago, St. Luke's and
St. Luke's threatened to pull its
When a patient goes to an "out of network" hospital or doctor, the bill from that visit can be twice as expensive. Losing a large system like St. Luke's from its network would have damaged
"Size matters," Levy said. "And the objective of many hospitals and hospital systems is to get sufficiently big in a given geographic area so that you have leverage over the insurance company -- because if you're big enough, the insurance company needs your facilities in their network, because if they don't have your facilities in their network, they can't sell their product to the employers in town or the individuals in town."
That was a central theme of the trial: If St. Luke's employed too many doctors, its opponents argued, it could hamstring its competitors and erode the power of insurance companies to negotiate lower rates.
The lawsuit was a boiling-over of tensions that had been simmering for years as St. Luke's bought hospitals and formerly independent clinics across southern
St. Luke's has argued consistently that its goal is to create a system with a single vision and the girth to achieve better health care, lower costs for consumers and a healthier community.
Levy noted that acquisitions are happening across the country, encouraged by a move toward total-cost-of-care payments that reward health care providers for cooperating with each other.
"They actually do not cut costs," Levy said. "They are carried out in great measure to have leverage over the insurance companies, and then the rates go up. Now, it's really hard to feel sorry for an insurance company, of course. If you say, 'I feel sorry for
The trial records show that St. Luke's went into negotiations for its 2010 contracts with a proposal for
How did the two powerhouses of
"You start in a place that is ideal for you, and figure out where in the middle you're willing to go, and to some extent in these kinds of relationships, (a) bilateral monopoly, it's whoever blinks first more than anything else," said
The easier it is for either an insurer or health system to get fed up and walk away from a negotiation because other options exist in the marketplace, the easier it is to get what it wants. Walking away "turns out to be harder for the health system to do that than it is the payer, typically," Chollet said.
St. Luke's internal documents talk about wanting to get the highest payments possible from insurers.
When asked about that, a
St. Luke's Chief Financial Officer
"To isolate one single hospital may take things a little out of context," he said.
NEGOTIATIONS 'MAY GET UGLY'
A year after the
"Luke's must be prepared to walk away, may get ugly," Taylor told other hospital leaders, according to minutes of an internal meeting in
Taylor was referring to
Around the same time, a separate power struggle ensued.
St. Luke's was on an acquisition streak. It had purchased two surgical centers in
There were more than 1,000 surgery center claims billed as though they had happened in a hospital, resulting in overpayment of either
The two businesses met in
It took almost a year to reach an agreement, but an
"We value our relationship with
THE NEW REGIME?
Taylor said the adversarial nature of negotiations -- one side trying to get the most money possible, the other side trying to give up the least money possible -- is a function of the old model of health care.
Around the time of these negotiations, St. Luke's was moving toward a model its executives say rewards both the insurer and the hospital for bending the cost curve of health care.
According to the documents,
St. Luke's found a partner in another insurer.
In 2012, St. Luke's announced it had created a relationship with
This announcement alarmed
She wrote in a letter to
Geyer-Sylvia declined to be interviewed.
"It makes us better as an organization, and it makes the market better in terms of driving better cost to members and the market in general," he told the Statesman. "I don't think any company is thrilled when a competitor comes in."
Taylor, meanwhile, elaborated on why St. Luke's decided to develop its new insurance model with
"
And as a result of its partnership, St. Luke's and
Taylor said the relationship has paid off.
Taylor said St. Luke's goal is to eventually have the same kind of total-cost-of-care contract with all other
"We believe the payment model needs to change, and we also are willing to take accountability for a global (health care) budget," he said. "
Levy, the former
"Let's say you bring in that insurance company and make it a partner of yours, and the insurer starts to sell products with a limited network," Levy said. "Then you've locked in your customer base for years to come."
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