Day: October 19, 2010

Legalities of Pharr insurance deal questioned

September 15, 2007 10:40 PM

PHARR — City officials are working to determine whether a multi-million dollar health insurance contract it approved earlier this summer without soliciting bids or proposals was legal.

 The City Commission approved an insurance contract May 24 for city employees with Blue Cross/Blue Shield of Texas, marking the second time the city had renewed its contract with the insurer.

 But a week after the commission unanimously approved the deal, City Attorney Michael Pruneda sent a memo to the commission questioning the legality of the deal and recommending that the city seek bids or proposals for the contract.

 Under state law, cities must solicit bids or proposals for expenditures exceeding $25,000. While there are certain exemptions to that rule — such as expenditures made during emergencies or purchasing items available from only one source — health insurance does not fall into any of those categories, Pruneda wrote in his memo.

 Despite the memo, City Manager Fred Sandoval sent a letter July 9to Blue Cross/Blue Shield of Texas saying the city would renew its insurance plan.

 Pruneda and Sandoval both told The Monitor Pruneda’s legal opinion was based on the best information available at the time, but the opinion could change since new information has come to light. Pruneda said he is continuing to review the deal and determine whether a renewal clause in the original contract would have permitted the commission to re-approve the contract without seeking bids or proposals.

 “It’s possible it may not be an issue anymore,” Pruneda said. “It could possibly result in it not being anything to worry about.”

 Pruneda said he still does not have all the facts about the deal, but he is close to getting the answers he wants.

 City Commissioner Raul Gonzalez said his vote to approve the contract was based on the condition that the deal would receive a favorable legal review from Pruneda. Gonzalez said he received Pruneda’s original memo and has seen nothing since then that would contradict it, which raises questions in his mind.

 Former finance director Ruben Luna, who was fired from his job earlier this summer, also discussed the insurance contract in a letter he sent to the city appealing to be reinstated. In his letter, he said he tried to get a legal opinion on the matter from the Texas Municipal League, an organization that serves the state’s municipalities. Luna wrote that TML told him over the phone it appeared Pharr needed to advertise for proposals but city officials discouraged him from getting that opinion in writing.

 Both Sandoval and Ricardo Navarro, an attorney handling Luna’s case for the city, declined to comment on Luna’s allegations, citing pending litigation.

 Luna wrote that the city usually advertises for proposals on insurance deals to make the process more competitive, which had resulted in a savings of $300,000 on a previous insurance contract.“Possible violations of state law and suspicion of possible political corruption … are matters that I take very seriously,” Luna wrote in his letter.

 Ryan Holeywell covers PSJA and general assignments for The Monitor. He can be reached at (956) 683-4446.

Editor’s Note: Molly Mulebriar reports that purported insurance commissions in excess of $100,000 may be at stake here. Rumors abound that the city was aghast at learning the amount they were paying in agent commissions and now want to cut the agent out of the deal.  Mulebriar cannot confirm any of this other than an unsolicited phone call she received this afternoon from a formerly very reliable source.

 

Despondent Docs Face Pay Cut

The AMA laid itself on the line and gave the appearance in the crucial legislative days that all doctors supported health reform.  Many doctors personally disagreed with health reform, but AMA’s & doctors’ #1 priority (and payback for giving support) was to undo the 1997 health reform (much ballyhooed at the time as the savior or Medicare) which would impose cuts on Medicare payments to doctors. 

The House, Senate & White House left the “doc fix” out of the law, and pretty much jerked around doctors efforts to get the “fix” (repeal the cuts) in following months.  They got a reprieve until just after the 2010 elections. 

It now appears that because of deficit fears, Congress (presumably the lame duck session) will proceed with the 1997 cuts as of 1/1/11, but cut the docs’ payments only 15% instead of the 26%, and that cuts will continue into the future as envisioned in the 1997 health reform law. 

In a last gasp, AMA is hoping to make the cuts 10% and have Congress allow doctors to balance bill patients.

 As I have predicted before, this slap in the face (and pocket) to doctors coincides with the annual time for doctors to say if they will serve Medicare patients next year, and also a major generational shift of many doctors retiring, it is a pretty scary prospect for a guy like me facing Medicare in a couple of years.

Editor’s Note: This is an excerpt of Fred Hunt’s weekly missive issued today.

The Blue Cross of Michigan Suit – Yes, It Affects You

Yesterday the NYTimes reported the Justice Department is suing Blue Cross Blue Shield of Michigan for allegedly violating antitrust laws. BCBSMI is accused of requiring hospitals to give BCBSMI ‘most favored nation’ pricing, thereby increasing the prices paid by other health plans and stifling competition.

 According to the Times, the Blues contracts had “clauses stipulating that no insurance companies could obtain better rates from the providers than Blue Cross. Some of these contract provisions, known as “most favored nation” clauses, require hospitals to charge other insurers a specified percentage more than they charge Blue Cross — in some cases, 30 to 40 percent more, the lawsuit said.”

 Christine Varney, the head of the antitrust division in the Justice Department, said “Our lawsuit alleges that the intent and effect of Blue Cross Blue Shield of Michigan’s contracts is to raise hospital costs for competing health plans…”

 The lawsuit also claims that Blue Cross agreed to pay higher prices to certain hospitals to get them to agree to the “most favored nation” clauses.

 There are three issues here that deserve your attention.

 First, there is no ‘free market’ in health insurance. Most markets are dominated by a single, or at most two, health plans. This is clearly an effort by the Feds to make a statement, to force big health plans and their co-operating health systems and hospital groups to back off and ‘let’ smaller insurers into the market. No one, least of all big insurance companies, likes to be sued by the Federal government, and this very public case has undoubtedly started many health plan legal departments scrambling to prepare briefs for their CEOs detailing their potential liability for the same ‘offenses’.

 As a corollary, smaller health plans cannot compete with the big boys because they don’t have the medical dollars required for bargaining purposes. Why would St Tony’s Hospital give a big discount to Mom and Pop’s Health Plan? The answer is simple – they wouldn’t, because they don’t have to – Mom and Pop don’t have any patient dollars that they would (potentially) move to another hospital, so there’s no reason for St Tony to do a deal.

 (This basic fact is lost on those politicians and pundits who think that selling health insurance across state lines is a panacea. Health plans’ costs are primarily, and overwhelmingly, determined by the medical costs in the areas they operate – and legalizing cross-border sales of insurance will do nothing to reduce premiums or improve access)

 The suit is apparently an effort by the Feds to address this reality, and may well be part of a larger strategy to improve competition ahead of implementing health reform.

 Second, many health plans and insurers have most favored nation clauses in their contracts – workers comp payers too. This suit may – and most certainly should – encourage those payers to reconsider the purpose of and risk in those clauses.

 I hasten to add that the accusations against BCBSMI go beyond simple MFN clauses; according to the Times, “the Justice Department said that Blue Cross required two hospitals in Saginaw, Mich., to charge most other insurers at least 39 percent more than the hospitals charged Blue Cross. Likewise, it said, in the Detroit area, the contract required three hospitals to “charge Blue Cross’s significant competitors at least 25 percent more than they charge Blue Cross.”

 Finally, this highlights the symbiotic payer – provider relationship that is the fabric of our current health system – dominant health plans and dominant health systems working very closely together. If we as a society decide this isn’t the health system we want, than we’re going to have to get very litigious for a very long time. It has taken a century for the system to evolve to this point, and will take decades for any material change. In some instances this works very, very well – think Geisinger, Mayo, Marshfield.

 In others, it may well ‘stifle competition’ But lets get serious – how effectively could a newcomer, or even a second tier health plan, really compete without the huge dollars necessary for investments in IT; care management; provider contracting, analysis, and relations; marketing and brand development; and distribution?

 It couldn’t, and it can’t.

 Like it or not, competing in health insurance, as in many industries, puts a premium on size and scale.

 What does this mean for you?

 We can already see this, as smaller health plans are being snapped up by bigger competitors, their management all-too-clearly reading the writing on the wall that survival in the post-reform world will require size, and scale, and money far beyond the grasp of most smaller health plans.

 Note – A subsidiary of BCBSMI is a consulting client of HSA. While I have no knowledge that in any way pertains to this action, I do know that as an organization BCBSMI is quite sensitive to and cautious about any actions that might be construed to harm competition or interfere in provider practice.

 Posted by on October 19, 2010 6:26 AM | Permalink

Editor’s Note: This article was written by Joe Paduda.