Do You Still Believe That Network Discounts Are Saving You Money?

MyHealthGuide Source:  Jim Farley, J. P. Farley Corporation, 11/10/2010, www.jpfarley.comUSA Today (10/22/2010) featured a front page article (below) about a small physical therapy firm in Michigan who has successfully sued Blue Cross and Blue Shield of Michigan for tactics that would put the small firm out of business for offering Ford, GM and Chrysler an alternative that would have saved them millions of dollars per year on physical therapy claims. This is the same Blue Cross plan that has had suit filed against it by the U.S. Department of Justice for paying hospitals higher prices in exchange for bigger discounts. (It should be noted, others are being investigated by the feds and states for similar practices.)Basically, the Physical Therapy firm came up with a better and less expensive way to handle physical therapy for the automaker’s self insured plans which were administered by Blue Cross and Blue Shield of Michigan. Blue Cross then refused to administer the therapy claims submitted for reimbursement by the small firm. Blue Cross then appears to have encouraged hospitals to revoke ‘discounts’ on all other services the hospitals rendered to participants of the automaker’s plans. When that did not work, Blue Cross then kicked the small firm out of its provider network in an attempt to deny the small firm customers.What really needs to be asked in this situation is why did this occur?

The payments involved were payments to providers of physical therapy, not payments to Blue Cross. The automaker customers reported that the small firm cut their physical therapy costs by 40%.

Carriers who are constantly push their big discounts say they are trying to save plans money. However, when their customers make moves that actually do save them money, the carriers suddenly step in and threaten to stop the practices put in place to achieve plan savings. The network discounts will save a plan money as long as the measurement used to determine savings is limited to the discount. If you consider costs, what a plan actually spends in health claim costs, the savings quickly disappear.

Which is more important to you, the amount of the discount or the total cost of the plan? If it’s the latter, network discounts are not the answer.

US Sues Michigan Blue Cross Blue Shield
MyHealthGuide Source: Pete Yost  with contributions from Mike Householder, 10/18/2010, U.S. sues Michigan Blue Cross Blue Shield – is this happening with your insurance carrier? WASHINGTON (AP)  —  The Justice Department alleged Monday in a lawsuit that Michigan Blue Cross Blue Shield is discouraging competition by engaging in practices that raise hospital prices  —  conduct an assistant attorney general vowed to challenge anywhere it is found in the United States.The suit targets “most favored nation” clauses between Michigan Blue Cross Blue Shield and health care providers which, according to the government, essentially guarantee that no competing health care plan can obtain a better rate.Michigan Blue Cross Blue Shield has most-favored-nation clauses or similar language in contracts with at least 70 of 131 general acute care hospitals in the state, the government alleges.The lawsuit said that Michigan Blue Cross Blue Shield intended to raise hospital costs for competing health care plans and reduce competition for the sale of health insurance.

“As a result, consumers in Michigan are paying more for their health care services and health insurance,” Assistant Attorney General Christine Varney, who runs the Justice Departments antitrust division, told reporters.

In response, Michigan Blue Cross Blue Shield said the lawsuit is seeking to restrict the nonprofit companys ability to provide the most deeply discounted rates from Michigan hospitals. The company said that negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michigan residents.

“Our hospital discounts are a vital part of our statutory mission to provide Michigan residents with statewide access to health care at a reasonable cost,” the company said.

In some instances, the lawsuit states, Blue Cross has negotiated most-favored-nation clauses in exchange for increases in the prices it pays for the hospitals services. In those instances, says the suit, Blue Cross has bought protection from competition by causing hospitals to raise the minimum prices they can charge to Blue Cross competitors.

“Blue Cross has not sought or used MFNs to lower its own cost of obtaining hospital services,” says the lawsuit.

The state of Michigan joined the Justice Department in the case filed in federal court in Detroit.

The lawsuit outlines two types of most-favored-nation clauses requiring a hospital to provide services to Blue Cross competitors either at higher prices than Blue Cross pays or at prices no less than Blue Cross pays.

In alleging violations of the Sherman Act and the Michigan Antitrust Reform Act, the government said that under the “MFN-plus” clause, Blue Cross negotiated agreements requiring more than 20 hospitals  —  including Sparrow Hospital in Lansing, St. John Hospital in Detroit and Munson Medical Center in Traverse City  —  to charge some or all other commercial insurers more than the hospital charges Blue Cross. Under the other clause, Blue Cross has agreements requiring more than 40 small, community hospitals to charge other commercial health insurers at least as much as they charge Blue Cross, the lawsuit alleges.

Sparrow Health System spokeswoman Rose Tantraphol said Sparrow was not a party to the lawsuit, has not seen it and could not comment on the particulars of it.

She did say, though, that Sparrow “has a similar contractual arrangement with Blue Cross Blue Shield of Michigan as most other larger Michigan hospitals,” and “as is common practice throughout the nation, contracted rates are determined, in part, based on volume.”

In a statement, Munson said it was monitoring the situation “with interest,” but had “no basis to know if the allegations in this lawsuit are true.”

St. John Providence Health System spokeswoman Maureen Petrella said she had no comment.

Varney declined to say whether the Justice Department has open inquiries in other states of most-favored-nation clauses, which are not illegal unless they stifle competition.

About J.P. Farley Corporation

J.P. Farley Corporation founded in 1979 by Jim Farley, current President and CEO, is a privately-held third-party administration and consultation firm. The company was founded to deliver added value to employee benefit Plans that are self-funded for medical, prescription, dental, vision, short-term and long-term disability benefits. Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA), and Health Savings Accounts (HSA) administration are also part of the portfolio of service offerings.  Visit