Memorial Hospital officials claim their breakdown in contract talks with BlueCross BlueShield is a "fairness" issue. That's true, but the champion of fairness in this dispute is BlueCross BlueShield. In keeping with state and national efforts to bring health care costs under tighter control, it is trying to restrain unjustified increases in provider charges and insurance premiums for the tens of thousands of customers it represents here - and millions more around the state.
Conversely, Memorial and the 76-hospital chain that owns it - Denver-based Catholic Health Initiatives - apparently just want to jack up Memorial's profits to even higher levels over the previously reported 8 percent profit margin of $43 million here last fiscal year. In fact, BlueCross BlueShield's outgoing CEO, Vicky Gregg, said their data regarding Memorial "demonstrates a 30 percent margin on the current existing rates" as a nonprofit paying no taxes.
Memorial is simply "dialing for dollars," incoming BlueCross CEO Bill Gracey charged Wednesday in an unusually candid editorial board meeting with this newspaper. To meet its profit goal, BlueCross leaders said, the hospital wants to raise its rates and revenue income by groundlessly charging patients more and extracting sharply higher reimbursement payments from the insurance giant.
Were BlueCross to acquiesce to those demands, the insurer would have to charge higher premiums, especially for customers who would want access to a network using Memorial. That dynamic would further drive insurance costs up for other insurers competing to provide a similar network. The ripple effect would be broad, generating generally higher costs for medical care and insurance coverage throughout this region.
If Memorial's patient volume declines due to its higher charges, moreover, it further demands that the insurer guarantee the hospital a specific income "yield" rate through additional increases or cash payments, BlueCross officials say. They are right to resist Memorial's reimbursement increases, and its unprecedented guaranteed yield rate on revenue. BlueCross - Tennessee's largest insurer - should not, must not, set such precedents.
The unfair cost for what Memorial demands is reflected in other profit margins. BlueCross' profit margin is around 3 percent. The national average profit margin for hospitals is 2.5 percent to 3.5 percent. Memorial's profit margin is more than double the national average - if not nearly 10 times higher, as Gregg's BlueCross data suggests. If it's the latter, Memorial is already seriously gouging patients to send profits to Colorado.
Under its nonprofit charter and its religious affiliation, Memorial should be providing broad community service at competitively low rates. Instead, it seeks a much higher profit margin than its largest competitors in Chattanooga -- Erlanger, which went in the red last year due to indigent-care costs, and Parkridge, which also provides a significant volume of less profitable services to the community.
Memorial focuses mainly on high-profit segments -- cancer, heart and orthopedic specialties -- "the most profitable lines of business in Medicare and commercial customers," according to BlueCross data, Gregg said. Yet it fails to provide obstetrics and gynecology services, and minimizes trauma, indigent and Medicaid services for the broader community. Indeed, that has long appeared to be Memorial's marketing and profit strategy.
BlueCross BlueShield officials suggest Memorial and CHI, which captured more than $1 billion in profits last year, apparently aim to make a test case of the chain's ability to demand unreasonable revenue from a large insurance company despite national health care reform legislation and related initiatives to trim health costs and improve the affordability of insurance.
This is doubly troubling, because it stands in stark contrast to other health care providers that are vigorously exploring ways to reduce health care costs and improve efficiency, Gracey said, while defiantly clinging to old, costly profit-driven models of operations.
The insurer's leaders further noted that Memorial's demands also seem designed to undermine the insurer's new "S" network, which, without Memorial, allows customers potential premium savings of up to 17.9 percent; 25 percent of the insurer's local customers have subscribed to the "S" network.
Memorial needlessly faces a serious conflict if it fails to renew a contract with BlueCross BlueShield. Expiration of its contract Wednesday means the hospital's patients will be charged sharply higher "out-of-network" costs. Memorial has pledged to flag and reduce such higher charges for current BlueCross customers, but BlueCross officials say Memorial hasn't explained how it will pay the insurer those charges - which is why the insurer is warning its customers about the impasse.
Two things seems clear in this unsettled clash. One is that BlueCross is championing fairer, lower health care costs - and should stick to that goal. The other is that Memorial's pursuit of inexplicably higher charges should prompt patients to turn to Erlanger, Parkridge and other hospitals with lower rates and fairer treatment.