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Memorial Hospital is located at 2525 de Sales Avenue in Chattanooga.
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Lisa McCluskey, of Memorial Hospital

After months of negotiations, Memorial and BlueCross failed to work out a contract deal, leaving BlueCross members out of network with the hospital Aug. 1.

Memorial Health Care System has pledged to continue to extend in-network rates to patients despite the lapse of contract. However, BlueCross BlueShield of Tennessee is sending a letter to about 55,000 members who previously have used Memorial to warn them they may pay higher costs.

The contract expiration does not affect Memorial physicians, the Chattanooga Heart Institute physicians and Memorial Mission Surgery Center, which have separate contracts with BlueCross.

Some patients also will be covered under a continuity of care plan that provides continued coverage for patients who may be on certain treatment plans, such as someone receiving chemotherapy.

The two parties began negotiating in November and had said as late as Wednesday that they were still trying to reach an agreement.

To ensure patients will not pay higher costs, Memorial spokeswoman Lisa McCluskey said the hospital will manually flag each BlueCross BlueShield member's bill and review it to make sure they are not being charged more.

"Our goal is to protect the patient," McCluskey said. "From our perspective there will be no additional costs to our patients."

But in a letter to their members, BlueCross gives two examples of payments a patient may be charged in which they would pay more as an out-of-network patient. For many plans, BlueCross pays 80 percent of costs after the deductible if the hospital is in-network. BlueCross usually only pays 60 percent for an out-of-network hospital.

"We're glad they've pledged to do that, but it's not that simple," said Roy Vaughn, with BlueCross. "We've tried to be very specific to our members exactly what this means for them."

In a news release, Memorial said they asked for a 30-day extension of the contract, which BlueCross declined. Vaughn said the 30-day extension was not simply an extension, but was tied to financial demands and other terms.

Throughout the negotiations, Memorial maintained current BlueCross reimbursements are significantly below the market, while BlueCross has said they try to pay fair market rates while keeping costs low for their members.

Negotiated rate information is protected, but an analysis using data from the Tennessee Department of Health shows BlueCross pays Memorial and Erlanger Health System similar rates. Other commercial insurers pay both hospitals higher rates, according to that information.

Vaughn said Thursday an independent third party assessment estimates Memorial makes a 30 percent profit margin on existing BlueCross rates. The nonprofit hospital, which is owned by Catholic Health Initiatives, reported profits of nearly $43 million last year.

"This is about keeping health care affordable," Vaughn said.

On their website, Memorial says they are only trying to get their rates close to market parity.

"Beyond that, we've only asked for rate adjustments that keep pace with medical inflation -- nothing more," the site says.

Both parties said they plan to continue talking even after the contract lapses and hope to eventually reach an agreement.

Patients are urged to call Memorial and BlueCross with any questions they may have, officials said.