Blue Shield and UCLA fight over contract rates

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A contract dispute between one of California’s largest health insurers and UCLA could force thousands of patients at the university’s medical centers to seek treatment elsewhere if the disagreement is not resolved by the end of December.

Executives from Blue Shield of California and the University of California’s health system are quarreling over reimbursement rates for medical treatment at Ronald Reagan UCLA Medical Center in Westwood and nearby Santa Monica-UCLA Medical Center and Orthopaedic Hospital.

Blue Shield says the rates for care at the hospitals have nearly doubled in the last five years, and that the costs for inpatient treatments are already 41% higher than what it pays on average for similar care in Southern California hospitals.

“Every dollar they asked for comes from our customers, and they certainly aren’t in any mood to be paying large increases,” said Paul Markovich, Blue Shield’s chief operating officer.

UC officials say they have negotiated in good faith and hope to still reach an agreement before the contract expires Dec. 31. The negotiations affect the hospitals as well as two doctor’s groups.

“What the health system is offering at UCLA is incredibly fair,” said Santiago Muñoz, chief strategy officer for UC Health, the system that oversees UCLA’s hospitals and four other UC medical centers around the state.

At stake is care for more than 200,000 of Blue Shield’s customers who live within 15 miles of UCLA. Of that group, about 8,000 policyholders got inpatient or outpatient care last year at the two hospitals. This group is covered through Blue Shield’s preferred provider organization policies.

If the contract is allowed to expire, these people would have to pay higher out-of-pocket costs to get medical care at UCLA or seek cheaper treatment through doctors and hospitals still in the Blue Shield network. Customers with HMO coverage will largely be unaffected because their doctors do not typically refer patients to UCLA hospitals.

This dispute is not new: Blue Shield let contracts with UCLA expire in 2006 for two months and in 2008 for four months after it could not reach agreements on new reimbursement rates.

Blue Shield’s Markovich said the company negotiated with UCLA in the past. This time, he said, the insurer is having to talk instead with UC’s statewide health system, which is overseeing insurer contracts for each of its five medical centers.

Markovich said the system-wide negotiating strategy has given UC officials leverage to secure higher reimbursement rates. That, he said, is putting more pressure on Blue Shield, which earlier this year pledged to return money to policyholders when its net income exceeds 2% of revenue. This year, it is returning $450 million.

Muñoz said the centralized negotiating strategy saves administrative expenses and that reimbursement rates reflect prices in each local healthcare market.

Officials at the UCLA Health System said they want an agreement that “adequately reimburses” its doctors and hospitals for the complex medical care they provide. “It remains our goal to put patient care first and to avoid any disruption to our patients,” a spokeswoman said in a statement.

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-- Duke Helfand

Photo: Front entrance of Ronald Reagan UCLA Medical Center in Westwood.

Credit: Stefano Paltera