Hanover Hospital has announced plans to cancel its contract with Capital BlueCross when the current contract ends July 1, 2012 -- potentially leaving Capital customers without insurance coverage at the hospital.
Hospital President and CEO George Kyriacou said Capital -- the second largest insurer at the hospital -- is paying "dramatically less" for services as compared to other insurers with contracts at the hospital.
The change applies only to those who use Capital BlueCross, who account for 12 to 13 percent of the hospital's revenue, said Lisa Duffy, hospital director of marketing. Other BlueCross entities are not affected, she said.
In a letter Thursday to local employers, insurance agents, and elected and municipal officials, Kyriacou said the hospital has renegotiated its contracts with major insurance companies, such as Highmark, Aetna, HealthAmerica, CIGNA and United HealthCare. Capital was the exception.
"We had multiple discussions with them and there was almost a feeling of pride they were the lowest-paying insurance company," Kyriacou said in an interview Wednesday. "There was a sense of arrogance."
Kyriacou sent a letter Thursday to Capital CEO William Lehr giving notice of the cancellation.
By the end of business that same day, Lehr had drafted a response that defended the company's position -- and criticized the hospital's announcement of the contract termination -- but said Capital would be willing to negotiate.
"Capital BlueCross always seeks to negotiate the most cost-effective and responsible reimbursement rates with our valued providers, and we do so for one reason and one reason only -- because those reimbursement rates directly impact how much our members and employer-customers pay for their health insurance," Lehr wrote.
He continued: "Every dollar we pay out to a provider such as Hanover Hospital comes directly from the pockets of the people of Hanover."
Though the contract terms can't be released publicly because of a confidentiality clause, Kyriacou said there was a 25- to 30-percent difference between what Capital pays and other insurance companies.
In addition, Kyriacou said Capital pays Gettysburg and York hospitals -- members of WellSpan Health and Hanover's competitors -- "significantly more than they pay Hanover Hospital for the same services."
According to statistics collected by the Pennsylvania Health Care Cost Containment Council, which tracks the performance of hospitals across the state, Hanover also charges less for many -- though not all -- services as compared to the WellSpan hospitals, at least in 2008.
For example, Hanover charges $11,913 for treatment of abnormal heartbeat. Gettysburg charges $17,058 for the same procedure; York charges $16,405.
Kyriacou argues that, even if Capital agreed to pay more to Hanover, it would still be less generally than what it pays to the other two hospitals.
"If all the other companies can sign (contracts) and sell products competitively in the market, why can't Capital?" he said.
Hospital officials made the cancellation announcement more than two years in advance to give employers and others time to make arrangements for when the contract expires.
"We didn't want to do what usually happens, where the parties wait until 60 days from the end of the contract and create a panic," Kyriacou said.
The hospital has plans to hold health fairs soon so "companies and individuals can go to one location to meet representatives from all the alternative insurance companies," Kyriacou's letter states.
But hospital officials hope it won't come to that.
Kyriacou's letter to Lehr expressed a willingness on the hospital's part to resolve the contract issues.
"Our hope is we reach an agreement with Capital," said Bill Heiser, president of the hospital board of directors. "That would be the least intrusive."
In his response, Lehr noted Capital wanted to work with the hospital and that their "mutual goal should be more affordable, quality health care for our shared customers."
"But this is far too important a conversation to conduct as a public-relations campaign," he wrote.
He also noted the current rates, set in July 2007, were a double-digit increase over the previous rates, took into account the Hanover market and "have contributed to increasing operating profits for the hospital."
Since he took over the job 16 months ago, Kyriacou said the goal of hospital administrators has been to ensure each non-governmental insurance company is paying the same rate for the same services.
"There were huge variations in terms and rates," he said. "Capital BlueCross has been very resistant and unwilling to reopen their contract."
Lehr said that characterization is unfair. Capital agreed to discuss possible adjustments to rates and had agreed on "several adjustments."
"Most businesses would simply say, 'Too bad, you signed a contract agreeing to those rates,'" Lehr wrote. "We did not."
Hospital officials termed the adjustments as "minor" and said they do very little to close the gap between what Capital pays and the rates of other insurance companies.
The tone of Lehr's response was terse.
"Now -- less than halfway into the five-year contract -- you have decided to publicly announce that you are canceling our contract 30 months from now, on June 30, 2012," he wrote. "You indicate you are doing so because we have not, in your judgment, offered sufficient voluntary enhancements to the contract terms that Hanover Hospital itself agreed to, a little more than two years ago." Hanover Hospital's strategy of hoping companies will pressure Capital is nothing new to the industry, let alone the business world in general, said Dennis Shea, a Penn State University professor who studies health economics and policy.
"Things like this happen all the time," he said. "And sometimes agreements are written and it never hits the news."
Looking at the situation from Capital's point of view, Shea said he can see some justification for paying less. With more than a million customers in central Pennsylvania, it's one of the largest insurance providers in the area and, consequently, brings a lot of customers to the hospital.
"They might be saying, 'We bring to the table a larger patient base, so we ought to get a better rate from people for that," Shea said. "It depends on what negotiating leverage they can bring to the table."
And, presumably, the savings is passed on to the customer, he said.
On the other side of the coin, Hanover is a small hospital trying to ensure it can meet its obligations. Shea noted that by bringing the negotiations to light, it could put pressure on Capital.
"This certainly can lead to a situation where this coming year, employers are going to look at what is offered in health insurance coverage," Shea said. "They're going to look at what they can get."
Hanover Borough's 175 employees use Capital BlueCross and, in fact, the borough council last month renewed its contract with the company for another year -- at a 16-percent increase.
With more than two years to go until the contract between Capital and the hospital ends, Hanover Borough Manager Bruce Rebert said there is no reason to panic.
But because the borough's revenue comes from taxpayers, it is required to shop for the lowest-priced health plan that meets the needs of employees. And practically all employees live within the area and use Hanover Hospital for treatment.
It could mean the borough would drop Capital -- which now was the cheapest of insurance plans borough staff examined. But he noted other insurance companies were close.
"We figure they'll work it out," Rebert said. "If it becomes an issue, we can move to BlueShield."
jdeinlein@eveningsun.com
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FAQs
Hanover Hospital prepared a list of frequently asked questions and answers it will give to patients.
What is the concern with Capital BlueCross?
Hanover Hospital has successfully reached agreement for fair, equitable contracts with all major non-governmental payers except Capital BlueCross. As a result of Capital not being willing to renegotiate their contract to a fair, equitable level, we have notified them that we will be terminating our contract effective July 1, 2012.
Why is Hanover Hospital doing this now?
As part of our strategic plan, the hospital has reviewed all of its contracts and is working with the insurance companies to negotiate fair and equitable contracts.
When will the contract with Capital BlueCross expire?
Hanover Hospital's contract with Capital BlueCross is effective until July 1, 2012.
What does this mean for our patients?
Hanover Hospital will continue to accept Capital BlueCross from individuals and businesses in the community who have BlueCross as a provider. We are providing this information now so that individuals and businesses alike will have ample notification and be able to plan for insurance coverage in 2012.
If Capital BlueCross were willing to agree to a phased improvement in their reimbursement to parity with all other payers, we would be happy to withdraw our termination notice. We look forward to this resolution.
What will happen in 2012?
We hope to come to a resolution with Capital BlueCross before 2012, but we will be working with other companies and individuals to assure that there is ample time to identify alternative insurers.
Will this mean higher costs for companies and individuals?
If all the other companies such as Highmark, Aetna, United, etc. can competitively price their insurance and also pay Hanover Hospital a fair rate, Capital BlueCross could do the same.
Have any local employers switched from Capital BlueCross recently?
We only know that a couple of large employers have switched for the coming year.
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