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September 18, 2014

Pros and cons to Blue Cross dominance

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Posted: Wednesday, August 6, 2014 6:57 pm | Updated: 7:47 pm, Wed Aug 6, 2014.

A select few private insurers dominate their markets across the country, but whether that's bad for health care depends on who is asked, some health industry experts say.

Regional Medical Center is in a fight over payments it receives from the state's dominant insurance provider, Blue Cross and Blue Shield of Alabama. Some health industry experts say Blue Cross' dominance is not unusual around the country and it gives insurers the power to dictate the value of services hospitals deliver. However, while such control can hurt hospitals, it can also help maintain lower premiums for patients, experts say.

"Whenever you have a situation where you have a single insurer, they certainly have the market power and can drive down contracts with providers," said Jeff Goldman, vice president for coverage policy at the American Hospital Association. "The challenge for hospitals is to get adequate rates."

Blue Cross announced last week that RMC was terminating its contract with the private insurer, effective Sept. 12. As a result, most services offered at RMC would not be covered by Blue Cross insurance after that date. Blue Cross payments account for about one third of RMC's annual revenue.

RMC officials have said Blue Cross should pay more for the hospital's services to match what the insurer pays other area hospitals so their facility can stay competitive. Blue Cross, however, has said it won't increase its reimbursements to RMC, arguing that doing so would force it to raise customer premiums.

Attempts to reach an RMC representative for comment Wednesday were unsuccessful.

David Becker, an associate professor in the department of health care organization and policy at the University of Alabama at Birmingham, said while fights between hospitals and insurers over payments are not usually public, they aren't rare, either.

"This is pretty standard in negotiations between insurers and providers," Becker said regarding RMC's dispute with Blue Cross.

The lack of competitive insurance markets across the country has much to do with the payment battles.

According to a 2013 study by the American Medical Association, Blue Cross controls 95 percent of the private insurance market in the state, along with 95 percent of the market in the Anniston and Oxford area. The study shows that Alabama is hardly alone, noting that 15 states have a single health insurer that controls more than 50 percent of their markets. Also out of all the states, 45 have two health insurers that have a combined control of more than 50 percent of their markets, the study states.

The study concludes that such dominant market power increases the risk of anticompetitive behavior by health insurers, which can hurt patients and physicians.

Koko Mackin, spokeswoman for Blue Cross, said that her company's large market share does not hurt hospitals or physicians. Mackin said Blue Cross' stability and presence in the state has provided hospitals and physicians across the state with dependable weekly payments.

"Though we are a stable and dependable source of revenue for hospitals, physicians and other providers, we have to balance the payment wishes of providers against the increases in premiums to our customers that higher medical costs bring," Mackin said.

Becker said Blue Cross' control of the market gives the insurer plenty of clout in dictating payments to hospitals.

"By being the only game in town, they are able to bring tremendous leverage on providers," Becker said. "But if they bring lower premiums, we should like that as consumers."

Tom Miller, resident fellow with the American Enterprise Institute, a Washington D.C.-based research and public policy nonprofit, said markets with single insurers can exert plenty of power.

"If there's a single insurer, they are no longer the price takers, they're the price givers," Miller said of insurance payments.

However, that power is less in markets where hospitals have consolidated, Miller said.

"In the last two to three years, a lot of hospitals have been buying up physician practices to bring in more revenue, but also to offset more bargaining power so they can get better prices," Miller said. "Many hospitals are in a stronger position than most insurers would tell you ... in general, hospitals have been not suffering greatly."

In recent years RMC has bought Jacksonville's hospital and opened several clinics in surrounding counties. However, RMC officials have said they still don't have the negotiating power of their main competitors Stringfellow Memorial Hospital in Anniston and two Gadsden hospitals, all of which are operated by Tennessee-based Community Health Systems.

"If they're going it alone, it makes it more difficult," Becker said of RMC's attempts to obtain higher payments. "Doing it alone definitely puts them in a tough spot."

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