Contract Extension Negotiations Collapse Between Texas Health, Blue Cross Blue Shield of Texas

Discussions to extend an expiring contract between Texas Health Resources and Blue Cross Blue Shield of Texas fell apart on Monday afternoon, putting the Arlington-based provider’s dozens of hospitals and emergency centers as well as its hundreds of outpatient clinics at risk of falling out of network come January 1.

Dr. Paul Hain, the Richardson-based insurance plan’s North Texas Market President, said that Texas Health had requested a $57 million increase to the existing contract and would not budge. Blue Cross Blue Shield of Texas offered a contract extension at 2 percent higher than its current rate, which would’ve continued the existing relationship while the two worked out a new, formal contract. Texas Health countered with an increase of what it says was 4 percent, but of what Hain describes as $57 million, closer to 5 percent. Texas Health didn’t provide numbers, but said any that the insurer provides “should be taken with a truckload of salt.”

And so the two sides entered an impasse—the aftermath of a tête-à-tête that so often happens in late-term negotiations between large providers and insurance plans and inevitably makes its way into the public. The existing contract expires on December 31, and would affect all of the Texas Blue plans—both the broad PPO and narrow HMOs. The insurer did not immediately have the number of patients who visited a Texas Health facility in 2016.

“THR demanded a $57 million increase, which amounts to a tax on all the businesses that pay the bills for this healthcare. And as the defender for low cost care in Texas, Blue Cross Blue Shield of Texas did not feel it was wise to accept the demand,” Hain said. “We will do all the appropriate things to help assure that all our members will continue to receive care in their local communities.”

Barclay Berdan, the CEO of Texas Health Resources, said the following: “Blue Cross finally put an offer on the table for a two percent increase, then rescinded it today. We had offered to extend this contract with a modest four percent increase. While our actual costs are increasing at a rate of more than four percent, we were, and remain, willing to accept a reasonable increase.”

This was the first time the state’s largest insurer came to the table following the creation of the clinically integrated network between THR and UT Southwestern Medical Center. Called Southwestern Health Resources, the pairing aligns Texas Health’s sizable primary care base with UT Southwestern’s specialists, but without much change in asset control—of the 27 hospitals and 300-plus clinics, the only real legal shift is a joint operating company made up of the three Dallas hospitals that are owned between the two institutions. All outside Dallas maintain separate ownership and brands but under a single management structure, partly because UT Southwestern is a public institution and state dollars cannot flow to a private organization (Texas Health is a faith-based nonprofit). Spanning 16 counties, Southwestern Health Resources formally launched on April 1. This summer, Texas Health Resources also closed on the acquisition of 31 freestanding emergency rooms from Lewisville’s Adeptus Health.

Berdan said the organization engaged Blue Cross Blue Shield on May 1 to renegotiate as Southwestern Health Resources.

“Blue Cross has waited to substantively engage until deep into the open enrollment period knowing that Texas Health’s contract expires on Dec. 31, 2016,” read a statement sent on his behalf. “The goal of this extension is for Southwestern Health Resources and BCBSTX to have time to negotiate a contract that is in the best interests of all parties, most importantly patients, physicians and employers. Had BCBSTX engaged when approached by Southwestern Health Resources, it is unlikely that the need for any extension of the existing THR contract would have been necessary.”

When asked whether the new network played a role in the impasse, Hain emphasized that the two were not negotiating a new contract. They were considering an extension while more due diligence can be performed; sort of like the healthcare version of a congressional continuing resolution, which keeps a piece of appropriation legislation humming along until more research can be performed on how to change it.

It usually takes at least six months to research and negotiate a new contract. And so while December 31 isn’t here yet, Blue Cross is anticipating Texas Health falling out of network at least for a few months. Of the discussions on Monday, Hain said, “We made a fair and generous offer to THR and they requested an egregious increase.”

Berdan said that Texas Health “provides in excess of one billion dollars to BCBSTX members each year. Any figures BCBSTX uses is an effort to grab headlines.”

In all, Southwestern Health Resources has more than 3,000 physicians across 27 hospitals and 300 clinics—about 1,200 of those are THR primary care physicians and 600 are THR-affiliated advanced practitioners. Around 1,800 are faculty physicians at UT Southwestern, and the vast majority of those are specialists. Hain said Monday’s news does not affect existing in-network contracts with UT Southwestern physicians.

Blue Cross has already begun notifying its Medicare beneficiaries of the potential for Texas Health to be removed from their networks. Chris Callahan, the company’s senior director of media and public relations, said BCBSTX will begin notifying employer partners later this week. The insurer covers 5 million Texans in all 254 counties, both employer sponsored (which is what’s largely at stake here) and through the Affordable Care Act’s exchanges as well as Medicare and Medicaid. And it’s no stranger to these late-in-the-game negotiations. Last April, the Texas Blue plan came within a week of pulling more than 40 Hospital Corporation of America facilities from its in-network plans.

In closing, Hain said BCBSTX “is always open to negotiate the contract. But the extension is not a negotiation.” And Berdan: “We remain committed to reaching an agreement with BCBSTX before the end of the year regarding an extension so that we can continue providing the high-quality, compassionate care for which we are well known. This we believe would be in the best interests of patients, physicians and the community.”

Posted in Insurance/Benefits, News.