Blue Shield of California has suspended its relationship with UCLA Medical Center, one of the state's top hospitals, in a dispute over the cost of treating patients there. It's a disturbing sign of things to come in the healthcare industry, as insurers become increasingly resistant to the cost increases that they routinely passed along in previous years. Although the standoff is hard on the patients who've lost access to UCLA, Blue Shield is right about one thing: The healthcare industry is on an unsustainable path, and every segment must start focusing on cost control.
Defending insurers is a bit like expressing sympathy for the devil, given how their premiums have skyrocketed. Not so long ago, this page blasted Blue Shield of California for proposing three rate hikes in quick succession that threatened to raise some customers' premiums by nearly 60%. Since then, however, the nonprofit has pledged to cap its net income at 2% of its revenue. The cap means that any future increases in premiums will be driven by higher charges from doctors and hospitals, not by increases in Blue Shield's operating margins.
Hospitals costs have risen particularly rapidly, with the average daily fee for a bed in an acute-care ward more than tripling since 2000. UCLA's reimbursements from Blue Shield have almost doubled in the last five years alone, the insurer says. That's partly because the university has been shifting onto Blue Shield some of the expense of treating patients with Medicare, Medi-Cal or no insurance. But it's a trend that even UC officials acknowledge cannot continue.
The UCLA Health System -- whose contract with Blue Shield expired at the end of 2011 -- initially demanded a new contract with 8% higher rates for most of its services. It's no longer seeking any increase for the first six months of 2012, but UC negotiators insist on combining all five of their medical centers into one contract after that point. Unlike some rival insurers, Blue Shield has rejected that proposal, saying the talks should have no preconditions. With neither side budging, Blue Shield has been shifting customers who'd been treated by UCLA doctors to new care providers since January.
That dislocation is bad for consumers because it disrupts the relationship they've built up with their physicians. But Blue Cross believes UC is trying to increase its negotiating leverage for future contracts, not rein in costs. An insurance policy that offers consumers access to doctors at a price they can't afford isn't good for them either, no matter how exceptional the care may be.
UC health officials say they've gotten the message; that's why they created the Center for Healthcare Quality and Innovation in October 2010 to find ways to deliver more effective healthcare services and to control costs. The university system and Blue Shield also have agreed on a new approach at UC San Francisco Medical Center that shares the financial risk of providing care for certain policyholders, holding cost increases at or below the rate of inflation. The question is how to bring that focus on efficiency and value to UCLA and the rest of the UC system. Here's hoping the two sides find an answer soon.