Blue Cross Deal Frustrates Baptist Health's Competitors

Arkansas Blue Cross and Blue Shield is fighting tooth and nail to keep from having to open its managed care networks to "any willing provider," but it does occasionally expand the lists in response to consumer demand.

That's why Stephen Mansfield, chief executive officer of St. Vincent Health System, wants to send this message to employers buying health insurance from ABCBS:

St. Vincent is willing to provide hospital services to ABCBS for 10 percent less than the insurer's current contract with Baptist Health — savings that could be passed along to the employers and employees who pay for health insurance.

"Or Blue Cross should at least bid it," Mansfield said. "Maybe they'd get a better deal from Baptist."

ABCBS spokesman Max Heuer confirmed last week that the state's dominant health insurance carrier hasn't taken open bids on provider contracts in the 10 years since it entered a formal business partnership with Baptist in the form of a health maintenance organization known as Health Advantage. And no one seems to expect competitive bidding anytime soon.

"The truth of the matter is there has never been any demand in this market for us to change our network," Heuer said.

"I don't think the marketplace is demanding that," said Russ Harrington, CEO of Baptist Health.

"They've got to be married to one of them, and they are already married to the prettiest one," said an industry observer who asked not to be named because he does business with both Baptist and St. Vincent.

"It won't happen. It's not about money, it's about control," said Lynn Zeno, director of governmental affairs for the Arkansas Medical Society.

Long-simmering frustration among providers effectively locked out of a system that controls more than half of the state's health insurance market is growing more palpable. Critics have been emboldened by ground gained recently in the fight to enforce the "any willing provider" law passed by the state Legislature in 1995, and some breaches have appeared around the edges of the impenetrable fortress of ABCBS and Health Advantage.

For instance, Health Advantage and ABCBS earlier this year created new products for west Arkansas employers that include Sparks Regional Medical Center at Fort Smith in the network. Those new products were introduced specifically because a group of local employers requested an alternative to St. Edward Mercy Medical Center, ABCBS' traditional hospital provider in Fort Smith.

Similarly, Wal-Mart Stores Inc. of Bentonville requested and received an insurance product whose network includes North-west Medical System facilities. That product, however, is available only to the 15,000 or so Wal-Mart employees in northwest Arkansas; it is not available to other area employers.

Point of View

Rush Limbaugh and Al Franken would come closer to seeing eye-to-eye than Stephen Mansfield and Russ Harrington.

Mansfield's St. Vincent Infirmary (including the former Doctor's Hospital) lost almost $1.6 million for the year that ended June 30, 2002, but it also took a $17 million writedown and had additional losses in related clinics for a total loss of more than $23 million.

Although its occupancy was somewhat improved last year, St. Vincent's admissions have declined by 20 percent over the past decade, Mansfield said. And he blames that directly on the relationship between Baptist and ABCBS; Baptist's admissions have risen by virtually the same number that St. Vincent's have declined.

Baptist Health, meanwhile, is nicely profitable. Medicare cost reports collected for Arkansas Business' annual list of the state's most profitable hospitals (see Pages 25-30) show that Baptist turned $15.5 million in profit on its Little Rock campus alone.

ABCBS was even more profitable, clearing $48 million last year. (See table.) And Health Advantage, the "doing business as" name for HMO Partners Inc., reported almost $7.5 million in profits, according to the Arkansas Department of Insurance.

Harrington says he respects Mansfield and sympathizes with his "difficult position," but he categorically denies that Baptist's success has been the result of a captive audience provided by ABCBS.

He points out, repeatedly, that 75 percent of Baptist's patients and 74 percent of its revenue come from patients who have "complete choice" through Medicare, Medicaid or indemnity plans. And he says Baptist is merely reaping the benefits of a good strategic plan well executed.

"We don't give the credit or the blame to outside organizations. We've done this ourselves," Harrington said.

Baptist's winning strategy included forming its strong relationship with ABCBS as both an actual business partner in the Health Advantage HMO and as a virtually exclusive in-network provider of hospital services for both Health Advantage and ABCBS' insurance products.

Baptist and ABCBS both have benefited from the relationship — especially after Health Advantage finally became profitable in 1997. But Harrington says the central Arkansas patient community also has been a beneficiary, as have the employers who pay the lion's share of the cost for health insurance.

"It's the most effective way we've been able to find to control health care costs," Harrington said of the partnership.

But he was less direct when asked whether, in the interest of further controlling costs, he would be open to Mansfield's suggestion that ABCBS rebid its hospital contracts.

"When things are working, why change it?" he said.

Willing Providers

While Baptist and ABCBS take the position that there is no consumer demand for changes in their partnership, a recent report by the Center for Studying Health System Change subtitled one section of its findings, "Limited Health Plan Competition Frustrates Employers."

The report, produced under a grant from the Robert Wood Johnson Foundation, is available online under the "community reports" section of

Paul Cunningham, senior vice president for the Arkansas Hospital Association, declined to comment on the status of hospital competition in Little Rock.

But Lynn Zeno and David Wroten of the Arkansas Medical Society, an association of physicians, not only commented but used words like "800-pound gorilla" and "cartel" to describe the Baptist/ABCBS business relationship. (This despite the fact that they had no complaints about the level of reimbursement that physicians receive from ABCBS.)

The doctors' group just wants to see patients have as much choice as possible in health care services, said Wroten, the association's assistant executive vice president. And to that end, the Medical Society's board of directors has unanimously endorsed the concept of any willing provider.

The Patient Protection Act passed by the Arkansas General Assembly requires insurance companies to pay the same benefits to any provider willing to accept the same terms as the incumbent in-network providers.

Blocked by U.S. District James M. Moody in 1998 on the grounds that it violated the federal Employee Retirement Income Security Act, the state law has never been enforced. Hopes for AWP proponents soared in April when the U.S. Supreme Court gave its stamp of approval to a similar law in Kentucky.

ABCBS responded by filing another federal lawsuit in attempt to get a direct ruling on the applicability of the Kentucky decision in Arkansas. It named St. Vincent, Southwest Regional Medical Center in Little Rock, Little Rock Cardiology Clinic and the state of Arkansas as defendants.

Last week, Southwest Regional CEO Randy Cason — a vocal proponent of AWP — blamed the closed competition in Little Rock for his hospital's decision to cut seven administrative positions.

ABCBS has taken the position that AWP would drive up health care costs because it would undermine the basic tenet of managed care: provider discounts in exchange for guaranteed volume.

"Providers get a steady flow of customers and timely payment for their services. Patients get the care they need. And the purchasers of these insurance products get coverage at a more affordable cost," ABCBS President Sharon Allen wrote in a commentary published in Arkansas Business last month.

"If all the networks become the same, what will be the competition to keep the prices down?" Health Advantage CEO David Bridges said last week.

And he noted that the same Center for Studying Health System Change that was critical of the limited insurance choices in Little Rock worried that the end of exclusive network contracts in another study community, Greenville, S.C., would place upward pressure on insurance premiums.

Largest Arkansas Health Insurers
Ranked by 2002 premium in Arkansas (all dollars in millions)

Company — 2002 Premium — 2002 Net Income

Arkansas Blue Cross and Blue Shield — $751.59 — $48.16
HMO Partners Inc. (Health Advantage) — $209.31 — $7.48
United Healthcare of Arkansas Inc. — $146.04 — $13.02
QCA Health Plan Inc. (QualChoice) — $82.21 — $1.96

Source: Arkansas Department of Insurance