Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (25977)	3/19/2005 1:43:57 AM
From: Elroy Jetson	Read Replies (3) \| Respond to of 116555

The fight between a large insurer and a large health care provider is becoming more common. Blue Cross of California, which now calls itself Wellpoint, has providers sign a contract which limits the charge for each CPT code procedure to the "contract price". If you agree to the list of contract prices, you can become a PPO provider. If you agree to even lower prices you can also become an HMO provider. Some large providers have enough brand recognition to punch back. Cedars-Sinai hospital said they would agree to the PPO contract, but only if they were entitled to additional annual payments called "Capital Contributions". At the end of the year, Cedars fixed costs are totaled up, and the percentage of Blue Cross PPO patients during that year is determined. Then . . . Let's say Blue Cross PPO patients were 35% of the total. Lets say the fixed costs that year for the hospital were $100 million. If the year-end total of Blue Cross payments allocated for overhead is less than $35 million, then Blue Cross must make up the difference or their patients lose access to that portion of the hospital Blue Cross does not wish to support. If smaller hospitals suggest Blue Cross make "Capital Contributions" Blue Cross suggests they lower their costs. At one point Blue Cross figured Los Angeles had more hospitals than needed and if they could drive the weak ones out of business, patient volumes would rise at the remaining hospitals thereby lowering the per patient overhead costs. Blue Cross refused to contract with hospitals whose costs per patient were not below certain thresholds even though the facility was willing to agree to Blue Cross rates which did covered only their variable costs and an insufficient portion of capital costs. The targeted hospitals sued Blue Cross for unfair market practices and Blue Cross lost. There's a lot of muscle flexing going on between big insurers and big providers, with small providers being stepped on. .