LMH warns leaders that negotiations with state’s largest insurance provider have turned tense
photo by: Chris Conde
A long-simmering, multimillion-dollar debate between LMH Health and Blue Cross Blue Shield of Kansas came into full view Wednesday morning as the hospital questioned the future of its relationship with the area’s largest health insurance provider.
Members of the nonprofit hospital’s board of trustees were told that negotiations between LMH Health and BCBS of Kansas were no longer progressing well and that hospital executives now were concerned the insurance provider wanted to revert to a payment structure that was similar to what the hospital was receiving for services in 2014.
Such a payment plan could create major financial disruption to LMH, executives said, as BCBS of Kansas is the largest health insurance provider in Kansas. It is a major provider of health insurance for state employees, including University of Kansas employees. Hospital executives stopped short of saying LMH may be forced to no longer accept insurance plans from BCBS of Kansas as a form of payment, but did warn the board that changes may be needed.
“If we don’t make some significant progress in a more positive direction in the next three weeks, it will be difficult for us to continue as we have with Blue Cross,” Deb Cartwright, chief financial officer for LMH Health, told the board.
Hospital board members said they also were concerned and said LMH needed to be steadfast in the negotiations.
“Further cuts are not acceptable,” Tom Sloan, an LMH trustee and former state lawmaker, said. “We need to oppose these cuts, and candidly this needs to be more than LMH. It needs to be the entire community.”
A spokesperson with Topeka-based BCBS of Kansas said the company remained optimistic that a deal would be reached with LMH, but she said the company did have concerns with the pricing structure LMH uses for some of its services.
“It is our responsibility to ensure our members and groups get high-quality health care at an affordable price,” Katrina McGivern, manager of corporate communications for BCBS of Kansas, said. “We support LMH’s mission to provide care to its patients, but it has to be delivered at a price the people of Douglas County can afford.”
LMH officials pushed back on price concerns, saying they had data that showed LMH compared favorably with many national averages. They also said that they believe BCBS is agreeing to pay hospitals in Topeka, for example, significantly more than what has been proposed in Lawrence for the same procedures.
McGivern noted that negotiations were still underway with the hospital, and the two sides still had opportunities to resolve their differences.
“We have had a long-standing relationship with LMH,” she said. “We are confident that we will be able to reach an agreement that will allow our members to receive affordable care and allow LMH to continue to provide high-quality care for its patients.”
A change in the relationship between LMH and BCBS could have impacts on many in the community. Any elimination or reduction in acceptance of BCBS plans would be a major change for area health care consumers, perhaps pushing them to go elsewhere for their care. However, the stakes might even be higher for LMH. The hospital receives about half of all of its commercial — nongovernment — revenue from Blue Cross Blue Shield of Kansas payments.
“They are vitally important to the health of LMH,” Russ Johnson, president and CEO of LMH Health, told the board.
Given that, LMH executives said every effort would be made to reach a new deal with BCBS of Kansas. The two parties are scheduled to meet for another round of negotiations on Thursday. Cartwright has been negotiating with the company since December, and said BCBS had agreed in 2020 to ease some of the cuts to payments it had implemented in 2019. That added about $4 million of revenue back to the hospital.
“We had every reason to believe we were going to make meaningful progress as we look to 2021,” Cartwright said. “It was a week ago Monday that the messaging from Blue Cross colleagues gave me pause. It feels like there has been a pivot in their relationship with us.”
It is a little unclear how much money might be at stake for LMH with the proposed changes. At one point, LMH executives said the 2021 plan was projected to reduce revenues by about $2 million compared with 2020 and by about $4 million per year in 2022 and beyond.
But hospital executive said those figures didn’t capture the full impact. Those reductions would be on top of about $11 million worth of rate reductions the hospital took in 2019, which ended up being one of the worst financial years for LMH in recent history. After years of consistently having its revenues exceed expenses — often by $10 million or more — the nonprofit hospital in 2019 suffered an operating loss of $15.8 million.
Another way to look at the proposed payment contract, Johnson said, is that it would mean the hospital would be getting paid roughly the same amount as it received in 2014 for many of its procedures and services.
“This is very concerning,” Johnson said in an interview, noting that he recently thought BCBS and LMH were close to reaching a much different agreement and that the hospital was now “scrambling” to respond to the change in direction.
Hospital trustees said they wanted a better understanding of what was driving BCBS’ stance on the payments to LMH. Board chair Bob Moody questioned whether the insurance company was having its own financial struggles.
Cartwright responded that she didn’t think that was the case. Balance sheets that BCBS of Kansas publishes as part of its annual reports show the amount of policyholder reserves the company has been accumulating have increased significantly since 2016, and stood at nearly $1.3 billion in 2019.
Another board member, Dr. Shari Quick, questioned executives about whether the hospital should start reaching out to some of the larger Lawrence businesses and organizations that use BCBS of Kansas as their health insurance provider to “put a little pressure” on BCBS in the current negotiations.
Cartwright said the hospital wasn’t recommending that strategy, currently.
“At this point, we want to optimistically work with Blue Cross,” Cartwright said.
The current contract between LMH and BCBS of Kansas is set to expire at the end of the year.