Pennsylvania's third-largest insurer in ad war after contract talks fail over 'parity'

Capital Blue Cross ranked highest in member satisfaction among Pennsylvania health plans, according to the J.D. Power and Associates' 2010 National Health Insurance Plan Study. But some hospitals aren't quite as enamored with the Harrisburg, Pa.-based health insurer, and Capital's member satisfaction rating could take a beating if it fails to win a public relations war against Hanover Hospital. Contract talks between the two sides broke down on July 1 after 10 months of negotiations, and now both Capital and Hanover are taking out full-page newspaper advertisements in The Evening Sun to share their take on the negotiations with the public.

"We just think it's good policy," James Mead, Capital's vice chairman and lead negotiator, tells The Evening Sun. "It's always 'he said, she said,' and two sides to every story. We thought it was important to lay out our position to the community. The hospital made it clear that they're trying to take our customers and put them somewhere else. We have a duty to our customers to lay things out."

Roughly a year ago, Hanover began renegotiating its contracts to obtain consistent pricing from all of its insurers. According to the hospital, all of its insurers fell into line except Capital, which paid about 35 percent less than other insurers, including Highmark, Aetna and HealthAmerica Pennsylvania. Capital's most recent proposal was about $800,000 under the going rate paid by other insurers. "Capital still was unwilling to come to parity with the other insurance companies that we have here and, fundamentally, we could not accept them not coming to parity," said George Kyriacou, hospital president and CEO.

Capital's latest proposal also progressively tied reimbursement increases to performance goals. For example, the proposal included a first-year payment increase of 13.5 percent, with no performance incentives. Capital offered a 13.5 percent rate increase in year two of the three-year contract, and 2.5 percent of that rate increase would have hinged on the hospital meeting pay-for-performance requirements such as low readmission rates. The third year of the proposal included a 10-percent increase (5 percent performance-based). So Hanover would have had a guaranteed increase of 29.5 percent over the life of the contract, and the hospital could have gained an additional 7.5 percent increase by meeting the performance goals.

"We have them [performance goals] in place with some other hospitals," said Mead. "What we're saying is, if they meet these measures for the hospital--measures that would still have to be negotiated with them--our proposal would result in payment very close to what they wanted."

However, the hospital didn't embrace the opportunity to participate in Capital's take on a pay-for-performance model, believing its failure to meet those goals would give Capital a ready excuse not to pay up. "We're happy to participate in pay-for-improvement programs, but it had to be on top of the fair base rate and they were unable to come to that base rate," said Kyriacou. "That base rate is really critical because pay-for-improvement is often a subjective aspect, where the insurance company has a lot of control over the interpretation. Other companies have been able to sell their products in the market and yet pay us a fair rate. We don't see any reason why Capital can't do the same thing as Highmark, Aetna and HealthAmerica."

But there may be a very good reason that Capital can't match Highmark, Aetna and HealthAmerica. Capital is the third-largest health insurer in Pennsylvania, according to the Pittsburgh Business Times. As of Dec. 31, 2009, the company reported a net loss of $28.1 million, admitted assets of $1.6 billion, capital and surplus of $1.1 billion, and almost 1 million commercial enrollees statewide. By comparison, the other three insurers cited by Hanover all reported net income in 2009. Highmark, the state's largest insurer, reported net income of $232.2 million, while No. 4 Aetna had net income of $160.7 million and No. 7 HealthAmerica earned net income of $49.8 million.

To learn more:
- read these articles from The Evening Sun: report 1 and report 2
- read the J.D. Power press release
- read this York Daily Record article
- take a look at the Pittsburgh Business Journal rankings