Blue Cross Blues

Physicians Worried About Blue Cross Blue Shield's New Attitude

Texas Medicine Logo

Cover Story -- March 2001

By Walt Borges
Associate Editor

When Blue Cross and Blue Shield plans from six states announced their intent to affiliate to form the nation's largest nonprofit health insurance organization last August, many Texas physicians had a distinct sense of déjà vu, plus a distinct hope that history wouldn't repeat itself.

A little more than 18 months earlier, Blue Cross and Blue Shield of Texas (BCBS Texas), a nonprofit insurer, had completed a merger with Blue Cross Blue Shield of Illinois to become part of the Health Care Service Corp. (HCSC) - a nonprofit Chicago-based company owned by its policyholders. The merger between the state's largest insurer and the Illinois Blues has produced what many physicians say is a serious change in attitude by BCBS Texas management that chilled its once warm relationship with the state's doctors.

Texas physicians now complain about inappropriately low reimbursement rates paid by BCBS and a take-it-or-leave-it attitude in contract negotiations that is comparable to some of the worst practices of for-profit health insurers. The chorus of praise for BCBS from Texas physicians is gone. Instead, Texas doctors with BCBS contracts are singing the blues.

BCBS officials respond that they are moving to meet the new realities of health insurance and to be able to compete with the for-profit insurers, and that the company's merger with the Illinois Blues has enabled BCBS Texas to add 1 million new members and replace two aging claims system with state-of-the-art processing technology.

Unique history

Physician disappointment with BCBS Texas is made sharper by the sense that it has betrayed a unique heritage that physicians could appreciate and respect.

BCBS was founded in Dallas in 1929 when former school superintendent Justin Ford Kimball, PhD, became an administrator at Baylor Hospital. Dr. Kimball noticed that many of the hospital's unpaid accounts included teachers he knew. In response, he initiated the nonprofit Baylor Plan, which allowed teachers to pay 50 cents a month into a fund that guaranteed members up to 21 days of hospital care at Baylor. In 1944, Baylor Plan merged with Group Hospital Services Inc. to produce the entity that became BCBS Texas.

The company now has more than 5,000 employees in 19 Texas cities. Its four health maintenance organizations (HMOs) covered more than 770,000 lives as of June 2000, according to the Texas Department of Insurance (TDI). The company's own figures indicate that it provided health care coverage for 2.9 million Texans, making it the state's largest health insurer. In 2000, more than 27,000 physicians were under contract with BCBS Texas.

"Blue Cross and Blue Shield of Texas was traditionally a physician-led company that emphasized local control, and those were characteristics we always support here in Texas," said Joe Cunningham, MD, an internist who heads a physician group in Waco. "But the [BCBS] culture has become one of a for-profit business. It has abandoned the historical trusting relationship it had with Texas physicians."

Similar sentiments were expressed in a Texas Medicine commentary by Robert M. Tenery Jr., MD, a Dallas ophthalmologist who served as Texas Medical Association president and who chaired the American Medical Association's Council on Ethical and Judicial Affairs. (See "Blue Cross Blue Shield's Troubling New Direction," July 1998 Texas Medicine , pages 45-46.) Dr. Tenery wrote that the insurer's involvement with mergers suggested that BCBS Texas "is now behaving like any other insurance company, positioning itself to meet its own needs and not those of the patients."

Paul Handel, MD, the Houston urologist who chairs TMA's Council on Socioeconomics, is among those with mounting concerns over the direction of BCBS since the merger.

"The anguish of the physicians and patients in this system is made more poignant against the backdrop of the history of this company," Dr. Handel explained. "The failures inherent in pushing for market share to the detriment of patients and their physicians are clear. BCBS may have the temporary momentum of acquisition and size; however, it is not changing a flawed model of health care delivery and will recapitulate the errors and failures of its companions in the industry.

"Nonetheless, TMA, through the Council on Socioeconomics, continues to meet with BCBS in an attempt to maintain communication and reduce administrative burdens," Dr. Handel said. "Timely and appropriate reimbursement remains a high priority for TMA."

The jolly Blue giant

Rich Johnson, director of the TMA Division of Medical Economics, says many of the complaints about BCBS Texas have to do with its reluctance to negotiate contract terms with doctors and physician groups after it merged with the Illinois Blues.

In New Braunfels, Hill Country Medical Associates, a family practice of eight physicians who see 50,000 patients a year, discovered in June 2000 that BCBS Texas had changed its fee schedules without notifying the practice. BCBS disputes that assertion.

"We contacted Blue Cross and told them we wanted a meeting," said practice administrator Sid Harrell. "They said, 'We do not negotiate.' We told them that if that was the case, we would send a termination letter, effective Oct. 31."

Mr. Harrell says the withdrawal threat by the largest primary care group in a city in which state, city, and school district employees were covered by BSCS was enough to bring the company to the table. After a July meeting, Mr. Harrell and the physicians waited until September to hear from BCBS. When the new contract was offered, Hill Country Medical Associates agreed to accept it, despite misgivings.

"We accepted it on a one-year basis," Mr. Harrell said. "We told them that we expected higher reimbursement rates and help from Blue Cross in lowering our administrative cost for providing services to BCBS patients." He said the group was far from satisfied with the BCBS offer but signed the contract to make sure its patients weren't cut off from their doctors within 90 days.

Darren Rodgers, vice president and chief operating officer of BCBS Texas Geographic Business Units, said in written comments that in 2000, BCBS Texas "began working to simplify and bring more fairness to our fee schedule system, eventually implementing 16 standard payment schedules to replace nearly 900. This created a much smoother administrative process, saving everyone involved time and money. Moreover, we found no reliable, consistent and credible manner in which to establish that certain physicians provide 'better' care than others.

"Reimbursing physicians practicing in the same specialty and in the same geographic area the same amount per unit of service seems to be the most fair for all physicians," Mr. Rodgers continued. "With this change, some physicians saw their reimbursements increase to the new standards and others saw their reimbursements decrease, but in general, it appears that the change has been well received, as we added nearly 3,000 network physicians last year."

Steve Neorr, director of business development for the Medical Clinic of North Texas, a Fort Worth-based group of 59 primary care physicians and obstetrics-gynecology specialists, tells a story similar to Mr. Harrell's. He says his clinic ran into hardball tactics when it negotiated with the insurer last year.

In the summer of 2000, Mr. Neorr and other clinic officials were involved in negotiations when BCBS representatives told them they would get no help from BCBS management in resolving a $200,000 backlog of unpaid claims more than 60 days old unless they signed a new contract.

Although BCBS officials subsequently said clinic officials misunderstood the conversation, Mr. Neorr said clinic representatives perceived the statement as a threat.

"We apologized for any misunderstanding we might have created with the Medical Clinic of North Texas," Mr. Rodgers said. "Since our founding, Blue Cross and Blue Shield of Texas has valued our strong working relationships with physicians across the state, and we are committed to helping any provider who may have experienced claims-payment problems when the problems were created by our error."

Mr. Neorr confirms that BCBS is helping to resolve the back payment problem.

"I've got to say that they have done relatively well in cleaning up the claims mess, but it shouldn't have to come to this for physicians to get paid," Mr. Neorr said in January. "Still, at this time, we aren't renewing the contract."

The greening of the Blues

The main reason the clinic's doctors have declined to renew since August 2000 is because of what they consider to be inappropriately low payment rates for services provided to patients enrolled in preferred provider organizations (PPOs), Mr. Neorr says.

"Our physicians bill primarily for services in the office-type codes, the E&M [evaluation and management] codes, as opposed to surgical codes," he said. "When Blue Cross Blue Shield gave us the new schedule for its PPO, it was paying 30 percent lower on E&M codes than for surgical and procedure codes."

The BCBS PPO rates for the clinic's physicians were, on average, $11.45 less per office visit than rates offered by similar PPOs, he notes. "Although that may not seem like much, it is 20 percent below what we consider to be a market PPO rate and would cost our clinic more than $92,000 per year. That was just not acceptable."

Mr. Harrell, the New Braunfels practice administrator, says he was faced with similarly low rates in the BCBS PPO contracts. With practice costs rising, BCBS was offering less money, he notes, cutting reimbursements for some services by 10 percent in the new contract. Payment for office visits - the practice's physicians average between 10,000 and 15,000 per year - were cut $3 from $47 to $44 in the revised contract, Mr. Harrell says.

Mr. Harrell says some insurers were offering as much as $70 per visit to enlist the physicians in the practice.

Mr. Rodgers explains that BCBS reimbursement varies by area within the state to reflect local factors. In some cases, E&M codes are reimbursed at different percentages above Medicare than are other codes. "While we have heard little, if any, physician concerns about this issue, it appears our reimbursement is acceptable for all our networks, as evidenced by the 45 percent growth of the networks over the past five years - a gain of nearly 9,000 physicians since 1996," Mr. Rodgers said.

Mr. Neorr says other physician groups in North Texas had similar problems with the BCBS rates and withdrew from the BCBS network. "Blue Cross Blue Shield says they've recontracted with 75 percent of the physicians who withdrew, but I doubt that number," he said.

He says his doubts come from his own clinic's experience with BCBS listings of network physicians on the BCBS Web site.

"We terminated our contract with BCBS in August, but they kept us on their network and refused multiple requests to take us off," he said. "Most of our physicians were not removed until late December and even today a few remain on their Web site."

Mr. Neorr says the clinic has had patients "coming into the clinic who are surprised when we tell them we are not part of the network. The patients tell us that BCBS told them we are participating. As a result, we are the bad guys who have to tell the patient we are not participating, and it makes our front office staff and physicians look like they don't know what they are doing."

Mr. Rodgers says BCBS research indicated that only two physicians were improperly listed as network physicians on its Web site, and the error was corrected in mid-January. Twelve other physicians affiliated with the Medical Clinic of North Texas remained on the BCBS network listing because they were part of a group that is still contracted with BCBS.

"We recently confirmed that they are in the network," Mr. Rodgers said. "While information on the Web site is available to the public, in the sales process we provide hard-copy versions of the network directory for the product a potential client is considering and for the locations in which a potential client's plan has participants."

Mr. Neorr thinks BCBS kept the Medical Clinic of North Texas doctors listed because it would have hurt BCBS sales and enrollment to have fewer doctors listed in the network.

"It seems odd that they listed us as participating through the main enrollment periods last fall for big employers like the State of Texas and Texas Utilities, then took our physicians off," said Mr. Neorr. He claims that BCBS directories continue to list physicians who haven't practiced in the area for years.

"I think what is happening is that they misrepresent their network to employers," he said.

Mr. Harrell says he was similarly concerned that the insurer was not being forthcoming with local employers during his group's negotiations with BCBS last summer. "They were telling employers they were negotiating with us, while we hadn't heard from them in a month," he said.

In Dallas, Pediatric Allergy Immunology Associates (PAIA) faced a running battle with BCBS Texas over the treatment of patients with immune deficiencies, says Afton Martin, managed care specialist for PAIA. The patients often require administration of gamma globulin, an expensive product, Ms. Martin says.

"Initially, BCBS advises us that precertification is not required for this procedure," she said. "But with most cases requiring this particular drug, they cease paying the claims after a few bills."

Patients have to contact BCBS to find out why the insurer has stopped payments, Ms. Martin says. If BCBS refuses to resume payments, patients must seek relief through TDI and its independent review process. Ms. Martin says several cases from PAIA have ended up in the independent review process.

"Ultimately, most of these cases have ended favorably for the patient, and the payments have resumed," Ms. Martin said. "The intermediate frustration and fear these patients undergo, however, are unwarranted. They are already upset enough by virtue of their child's illness, and having to fight for the payment of their claims adds more unnecessary stress."

Several physicians and staff cited another BCBS contract clause that requires physicians to treat members of any of the 47 Blues plans in the nation, while the insurer chooses the lower reimbursement rate from the Texas plan or the patient's out-of-state plan when paying for the services. These claims routinely take more than 45 days to pay and BCBS claims that the holdup lies with the patient's home state plan, physicians say. BCBS also says that these claims are not subject to the Texas mandated 45-day payment period for clean claims because they involve an out-of-state carrier.

As a general rule, Texas physicians who provide services for members of any BCBS plan are to file claims with the Texas plan, which passes the information to the member's "home" plan. "The home plan then verifies eligibility and adjudicates the claim based upon the member's benefits. With rare exception, the reimbursement schedules established by the Texas plan are used," Mr. Rodgers said. He also says claims payment rarely takes more than 45 days.

He says BCBS Texas staff members work with the home plans to make sure this process is completed as quickly as possible. He noted, however, that "as BCBS Texas is not the administrator of these plans, we are not liable for claims-payment penalties on these claims."

The Regence affiliation

While many Texas physicians demand that BCBS Texas be more responsive to the needs of doctors and their patients, Chicago-based parent HCSC, which operates the Texas Blues, continues to seek opportunities to grow and consolidate costly administrative functions to compete in a national health insurance market dominated by giant insurers.

The affiliation of The Regence Group (a Portland, Ore.-based Blues conglomeration for plans in Washington, Oregon, Utah, and Idaho) with HCSC is the latest proposed consolidation. The new organization will retain the Regence name, but individual state entities will continue to use Blue Cross Blue Shield trade names. HCSC also has an agreement to buy Blue Cross and Blue Shield of New Mexico, which has 213,000 customers.

HCSC, with 7 million members and $3 billion in assets, and Regence, with 3 million members and $1.9 billion in assets, would form the largest nonprofit health insurance entity and the fourth largest payer of claims in the nation.

In announcing the six-state affiliation plan, HCSC said the agreement was designed to allow the Blues to consolidate management and administrative functions while keeping each member's assets separate. Joint purchasing and capital outlays are planned to control costs.

"The goal of Blue Cross and Blue Shield of Texas has always been to provide affordable access to quality health care to as many Texans as possible," said Rogers K. Coleman, MD, the chair of HCSC and president of BCBS Texas. "Our merger and affiliation efforts have enabled us to continue doing just that, providing us with greater financial security, faster and more cost-effective claims-processing technology, and an opportunity to maintain our nonprofit position in the marketplace."

HCSC's claims that money can be saved through consolidation are supported by its experience in the Texas-Illinois merger. BCBS Texas figures presented to the Council on Socioeconomics in September 2000 claim that the integration of the Illinois and Texas Blues produced more than $100 million in cost savings.

Dr. Coleman adds that continued growth and consolidation are a necessity in the current health care marketplace.

"Continuing our merger and affiliation efforts is also a business imperative because our competitors whom we face every day - Aetna/U.S. Healthcare, United Health Care, and CIGNA - are larger because of their mergers, and the economies of scale brought by mergers affect the competitive position," Dr. Coleman said.

The Regence-HCSC affiliation will provide all these benefits, while allowing the two organizations to continue operating as local entities, BCBS officials say. Texas physicians and Blues members will see little change in whom and how they deal with the state Blues plans.

"Decisions about our members and physicians in Texas are made by Texas personnel, based on local marketplace factors and taking into account the impact on local stakeholders," Dr. Coleman said. "At HCSC, contracts will continue to be negotiated with local people to maintain familiarity, and claims-processing will continue to be done in full-service units in each state in which we operate. Claims for services to members of Blue Cross and Blue Shield plans not affiliated with Regence, New Mexico, Illinois, or Texas will continue to be handled under the BlueCard InterPlan Teleprocessing system," he said.

Although many physicians are frustrated with BCBS, the insurer can point to numbers that show it has maintained or grown since the Texas-Illinois merger. The ranks of contracted physicians rose by 4,300 to more than 27,000 between Dec. 31, 1998, and October 2000. The number of contracted employers in Texas grew more than 4,100 from 1998 through 2000.

Because HCSC and Regence are not merging assets, regulatory approval in the six affected states likely will be easier than if HCSC had acquired Regence outright. In fact, TDI regulators have not begun a review of the affiliation agreement because no one is sure just what sort of approval may be necessary, says TDI spokesperson Lee Jones.

Texas doctors are likely to remember the fight over the merger of BCBS Texas with its Illinois counterpart. In July 1996, the Texas and Illinois Blues applied to TDI for permission to merge. The proposal was challenged in court by then-Texas Attorney General Dan Morales, who contended the merger was illegal because the assets of the Texas Blues were acquired tax free under nonprofit status, and those assets were being used to benefit the owners of the Illinois company, which is a mutual company owned by its policyholders.

A district court judge in Austin ruled in November 1998 that the Texas Non-Profit Corporation Act did not prohibit the merger and Mr. Morales did not appeal the decision. Approval by TDI followed swiftly, with the agreement that HCSC must obtain TDI's approval should it seek to change from its current status of a nonprofit mutual insurer to a stockholder-owned company.

Texas officials, however, did not back off their claim for HCSC to pay the state $350 million plus interest, for a total of $560 million. That issue is still in court and if the courts rule in favor of the state, the insurer would make payments over 20 years.

While the pros and cons of the merger and the proposed affiliation still are being debated, many Texas physicians believe that it's up to the Texas Blues to balance its business imperatives with its once-lauded ability to understand the needs of its policyholders and their physicians.

"There has been a sense of frustration in talking with BCBS recently that was not present in the past," Dr. Handel said. "Will Regence get too big to talk to the women and men who care for the people covered by the company? Well, [if that is the case] the physicians won't see BCBS patients. BCBS won't talk to the doctors. The patients will think a government takeover is the answer to the problem. I think we have entered into a mutually assured destruction plan."

Related story:

TMA Advantage: Hassle Factor Logs Identify Problems

March 2001 Texas Medicine Contents
Texas Medicine Back Issues


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