Consumers of Aetna Health Insurance in San Benito County haven’t been able to use those plans at Hazel Hawkins Memorial Hospital since the start of the year due to a contract dispute.
Hazel Hawkins Memorial Hospital terminated its relationship with Aetna Health on Dec. 31, according to an Aetna spokeswoman. It was the culmination of a dispute regarding reimbursement rates in the contract between the insurance provider and publicly owned local hospital, while both sides plan to continue talks on a new deal.
Hospital officials contended the rates offered by Aetna are about one-third of those at Salinas Valley Memorial Hospital in the same region. An Aetna spokeswoman, on the other hand, argued that the hospital’s proposal calls for a “very high” rate increase that the company couldn’t justify.
Aetna Health is part of the so-called Big Five insurers nationally and trades on the New York Stock Exchange with a market cap of $38 billion. It’s the size of companies like Aetna and Blue Cross that plays into what Hazel Hawkins officials called negotiation “bullying” in a recent interview with the Free Lance about the hospital’s first cancellation of an insurance agreement.
Hospitals and insurers don’t generally discuss their rates or proposed rates in public, but Hazel Hawkins CEO Ken Underwood and Chief Financial Officer Mark Robinson both surmised the local hospital receives about one-third of the rate at Salinas Valley Memorial from the same insurance company, Aetna.
They expressed frustration about the dispute, but explained how it’s part of a complicated health industry with insurers using leverage in negotiations that leads to largely variable reimbursement rates among hospitals, even those so close in geography and patient visits.
“That’s why hospitals in rural areas close,” Underwood said. “They have no leverage in negotiating a good deal.”
In particular, hospital administrators are having issues with Aetna and Blue Cross. Since Blue Cross serves about 80 percent of the commercially insured population in San Benito County, the hospital maintains little if any leverage. So it ends up on the short end of the stick as it relates to reimbursement rates from Blue Cross.
“Blue Cross doesn’t have to send their patients to me,” Underwood said. “Blue Cross has been bullying us for years.”
Robinson, the CFO, explained that Hazel Hawkins is at a significant threshold with providers like Blue Cross and Aetna because the healthcare district, which had a deficit of more than $1 million last year, simply needs to cover its costs. With Medicare and Medical making up about 70 percent of of the hospital’s patient revenue, and with routine losses from Medical, hospitals must make up the difference through commercial contracts like those with Aetna.
“At the end of the day, like any business, you have to be paid for the cost of service,” Robinson said.
He didn’t have any love lost for Blue Cross, either.
“All Blue Cross does, at no risk, is handle the paper, handle the money,” he said. “There’s a lot of ugliness to it. Everyone’s trying to push that reimbursement as low as possible.”
But Aetna’s spokesoman Anjie Coplin in an email response said the company must watch its bottom line, too.
“We attempted to reach a new agreement, but the hospital was seeking a very high rate increase which we could not accept,” she wrote. “It is our objective to negotiate contracts that are not only competitive, but are also reasonable to our customers, to our members and to the hospital.”
The dispute between the hospital and insurer, meanwhile, has trickled down to the doctors. The San Benito Medical Associates has been shut out from Aetna as well. Aetna canceled its agreement with the doctors’ group, because its physicians refer patients to the hospital, after failing to reach an agreement with Hazel Hawkins.
“In essence, the independent physicians in the community are being held hostage to force the hospital into an agreement with AETNA,” wrote Martin Bress, M.D., president of the San Benito Medical Associates, in a letter to the state insurance commissioner dated Feb. 18.
