Stellaris Health, Empire BCBS Trade Barbs as Contract Expires

Saying it could "no longer subsidize the record profits of a health insurance conglomerate," Stellaris Health Network this week announced that its contract with Empire Blue Cross Blue Shield expired April 1 after six months of fruitless negotiations.

The nonprofit health system based in Armonk, NY, sent a sharply worded notice of the contract termination this week to thousands of Empire policyholders, who use the four Stellaris hospitals, including Lawrence Hospital Center in Bronxville, Northern Westchester Hospital in Mount Kisco, Phelps Memorial Hospital Center in Sleepy Hollow, and White Plains Hospital Center.

"Our nonprofit community hospitals can no longer subsidize the record profits of a health insurance conglomerate, and that is what Empire expects us to do," said Arthur A. Nizza, president/CEO of Stellaris Health. "Our hospitals are committed to providing quality medical services to the communities we serve. However, that commitment cannot be met if we are forced to accept reimbursement rates that are far below the cost of providing the services."

Stellaris sought a reimbursement increase of 15%, while Empire's counter-offer was "in the single digits," Empire Director of Public Relations Sally Kweskin confirmed.

Empire, a subsidiary of WellPoint Inc., disputed Nizza's interpretation of events in its own contract termination notice to policyholders.

"The issue at the center of the negotiation is Stellaris' demand for higher-than-market reimbursement rate increases," Empire said. "Though Stellaris earns a substantial profit on Empire's business and operates profitably overall, they continue to demand annual double-digit rate increases during the proposed period of the new agreement."

Nizza countered that Stellaris did not ask Empire for reimbursement increases that are any greater than what they already receive from other insurers in the market.

"In order to maintain their position in providing high-quality health services, Stellaris Hospitals need an adequate revenue base," he said. "In the past six months, Stellaris Hospitals have reached renewal agreements with two national and two regional insurance companies. Empire has stood alone in its refusal to agree to reimbursement rates that are even close to those that other insurance companies in the market are paying."

Empire called Nizza's justification inadequate. "With hospitals' costs being almost 50% of healthcare costs, the rate increase Stellaris is demanding would be directly reflected in increases in member premiums, medical expenses, and cost share amounts," Empire said. "Stellaris has made no effort to justify this increase other than to say that what they want from Empire is what they get from other payers. They are ignoring the fact that their rates already provide them with market competitive reimbursement."

Nizza said hospitals and physicians are struggling while Empire's parent WellPoint reported record revenues and profits in 2009, with total revenues of $61 billion with net income of $4.7 billion, nearly double its 2008 results.

"This is the same WellPoint that was recently criticized by a Congressional committee for raising rates by as much as 39% for individual insurance plans in California. The Congressional committee also rebuked WellPoint for raising rates for subscribers while spending millions on lavish corporate retreats," Nizza said.

However, Empire said the insurer and WellPoint are operating on a 4% margin, and that Stellaris is profitable too. "Nonprofit is a tax designation only—it doesn't mean for a second that Stellaris isn't profitable," Empire said, in a follow-up media release addressing Nizza's complaints. "When hospitals attempt to deflect from the issue by pointing to our profits, they ignore one key fact—most of our business is self-funded. That means that the customer directly pays the claims expense. There is no mark-up or margin. If the claims is $50, the customer pays $50; if it's $25,000, the customer pays $25,000, so increases impact our customers dollar for dollar."

Empire said that more than 70% of its commercial business at Stellaris hospitals come from customers in self-funded arrangements. "Frankly, our customers who pay these costs deserve a better explanation for a 15% increase—when the system is already earning a 20% margin on Empire's business," Empire said. "The truth is that systems, such as Stellaris, have market power that enables them to effectively cost shift to private payers and, therefore, they haven't had to focus on cost structure."

Nevertheless, Nizza said Empire and WellPoint have "not yet gotten the message" sent through health reform.

"The era of health insurance companies running roughshod over hospitals and patients in their unbridled quest to reap huge profits for their investors is over," Nizza said. "For the health of our nation and our communities, the time has come for the insurance conglomerates to join with the hospitals and healthcare community to invest in our healthcare system and not just bleed the system to gain record profits for their investors."