Washington Post Examines Contract Dispute Between CareFirst and Washington, D.C.’s, Children’s Hospital

The Washington Post on Dec. 15 examined the ongoing contract disputes between the not-for-profit Children's Hospital in Washington, D.C., and health insurer CareFirst BlueCross BlueShield, which could force CareFirst subscribers to find new providers if a Jan. 1 contract deadline is not met. CareFirst officials say Children's is "poorly managed" and that it uses its "political clout" to garner higher reimbursement rates than any other area hospital. Children's Hospital President Edwin Zechman said that CareFirst reimburses the hospital 27% below cost, but CareFirst Vice President Bruce Edwards says that the hospital's request for a 20% rate increase is "excessive." Children's representatives maintain that CareFirst's potential conversion from not-for-profit to for-profit has "twisted the thinking" of the company's executives (Goldstein, Washington Post, 12/16). WellPoint Health Networks has agreed to pay $1.3 billion in a stock and cash deal to acquire CareFirst, the largest health insurer in the Washington-Baltimore area. Insurance regulators and Congress have to approve the company's conversion to for-profit status before it can be sold to WellPoint (Kaiser Daily Health Policy Report, 11/26/01). Maryland regulators are studying the potential conversion, and the contract dispute has drawn the attention of government officials, the Post reports. For example, Maryland Insurance Commissioner Steven Larsen recently requested that the state health department look into whether losing Children's Hospital would negatively affect CareFirst's provider network. Washington, D.C., Insurance Commissioner Lawrence Mirel said the only way the two sides will reach an agreement is "if subscribers to CareFirst start shifting because their employees demand they have a carrier with Children's in the network," adding, "Unless that happens, there is no possibility of resolution." Meanwhile, CareFirst has launched an advertising campaign suggesting that "thousands" of its members seek new providers other than Children's (Washington Post, 12/15).

CareFirst's Motivation?
It is the "responsibility" of Maryland and Washington, D.C., regulators to determine if CareFirst's for-profit conversion is the company's impetus for its "tough negotiating stance," according to a Washington Post editorial. The issue of the contract dispute between CareFirst and Children's will be discussed during a hearing this week to determine if CareFirst's sale to WellPoint should proceed, and the Post notes that the sale will proceed "only if CareFirst can demonstrate a certain level of profitability." Profitability generally increases by "squeez[ing] hospitals" and by making "your sickest customers ... turn elsewhere for insurance," according to the Post. The editorial concludes: "Maybe that's not what is happening here. But Larsen and other regulators have a right to inquire" (Washington Post, 12/15).