United States: Blue Cross Policy Dispute Battle Revisited

In terms of governmental policy disputes, the 2013 battle between a private hospital chain, Health Management Associates, and Blue Cross & Blue Shield of Mississippi, was epic in proportions.

What began as a contract dispute between two major corporations quickly escalated, eventually involving the governor, the commissioner of insurance, the attorney general, the Legislature, and a federal district court. The dispute began in June of that year, when HMA sued Blue Cross for breach of contract, claiming the insurer had changed policy provisions in a way that violated the network contract that governed their relationship, costing the hospital chain millions of dollars. It took Blue Cross less than a week to respond.  In a move clearly designed to send a message not only to HMA, but also to other providers who might be contemplating anything similar: Blue Cross simply terminated HMA's network provider contract, effectively throwing HMA's 10 Mississippi hospitals out of the Blue Cross network, forcing doctors and their Blue Cross insured patients to consider other options.

That was a big deal then, and would be today, because Blue Cross has the largest healthcare insurance footprint in our state. The Henry J. Kaiser Family Foundation, using 2016 data, lists Blue Cross atop the individual health insurance market (43 percent), the small group market (81 percent), and the large group market (82 percent) in Mississippi. It is estimated, nationwide, that one in three Americans – approximately 106 million – are beneficiaries of a Blue affiliate. Blue plans are the largest insurer in most states, and are considered enormously influential in political and health policy circles across the country.

The Blue Cross and Blue Shield Association, a nationwide organization, licenses one or both of the Blue Cross and Blue Shield brands to operate in distinct markets across the country. A Blue plan operates in every U.S. state, the District of Columbia, and Puerto Rico.

Mississippi's Blue Cross licensee has an interesting history. Organized pursuant to a statute passed by the Mississippi Legislature in 1947, Mississippi Hospital and Medical Service (the company's original name) was converted to a non-profit hospital, medical and surgical service membership corporation the following year through a 1948 statute that apparently applied only to it. In 1973 the company changed its name to Blue Cross & Blue Shield of Mississippi, Inc.

In 1994 the Mississippi legislature passed HB 989, a bill that allowed the company to convert to mutual insurance company status (a mutual insurance company is owned by its policyholders and any profits are either retained with the company or rebated to policyholders in the form of dividend distributions or reduced future premiums), and at the same time brought Blue Cross under the jurisdiction of the commissioner of insurance. The vote in the House of Representatives, where I served at the time, was unanimous. However, I am unsure whether many of us, myself included, were aware that the new Mississippi law was part of a larger unfolding story.

The nonprofit status of some Blues had become a point of contention by the 1990s. Operating as charities for decades, many Blue plans had built up vast market shares, and associated good will and cash reserves.  A number of Blues announced plans to convert to for-profit status or merge with other insurers around that time, but some of these plans drew criticism on the grounds that a for-profit entity or other insurer ought not fall heir to the assets of a charity. Not all of these conversions went according to plan. For example, in 1998 Maryland's legislature enacted a law giving the commissioner of insurance the authority to set-aside public or charitable assets possessed by health service plans. A 2001 amendment required that conversion assets be preserved in a trust, to be expended only at the direction of the state legislature. In 2002, the Maryland legislature passed even more stringent requirements for such conversions, including a requirement that the applicant must prove that the conversion is in the public interest.

It is worth noting, however, that the Mississippi legislation that provided the pathway for the conversion here did not require the company to part with any of its assets accumulated as a nonprofit entity. Not surprisingly, more than two-thirds of the subscribers and the company's board approved the conversion, the law requiring that it be  "in the best interests of the subscribers and the corporation. . . ." The 1996 pro forma Blue Cross filed with its conversion plan showed accumulated assets of more than $200 million. With the way now clear, Blue Cross was free to transfer assets to the new insurance company, Blue Cross & Blue Shield of Mississippi, a Mutual Insurance Company. In a form letter to customers, Blue Cross's President and CEO stated at the time, "our conversion to a mutual insurance company will help us maintain our position as a leader." His ambitions proved to be wildly understated. Blue Cross & Blue Shield of Mississippi currently lists assets of $962 million, with more than $627 million of that sitting in reserves. Net premium revenues last year topped $1.3 billion.

The issue that drove the HMA/Blue Cross dispute has not gone away.  In August of 2017 North Mississippi Medical Center filed suit against Blue Cross alleging that the insurer had made unilateral changes to reimbursement methodologies under their contract, costing the hospital system approximately $1 million per month since January of 2017. The University of Mississippi Medical Center recently announced its intention to terminate its network contract, in part because Blue Cross continues to make changes to rates and reimbursement methodologies at will, and refuses to renegotiate its 28-year-old contract with the state's only academic medical center.

Full disclosure: our law firm is privileged to be one of those that represent UMMC. But it doesn't take any particular insight or viewpoint to appreciate institutions like UMMC and North Mississippi Medical Center are extremely important to our state, its economic development, and the health of its people. Threats to their very existence, whatever the source, should concern us all.

Originally published in Mississippi Business Journal

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