Blue Shield of California calls on UCLA Medical Center to Stop 'Relentless Rate Increases'

WOODLAND HILLS, Calif., Dec. 13, 2011 /PRNewswire-USNewswire/ -- Paul Markovich, COO of Blue Shield of California, has issued the enclosed letter to customers and members in Southern California that announces an impasse in contract negotiations with UCLA Medical Center and calls on UCLA to "curtail its relentless rate increases." Also enclosed are facts and Q&A about the UCLA Medical Center contract negotiations.

To all Blue Shield of California Customers and Members in Southern California:

We regret that we have reached an impasse with UCLA Medical Center over terms for a new contract beginning in 2012.  We would very much like to keep UCLA's outstanding hospitals and physicians in our network, and have negotiated in good faith for months to reach a reasonable agreement that preserves affordability for our members.

Blue Shield of California's mission is to provide all Californians with access to quality health care at an affordable price. That's why we have supported universal coverage since 2002 and advocated for federal health reform. But health reform won't succeed unless care is affordable. Government, business, labor, and individuals can no longer tolerate the current level of rate increases driven by ever higher provider costs, particularly hospital charges.

Hospital costs comprise about half of what Blue Shield pays in health care for our members.  Between 2000 and 2010, these costs have roughly tripled.  As a result, today you can feed a family of four for five months for the same amount it costs to spend just one night in a typical California hospital. 

Blue Shield is attempting to do its part to make care affordable for our members through our commitment to voluntarily cap our annual net income at 2% of revenues and pledging to return the difference to our customers and the community.  This has resulted in Blue Shield giving back nearly half a billion dollars to our customers in 2011 alone.  In addition, we partner with hospitals, physician groups, and employers on accountable care organizations that provide high quality, less expensive care to 100,000 Californians.

UCLA Medical Center has made the decision to band together with four other University of California hospitals to negotiate as a group. This is a carefully orchestrated negotiating strategy that the university's own executives have described as an effort to increase bargaining leverage to obtain higher reimbursements.  If successful, this tactic will give UCLA an overwhelming negotiating advantage, allowing it and the other four UC hospitals to drastically increase their charges and make care less affordable for our members. They are pursuing this strategy despite the fact that they are each clinically and financially independent.

UCLA Medical Center's rates for Blue Shield members have increased 98% since mid 2006 and its inpatient hospital charges are already 41% higher than our Southern California average. UCLA's 15% profit margin is nearly four times the statewide average for hospitals and almost eight times Blue Shield's 2% cap. Moreover, UCLA Medical Center serves a lower percentage of Medicare, Medi-Cal, and uninsured patients than other California hospitals and, therefore, faces less cost pressures than other hospitals.

Because we've capped our profits at 2%, every penny more that we have to pay UCLA and other providers ultimately must come from our customers who are already suffering. We believe UCLA Medical Center should curtail its relentless rate increases so struggling local businesses, labor groups, government agencies, and individuals don't have to pay more than they can afford. We are willing and eager to negotiate agreements with UCLA and other UC hospitals that provide a fair margin while also preserving affordability for our members.

Regardless of UCLA Medical Center's decision, we will ensure all of our members get the quality care they need and deserve.  Blue Shield customers will continue to have access to more than 40 hospitals and over 17,000 physicians in the Los Angeles area.

Thank you.

Paul Markovich
Executive Vice President and
Chief Operating Officer

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UCLA Medical Center Contract Negotiations
Facts and Figures

UCLA's high profits

• UCLA's current 15 percent profit margin is nearly four times the statewide average  (4 percent) for hospitals.
• UCLA's profit margin has been climbing every year and is up from 9 percent in 2009.
• UCLA's profit margin based on the rates in its current contract with Blue Shield is 35 percent.

Blue Shield of California's hospital costs

• Hospital costs alone are responsible for nearly 50 percent of all of Blue Shield's medical expenses.
• Last year, Blue Shield's hospital costs increased by 8.9 percent.
• Blue Shield pays UCLA for inpatient hospital care at rates that are already 41 percent higher than our Southern California average and more than 3 times what Medicare pays.
• UCLA Medical Center's rate paid by Blue Shield has increased 98 percent since mid 2006.
• Today you can feed a family of four for five months for the same amount it costs to spend just one night in a California hospital ($5,769.00).

For more information on healthcare affordability

• MakeCareAffordable.org explains the underlying causes that drive healthcare costs higher each year and provides examples of what Blue Shield is doing to make care affordable for all Californians.

UCLA Medical Center Contract Negotiations
Questions & Answers

Q1: What is your dispute with UCLA Medical Center?

A1: UCLA Medical Center(1) is currently demanding that Blue Shield of California enter into a new six-month contract, after which UCLA will no longer negotiate individually with Blue Shield but instead intends to negotiate along with the four other UC hospitals as a consolidated entity to give the UC hospitals added leverage to obtain significantly higher rates. We cannot support a contracting strategy driven solely by UCLA and the other UC hospitals' intent to increase their future reimbursements – which will happen at the expense of our members.

Q2: What rates does UCLA charge? Why do you think they are too high? 

A2: UCLA Medical Center's rates have increased 98 percent since mid 2006. Their 15 percent profit margin is nearly four times the statewide average for hospitals, up from 9 percent in 2009. Moreover, UCLA serves a lower percentage of Medicare, Medi-Cal, and uninsured patients than other hospitals. This means that UCLA Medical Center does not face the same cost pressures as other hospitals.

UCLA's profit margin on its current contract with Blue Shield is 35 percent. Blue Shield already pays UCLA for inpatient hospital care at rates that are 41 percent higher than our Southern California average and approximately three times what Medicare pays. We cannot support the additional rate increases and the negotiating tactics of UCLA that threaten to put an even greater cost burden on the backs of our members and customers.

Q3: What happens if your contract with UCLA is terminated?

A3: We hope that UCLA will reevaluate its position, and that we will be able to reach an agreement before December 31. But regardless of UCLA's decision, Blue Shield remains focused on providing our customers with access to a choice of high quality hospitals and facilities in their area. Should UCLA leave our network, members would still have access to quality care from more than 40 hospitals and over 17,000 doctors in the Los Angeles area.

Q4: How many of your members are affected by this termination?

A4: The termination of Ronald Reagan and Santa Monica UCLA Medical Centers would impact our HMO, POS, and PPO (and ASO) members in the LA area. Note: the hospital contract terminations are not expected to significantly affect any commercial HMO members because no HMO IPA/Medical Groups use UCLA as their primary admitting hospital. 

This chart shows the number of members who: 1) currently live within a 15 mile radius of Ronald Reagan and Santa Monica UCLA Medical Center facilities and could be affected by the termination, and 2) actually used the facility or medical group in 2010.

The termination of UCLA Medical Group would impact our commercial PPO (and ASO) members and our Medicare HMO members.

Potential impact is as follows: 

• Medicare: approximately 2,000 Medicare members are currently assigned to physicians at UCLA Medical Group-Santa Monica Bay Physicians and will be impacted by the termination.
• PPO: PPO members are not assigned to specific medical groups so we do not have a specific number to be impacted; however, in 2010, 16,112 PPO members and 1,573 ASO members visited a UCLA physician.

Q5: What other hospitals in the area are available for your members?

A5: Blue Shield's network includes over 40 hospitals in the Los Angeles area, including:

Q6: Does this mean your members can no longer see their UCLA physicians?

A6: PPO members may continue to seek services from UCLA physicians after the contract termination date, but reimbursement for any such services (except emergency services) will be at the lower "Non-Preferred Provider" benefit level. Members will be responsible for all additional charges, up to the hospitals' usual billed charges. PPO members who wish to have their provider visits covered at the higher, preferred benefit level, must receive care from a Blue Shield Preferred (contracted) provider.

Q7: What is Blue Shield doing to make care affordable?

A7: MakeCareAffordable.org explains the underlying causes that drive healthcare costs higher each year and provides examples of what Blue Shield is doing to make care affordable for all Californians.

(1) Includes Ronald Reagan UCLA Medical Center and Santa Monica UCLA Medical Center

Contact Info:
Steve Shivinsky
VP, Corporate Communications
(415) 229-5447
[email protected]

SOURCE Blue Shield of California