A new payment plan by Blue Cross and Blue Shield of Minnesota (BCBS) that went into effect May 1 is expected to have a crippling impact on the bottom line of Granite Falls Hospital and other rural health providers throughout the state.
“We're more than a little unsettled,” Granite Falls Hospital and Manor CEO George Gerlach told the StarTribune. “We're running on slim margins ... When Blue Cross rolls in and says we're going to cut your reimbursement significantly, it's a big deal.”

A new payment plan by Blue Cross and Blue Shield of Minnesota (BCBS) that went into effect May 1 is expected to have a crippling impact on the bottom line of Granite Falls Hospital and other rural health providers throughout the state.
"We're more than a little unsettled," Granite Falls Hospital and Manor CEO George Gerlach told the StarTribune. "We're running on slim margins ... When Blue Cross rolls in and says we're going to cut your reimbursement significantly, it's a big deal."

According to Gerlach, under the new plan Granite Falls Hospital and Manor would see a $900,000 reduction in payments for services, based on 2011 rates. "That's a lot of money to squeak out of a $17 million budget with $350,000 in bottom line revenue," he said of the 2011 numbers. "You take that out of your budget and it's pretty scary."
Especially when taking into account that the hospital realized an unaudited $455,000 loss in 2012.

He said, she said
BCBS, which is the dominant health insurer in outstate Minnesota, says that the purpose of the changes is to reduce the margin of difference that it pays to hospitals for similar medical care procedures, thereby incentivizing new approaches for cost savings.
"The current payment model, called Fee For Service, is built upon volume of care, with no incentive for containing overall health care costs, ultimately raising costs on individuals and businesses," reads a statement from BCBS.
"We recognize there will be challenges in moving away from the status quo. However, under the old model, variation on health care prices can be in excess of 500 percent for common procedures. This needs to change. Our new payment approach is a less arbitrary and more transparent way to pay hospitals based on the specific needs of the people they treat."
According the Minnesota Hospital Association, by moving toward the equalization of payments, BCBS is unilaterally doing away with a decades old payment methodology that had provided a discount to small hospitals––which may be unable to capitalize on the economies of scale available to hospitals in high density population areas.
MHA has come out strongly opposed to the payment model, stating that it has heard from dozens of hospitals who would be affected in the "hundreds of thousands to millions of dollars," putting them deep into the red.
In addition, MHA suggested that BCBS is implementing the plan in a highly political, relatively underhanded fashion without offering lines of communication.
"Instead of contacting all hospitals and warning them about this change at once, Blue Cross is communicating with only 25 of 30 percent of hospitals at a time, perhaps to avoid the inevitable statewide backlash that would be unleashed," said MHA President and CEO Lawrence Massa.
"The timing of this is extra troubling, because some people will mistakenly conclude that they lost access to care or hospitals closed because of federal or state health care reforms when, in reality, these are decisions by a single, dominant insurer that decided to pay wholesale rates rather than discount retail rates."
Adding insult to injury is that the hospitals were only recently informed of the planned changes. According to Gerlach, Granite Falls Hospital was supposed to have received a letter indicating the possibility of the adjustment in December of 2012, but did not. As a result, hospital administration didn't hear about the change until February––and originally BCBS had scheduled the new plan to go into effect in March before postponing it until May 1.

Monte and Granite
Just upstream, the Chippewa County-Montevideo Hospital (CCMH) is in a similar boat with expectations that it will take a $790,000 to million dollar hit, based on 2012 numbers.
"...we don't have a clear picture yet of where we would cut that kind of impact out of our organization," CCMH CEO and Administrator Mark Paulson. "They're looking at a pretty monumental change; it's essentially wiping out our bottom line.
Paulson said nothing was set in stone but the biggest impact to CCMH would likely be to its outpatient services.
"The biggest impact will be on outpatient care, which is where most of the cuts are––and which is contrary to what we're trying to do in health care today. We're trying to take care of patients in an outpatient setting," Paulson said.
"We would have to look at a reduction in service and our overall expenses in terms of our supplies and acquisition of equipment. I mean, really, we have to look at the bottom line of the whole operation, We're not going to cut services to people, but we may have to cut some of our utilities and equipment ... in the future, the bottom line may be access.
Back in Granite Falls, Gerlach wasn't yet ready to speculate where any cuts to the hospital budget might derive from. He did, however, say that the hospital has, over the last years, undergone extensive cost cutting and that implementation of the payment plan would at least change the timeline for plans to move forward with the construction of a new nursing home.
Ideally, Gerlach said that the hospital would be in the midst of obtaining financing for the project, but as a result of the new payment plan all of the information required by potential financing entities is not yet available.
"Because of this and other financial considerations we're not on course to get [the nursing home] built as soon as we thought," he said. "We have to clear this up before we can get on with our financing."

Still hope
Although BCBS indicated in a letter to the hospital on Tuesday that it will go forward with its May 1 implementation date, there is still hope that the insurer will open lines of communication so that alternatives might be discussed.
According to the StarTribune, after hearing from a number of hospitals Attorney General Lori Swanson has intervened, meeting with BCBS CEO Michael Guyette on Monday.
No details of the conversation have been released although a spokesman for Swanson, Ben Wogsland, stated that "We do have concerns and are looking into the issue."
Montevideo American News Staff Writer Jeremy Jones contributed to this article.

Editor's note: A Wednesday press release from BCBS indicates that the insurer has elected to hold off on the implementation of the new payment plan until January 1, 2014. Below is the entirety of BCBS statement as well as a response from the Minnesota Hospital Association.

 As the only truly state-wide health plan, Blue Cross understands the importance of maintaining a viable network of critical access hospitals throughout Minnesota. We recently proposed a change in payment methods for these hospitals that moves away from an outdated, transactional, fee-for-service system to a new system that is proven to be a more transparent, predictable and fairer way to pay for care. Blue Cross is striving to be thoughtful and responsive to the operational and financial planning challenges of these hospitals. As a result, we have adjusted the implementation date of this new payment system to January 1, 2014 in an effort to ease the transition.

In addition to the extension, Blue Cross will:
•Extend our ability to meet with individual critical access hospitals and offer additional multi-hospital education sessions
•Share in the cost of software licensing fees and work directly with the manufacturer to ensure these hospitals receive the product as soon as possible
•Create a “safety net” on our commercial payments for those hospitals with insufficient operating margins, ensuring that payments will cover the cost of care provided to Blue Cross commercial members

Critical access hospitals play a vital role in Minnesota’s health care delivery system, providing important services to the communities they serve every day. Blue Cross remains committed to continuing the challenging, but necessary conversation about the connection between escalating health care prices and the affordability of insurance coverage. On behalf of our more than two million Blue Cross members, we are committed to new and innovative ways to address the issue of higher health care costs and the pricing inconsistencies that exist across the state.  

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Statement from the Minnesota Hospital Association:
The Minnesota Hospital Association (MHA) is pleased that Blue Cross Blue Shield of Minnesota (BCBS) has decided to delay implementation of its payment model changes that were scheduled to begin May 1. A delay provides a window of opportunity for BCBS and hospitals to work through the issues before attempting to implement payment changes that could have jeopardized access to care in some communities. MHA appreciates that BCBS has heard the concerns of our members and that it is willing to respond to those concerns.
BCBS has assured MHA that it will engage hospitals on a one-on-one basis to work through the transition to the new payment model. MHA and BCBS both recognize the need to move our health care system away from volume-driven, fee-for-service payments and toward payment methodologies that emphasize the value of care patients receive and reward providers for delivering the high quality care as efficiently as possible. MHA is hopeful that additional time and more open communications with hospitals will result in mutually agreed upon, fair and sustainable solutions that protect residents’ access to high quality care in their communities.
Finally, MHA appreciates the leadership of Governor Mark Dayton who took quick action to make this issue a priority after listening to hospitals' concerns during an April 19 MHA board of directors meeting. We also appreciate the engagement of Commissioner Ehlinger and Attorney General Lori Swanson, who both met individually with Blue Cross Blue Shield of Minnesota’s (BCBS) executives on Monday.