AWP Prompts Mixed Response

(For a breakdown of Blue Cross and Blue Shield’s growth since 1995, click here.)

Before Arkansas’ “any willing provider” law went into effect in 2005, Arkansas Blue Cross and Blue Shield warned that health care costs would rise 10 percent to 12 percent.

ABCBS spokeswoman Max Heuer said recently that costs have risen since it implemented AWP, officially known as the Patient Protection Act of 1995, two years ago.

“We’ve seen 2 percent from the first full year of AWP, and we expect 5 to 6 percent for additional costs over the next two years,” Heuer said. Heuer said those increases are on top of the premium increases that would have occurred without AWP.

Others in the health insurance industry, however, said they haven’t seen premium increases as a result of AWP.

Mike Stock, CEO and president of competitor QualChoice/QCA of Little Rock, said that his company’s rates haven’t risen because of AWP.

“I don’t think that any willing provider lowered the rates or raised the rates,” said Greg Hatcher, owner of The Hatcher Agency of Little Rock. “I don’t think it saved money or cost money.”

Little Rock hospitals, which had been trying to break into ABCBS’ preferred provider network for more than a decade, praised AWP for finally allowing patients to come to their hospitals without paying higher out-of-network co-payments.

For 10 years after the law was enacted in 1995, ABCBS used the federal court system to resist opening its managed care networks to any provider willing to accept the same reimbursement rates as the contracted providers, which is what the law requires.

Many hospitals, especially in central Arkansas, had been locked out of the dominant insurer’s system since 1993, when ABCBS partnered with Baptist Health of Little Rock to form the health maintenance organization known as Health Advantage. The Arkansas Medical Society once referred to the relationship as a “cartel.”

Southwest Regional Medical Center CEO Nancy Fodi said the enforcement of AWP has been a blessing to her hospital.

Prior to AWP, the 125-bed Little Rock hospital wasn’t in ABCBS or QualChoice’s network. Now Southwest Regional is an in-network provider for nearly all insurance products marketed in the state, except for the self-funded plans that are exempt under AWP.

“We’ve had a change in the mix of business,” Fodi said. “It really helped our hospital both with patient flows and financially.”

While the hospital’s loss increased from $3.8 million at the end of 2005 to $5.2 million in 2006, Fodi said the losses weren’t a reflection on AWP. The number of patients also dipped, by 2.3 percent to 3,778 in 2006.

She said the declines in profits and patients are because other hospitals have a hospitalist program and Southwest doesn’t. (In a hospitalist program, a patient’s hospital care is handled by a doctor who specializes in in-patient medicine, not by the patient’s primary care physician.)

On Oct. 17, though, Southwest was to start its hospitalist program.

“That should help the number pick up quite a bit,” she said.

Competition Increases

Heuer said ABCBS’ fears of higher premiums for its clients are now coming true. AWP has increased administrative costs for ABCBS, and providers in the network are submitting more claims.

In 2006, the first full year of AWP, ABCBS’s premiums rose 5 percent to $961.8 million. Also, its administrative expenses increased from 11.8 percent of its premiums in 2005 to 13.8 percent last year. ABCBS’ net income fell 16.1 percent in 2006 to $43.2 million.

In 2004, Heuer said AWP would increase costs because closed networks give health insurance companies the leverage to negotiate price discounts with providers, holding down the cost of health care.

“If there weren’t any networks and if everything looked the same, there wouldn’t be any incentive for providers to negotiate because there would be no benefit for them,” she said in 2004.

Heuer said in September that her opinion of AWP hasn’t changed.

“It has removed choice, it has increased costs, and it has basically limited the type of products that people can choose from,” she said.

Others say AWP has increased competition by opening the door to insurance companies wanting to crack the Arkansas market.

Sisters of Mercy Health System of St. Louis introduced its Mercy Health Plans insurance product in Arkansas in May 2006. Connecticut insurers Cigna and Aetna also have returned to Arkansas. And several minor carriers also have jumped into the market, Hatcher said.

Hatcher said nearly all the hospitals are on each insurance companies’ plans.

“It makes switching insurance a lot easier, which means that the insurance carriers compete a little harder with each other,” he said.

Hatcher said rates have increased about 10 percent, but rates were increasing along the same trend line before AWP.

The Arkansas Medical Society, which supported AWP legislation, said any increases in premiums aren’t because of AWP.

“Insurance premiums were going up before any willing provider, and they’ll go up after any willing provider,” said David Wroten, AMS executive vice president.

He said insurance carriers are holding down costs in other ways, such as requiring prior authorization before certain procedures. “The carriers have a lot of tools at their disposal to control [costs], and you’re seeing them do that,” Wroten said.

Stock said QualChoice’s number of providers has increased by 11 percent to 6,046 as a result of AWP.

“It has not caused a significant increase in our overall cost structure,” he said.

He said QualChoice can now compete on the basis of service rather than on which hospitals are in its network.

“Employers don’t worry so much about network anymore because they know those have been leveled,” Stock said. “So they look at other issues now.”

Patients Trickle In

Both St. Vincent Health System, which had been locked out of ABCBS’ network, and Baptist Health, which wasn’t in QualChoice’s network, said they’ve seen more patients. But there hasn’t been a flood of additional sick people to either hospital.

In 2004, the year before AWP went into effect, St. Vincent Health Systems hospitals had 246,506 admissions, said CFO Pam Stoyanoff. In 2006, the number of admissions climbed to 269,257.

“We have seen some growth,” she said. “It probably hasn’t been at the level that we would like it to be. It just takes a really long time for a market to change when for 10 to 12 years it locked out certain players.”

She said St. Vincent is making progress. Now about 10 percent of the patients the hospital sees have ABCBS insurance.

Stoyanoff said some of St. Vincent’s previous patients went to other facilities, but the end result has been more patients.

To attract more patients, St. Vincent unveiled in the summer of 2006 plans for a $45 million hospital renovation and expansion, a move that wouldn’t have occurred without AWP.

“Where would the [patient] growth come from if we were locked out of the majority of the market?” Stoyanoff said.

St. Vincent also opened a clinic in west Little Rock in January, which was a strong ABCBS neighborhood, as a way to lure new patients.

One of the hurdles St. Vincent has had to overcome was changing physician momentum. While some doctors are loyal to St. Vincent, others are devoted to Baptist. Stoyanoff said it takes time and effort to persuade the physicians to bring their patients to St. Vincent.

And still the hospital has to deal with patient confusion.

“Even two years later, we still have to explain to people … that they can come here if they have a certain health [plan],” Stoyanoff said.

Still, St. Vincent is pleased with AWP.

“It’s always a good thing to have open competition,” she said. “And facilities will flourish or struggle even in that kind of environment.”

The Sisters of Mercy hospitals in Rogers, Fort Smith and Hot Springs also are satisfied with AWP.

“Open access and freedom of choice are good for the community, and we have not experienced any problems related to the AWP network arrangements,” Jennifer LaPerre, vice president for strategic business development for Mercy Health System of Northwest Arkansas in Rogers, said in a statement to Arkansas Business.

Baptist Health also has seen the number of its patients climb under AWP, by 2 percent, said Bob Roberts, vice president of financial services. Roberts said that as a result of AWP, the hospital is now in four new networks: Aetna, Cigna, Mercy and QualChoice.

And while some of Baptist’s former patients have received care from other hospitals, most have stayed at Baptist.

“The patients and the physicians seem to be pretty aware of where they’re able to go with their insurance,” Roberts said. “So a lot of it is still driven by patient loyalty, the facility and who’s providing the quality clinic care.”

Roberts said the Baptist hasn’t created a new strategy to attract more patients.

“[We’re] committed to providing great patient care, and that really hasn’t changed,” he said.