Dignity Health and Anthem Blue Cross of California Terminate Contract
Posted by Leslie Schafer
July 23, 2021
Effective July 16, 2021, Dignity Health is no longer an in-network provider for Anthem Blue Cross of California. Its exit from Anthem’s network could have major ramifications for prices paid by Anthem and its members for Dignity’s healthcare services.
Health care providers typically maintain a price list for health care procedures. That list is often referred to as a fee schedule or a chargemaster and the prices in it as billed charges. One goal of health plans is to manage the cost of care obtained by their members. A common tool used for this purpose is called a health care provider network. Health care providers negotiate contracts with insurers in advance of providing services, under which they agree to accept reimbursement that is below their billed charges. If an insurer and a provider don’t agree to an in-network contract, they may end up fighting about out-of-network reimbursement after the services have already been provided.
Among other reasons, providers accept lower reimbursement rates in exchange for being listed in an insurer’s directory as an approved in-network provider. Members are given financial incentives to visit an in-network provider (e.g., lower cost-sharing obligations), and the provider offers a discount in exchange for increased patient traffic resulting from the discount. This is helpful for insurers as they compete for members and for providers as they compete for patients.
How big a discount is negotiated depends, in part, on the relative bargaining power of the insurer and the provider. Anthem and Dignity are a battle of Goliaths. With more than eight million members just in California, Anthem is the largest insurer in the state. It says this contract termination could affect a million members. Dignity has the largest number of hospitals. In fact, Dignity became one of the largest non-profit health systems in the U.S. since merging with Catholic Health Initiatives (to become CommonSpirit Health) in 2019. It was just announced that CommonSpirit’s CHI Memorial Health Care System is in a similar contract dispute with Blue Cross Blue Shield of Tennessee.
As an economic matter, if health care providers accept larger discounts for their services in-network in exchange for the benefits of contracting, all else equal that means prices will be higher for services provided out-of-network. If the two parties can’t agree on a new contract, Anthem would need to convince its members to switch to new doctors and hospitals that are in its network to keep costs down.
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