behind the scenes, idaho hospitals and insurers fight for pricing power

3
Idaho Statesman IDAHO STATESMAN: A McClatchy Newspaper, 1200 N. Curtis Road, Boise, ID • P.O. Box 40, Boise, ID 83707 • (208) 377-6200 • © 2015 Idaho Statesman, Vol. 150, No. 345, 5 sections, 44 pages REFERENDUM COULD HAVE FAR-REACHING EFFECTS IN GREECE A9 PARTLY CLOUDY 96° / 66° SEE A15 INSIDE TODAY A NEWS Catching Up A2-3 | Idaho and Western news A4-8 | Local news A6 | Idaho History A7 | Nation/World A9-14 | Weather A15 D DEPTH Robert Ehlert D1 |Opinions D4-8 | Letters to the Editor D5 | Editorial cartoon D5 | Guest Opinions D8 E EXPLORE Tim Woodward E1 | TV E2 | Carolyn Hax E3 | Horoscopes & puzzles E3 | Books E4 | Religion E5 | Calendars E5 | Obituaries E8-9 S SPORTS Boise Open S1 | The Bottom Line S2 | SportsTV/Radio S2 | Pro Sports S4 | Scoreboard S5 WOMEN’S WORLD CUP U.S. soccer seeks revenge against Japan SPORTS, S1 IDAHO MOMENT PROFOUND PROJECT A Boise woman makes connections with passersby while painting on the street EXPLORE, E1 ROBERT EHLERT The biggest health issues facing Idaho DEPTH, D1 Dr. Jamie Ricks D.C. 2031 E. Hospitality Ln. Ste 150 • Boise, ID CALL 336-2225 ACT FAST - CALL NOW! Live Pain Free INSTANT RELIEF POSSIBLE WITH LASER THERAPY! *excludes federally funded programs, auto accidents, & worker’s compensation.Patients with these are eligible for a consult & demonstration for a nominal fee.New patients only. The first 10 candidates will receive… FREE Initial Pain Evaluation, FREE Explanation & Diagnostics of your Problem Including aTreatment Plan FREE TWO(2) LASER AND/OR SPINAL DECOMPRESSION TREATMENTS Lasers Relieve Pain! Try this revolutionary treatment and see for yourself! LASER TREATMENT FOR PAIN ASSOCIATEDWITH: Herniated and Bulged Discs Spinal Stenosis • Arthritis Pain Failed Back Surgery Car Accident Injuries/Whiplash Carpal Tunnel • Headaches • Sciatica Shoulder Pain • Plantar Fasciitis 1605996-01 Above, fireworks light up the sky over the water Saturday night in Ann Morri- son Park, which hosted Fourth of July festivities throughout the day. See photos and results from the annual Chalk Art Festival in the park A2 Find more photos from Ann Morrison Park and from the We the People Liberty Parade in Downtown Boise A6 and IDAHOSTATESMAN.COM FOURTH OF JULY Reflecting on freedom KYLE GREEN / [email protected] Idaho’s largest health care provider, St. Luke’s Health System, and the state’s largest health insurer, Blue Cross of Idaho, spent weeks in federal court in 2013 during a trial over St. Luke’s purchase of a Nampa medical practice. Akey question was whether St. Luke’s was grabbing so much of Nampa’s health care market that it could dominate negotiations with insur- ance companies. The Idaho Statesman, joined by other Idaho news organizations, sued for access and won the release of more than 8,000 pages of records. Among them were documents that reveal what happens behind the scenes when St. Luke’s and Blue Cross decide on pay- ments for patient care. Business reporter Audrey Dutton spent four months re- viewing documents and testimony from the trial. This is the second story about what she found. DEPTH, D1 HOSPITAL BILLS CLASH OF THE TITANS INSIDE OUR HOSPITALS What the St. Luke’s antitrust trial documents show Opinions vary on how to help Idaho’s ana- dromous fish, but the drop in salmon and steelhead populations is clear. NEWS, A4 ENDANGERED SALMON THE INSURMOUNTABLE RIVER JOURNEY ANIMAL ESCAPE Wandering tortoise reunited with Post Falls owner NEWS, A7 The columnist reflects on his ability to leave shoes in the refrigerator and a library book lying in the road — more than once. “It’s remarkable, and more than a little annoying,” he writes. EXPLORE, E1 TIM WOODWARD How to lose anything Police departments are rethinking guidelines for everything from making arrests to inter- acting with the public. The changes are making some veteran officers uneasy. DEPTH, D1 LAW ENFORCEMENT ‘DE-ESCALATION’ SKEPTICS SUNDAY EDITION $2 JULY 5, 2015 Hillcrest Country Club is preparing to host this week’s Web.com Tour event. But the hot, dry conditions add difficulty to getting the fairways and greens ready for competition, which begins Thursday. S1 BOISE OPEN COURSE BATTLES HEAT

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Page 1: Behind the scenes, Idaho hospitals and insurers fight for pricing power

Idaho Statesman

IDAHO STATESMAN: A McClatchy Newspaper, 1200 N. Curtis Road, Boise, ID • P.O. Box 40, Boise, ID 83707 • (208) 377-6200 • © 2015 Idaho Statesman, Vol. 150, No. 345, 5 sections, 44 pages

REFERENDUM COULD HAVE FAR-REACHING EFFECTS IN GREECE A9

PARTLYCLOUDY

96° / 66° SEE A15

INSIDE TODAYA NEWS Catching Up A2-3 | Idaho and Western news A4-8 | Local news A6 | Idaho History A7 | Nation/World A9-14 | Weather A15

D DEPTH Robert Ehlert D1 |Opinions D4-8 | Letters to the Editor D5 | Editorial cartoon D5 | Guest Opinions D8

E EXPLORE Tim Woodward E1 | TV E2 | Carolyn Hax E3 | Horoscopes & puzzles E3 | Books E4 | Religion E5 | Calendars E5 | Obituaries E8-9

S SPORTS Boise Open S1 | The Bottom Line S2 | SportsTV/Radio S2 | Pro Sports S4 | Scoreboard S5

WOMEN’S WORLD CUP

U.S. soccerseeks revengeagainst Japan

SPORTS, S1

IDAHO MOMENT

PROFOUND PROJECTA Boise woman makes

connections with passersby while painting on the street

EXPLORE, E1

ROBERT EHLERT

The biggesthealth issuesfacing Idaho

DEPTH, D1

Dr. Jamie Ricks D.C.

2031 E. Hospitality Ln.

Ste 150 • Boise, ID

CALL 336-2225 ACT FAST - CALL NOW!

Live Pain Free INSTANT RELIEF POSSIBLEWITH LASER THERAPY!

*excludes federally funded programs, auto accidents, & worker’s compensation. Patients

with these are eligible for a consult & demonstration for a nominal fee. New patients only.

The first 10 candidates will receive…

FREE Initial Pain Evaluation,

FREE Explanation & Diagnostics of your Problem Including a Treatment Plan

FREE TWO(2) LASER AND/OR SPINAL DECOMPRESSION TREATMENTS

LasersRelievePain!

Try this revolutionary

treatment and see

for yourself!

LASER TREATMENT

FOR PAIN ASSOCIATED WITH:

Herniated and Bulged Discs

Spinal Stenosis • Arthritis Pain

Failed Back Surgery

Car Accident Injuries/Whiplash

Carpal Tunnel • Headaches • Sciatica

Shoulder Pain • Plantar Fasciitis

1605996-01

Above, fireworks light up the sky over the water Saturday night in Ann Morri-

son Park, which hosted Fourth of July festivities throughout the day.

ä See photos and results from the annual Chalk Art Festival in the park A2

ä Find more photos from Ann Morrison Park and from the We the People

Liberty Parade in Downtown Boise A6 and IDAHOSTATESMAN.COM

FOURTH OF JULY

Reflecting on freedom

KYLE GREEN / [email protected]

Idaho’s largesthealth care provider,St. Luke’s HealthSystem, and thestate’s largest healthinsurer, Blue Crossof Idaho, spentweeks in federal court in 2013 during atrial over St. Luke’s purchase of a Nampamedical practice. Akey question waswhether St. Luke’s was grabbing so muchof Nampa’s health care market that itcould dominate negotiations with insur-ance companies. The Idaho Statesman,joined by other Idaho news organizations,sued for access and won the release ofmore than 8,000 pages of records. Amongthem were documents that reveal whathappens behind the scenes when St.Luke’s and Blue Cross decide on pay-ments for patient care. Business reporterAudrey Dutton spent four months re-viewing documents and testimony fromthe trial. This is the second story aboutwhat she found. DEPTH, D1

HOSPITAL BILLS

CLASHOF THETITANS

INSIDE OUR

HOSPITALS

What the St. Luke’s

antitrust trial

documents show

Opinions vary on how to help Idaho’s ana-dromous fish, but the drop in salmon andsteelhead populations is clear. NEWS, A4

ENDANGERED SALMON

THE INSURMOUNTABLERIVER JOURNEY

ANIMAL ESCAPE

Wandering tortoise reunitedwith Post Falls owner NEWS, A7

The columnist reflects on his ability to leave shoesin the refrigerator and a library book lying in theroad — more than once. “It’s remarkable, and morethan a little annoying,” he writes. EXPLORE, E1

TIM WOODWARD

How to lose anythingPolice departments are rethinking guidelinesfor everything from making arrests to inter-acting with the public. The changes are makingsome veteran officers uneasy. DEPTH, D1

LAW ENFORCEMENT

‘DE-ESCALATION’ SKEPTICS

SUNDAY EDITION

$2 JULY 5, 2015

Hillcrest Country Club is preparing to hostthis week’s Web.com Tour event. But thehot, dry conditions add difficulty to gettingthe fairways and greens ready for competition, which begins Thursday. S1

BOISE OPEN

COURSE BATTLES HEAT

Page 2: Behind the scenes, Idaho hospitals and insurers fight for pricing power

D OPINIONS D4-8 • LETTERS TO THE EDITOR D5 SUNDAY, JULY 5, 2015

Depth

On the surface, 2014 and thefirst half of 2015 have beenan amazing time consid-

ering the number, variety andseverity of public health issues theCentral District Health Depart-ment has encountered.

District Four of the sevenaround the state — which coversthe 450,000 Idahoans in Ada, Boise,Elmore and Valley counties — hasconfronted two very serious salm-onella outbreaks, the bubonicplague (only in animals so far andmostly in Canyon County), WestNile virus, E. coli, norovirus, risingrates of sexually transmitted dis-ease and a nasty thing called cryp-tosporidium, a waterborne diseasecaused by contaminated drinkingwater or recreational water.

The first salmonella outbreakgot a lot of people sick and result-ed in the closing of the Pho Tamrestaurant in Boise. The second,linked to food served at the BoiseCo-op deli, sickened hundreds —the largest food-borne outbreak inIdaho history. Though some salm-onella strains in these cases areknown, it remains unknown exact-ly what circumstances led to thefood products — including turkey,tomatoes and onions in the Co-opcase — becoming contaminated.

These facts and trends wereamong the things the StatesmanEditorial Board learned during ourrecent visit with CDHD DirectorRussell Duke, and his colleague,Kimberly Link, epidemiologyprogram manager.

Ihave always been fascinatedwith the work of local, state andnational public health organiza-tions, ever since reporting in Min-nesota years ago on subjects liketoxic shock syndrome and graveillnesses experienced nationwidelinked to a tainted L-tryptophanfood supplement.

The more I learned aboutCDHD and its broad, comprehen-sive approach to public health —that it employs 160 and operateswith a $10 million budget — themore it became clear these “head-line” crises are cause for concernoccasionally and seasonally, butmost of us won’t be victims. Wewould be better off to considerhealth strategies that take aim atkiller diseases and trends we cando something about.

So I asked Duke to let Idahoansknow what he and his staff thoughtare the major health issues Ida-hoans should focus on. Followingare excerpts of his group’s re-sponse.

OBESITYSixty-three percent of Idaho

adults are either overweight or

Idaho health beyond theheadlines

8READ THE CDHD’S FULLRESPONSE ABOUT

HEALTH IN IDAHOIdahoStatesman.com

See HEALTH, D3

SEATTLE — Officer Corey Pa-pinsky was recently showing agroup of Seattle police officers howto reduce the chance of using forceagainst a citizen during a suddenlyantagonistic encounter.

Approaching a civilian withyour hands on a weapon or making

too much eye contact with some-one could unnecessarily escalate asituation, Papinsky said. “Keepyour hands visible at all times,” headvised.

But he faced a tough crowd. “Itseems good advice for the suspect,”one officer said. “We want to seetheir hands.”

Another officer had a differentapproach.

“Last week, there was a guy in acar who wouldn’t show me hishands,” the officer said. “I pulledmy gun out and stuck it right in his

nose, and I go, ‘Show me yourhands now!’ That’s de-escalation.”

Across the country, police de-partments from Seattle to NewYork and Dallas to Salt Lake Cityare rethinking notions of policingthat have held sway for 40 years,making major changes to how offi-cers are trained in even the mostquotidian parts of their work.

The changes that departmentsare considering include revisingcore training standards and tactics,

LAW ENFORCEMENT

RUTH FREMSON / The New York Times

Seattle police officers participate in a hostage situation simulation inMay. Police departments around the country are rethinking notions ofpolicing, at the forefront of which are de-escalation tactics that policeuse to defuse potentially violent encounters.

Nation’s police force skeptical of new ‘de-escalation’ training

The use-of-force guidelinesare making some veteranofficers feel uneasy.

BY TIMOTHY WILLIAMS

NEW YORK TIMES NEWS SERVICE

See POLICE, D3

If you went to St. Luke’s Re-

gional Medical Center in

Boise for a knee replacement,

you would get a bill showing

$76,000 in charges. But if you

had the Idaho Statesman’s in-

surance plan through Aetna,

the hospital would have

knocked that charge down to

$49,000 — and Aetna would

calculate your out-of-pocket

cost based on that price.

If you instead went to St.

Luke’s Magic Valley Regional

Medical Center in Twin Falls, you would get a bill

with $61,000 in charges. But don’t think you would

be saving $15,000 just by driving a couple of hours.

Aetna’s negotiated rate with that hospital is $53,000

— $4,000 more than in Boise.

Based on the Aetna cost estimator — which cautions usersthat its numbers are just estimates — the negotiated discountsfor a knee replacement at hospitals in South and SouthwestIdaho range from 12 percent to 35 percent. For a routine child-birth, with no Caesarian section or complications, the dis-counts range from 40 percent to 59 percent.

Why such a difference? There are a handful of reasons, but

HOSPITAL BILLS

A battle for dominanceand pricing power

KYLE GREEN / [email protected]

St. Luke’s Health System acquired the Orthopedic Surgery Center of Idaho in Boise in late 2009, along with another surgical practice. Thepurchase and subsequent price increases from St. Luke’s ignited a billing dispute over millions of dollars.

Behind the scenes, tensions burnbetween St. Luke’s Health System

and Blue Cross of Idaho

BY AUDREY DUTTON

[email protected]© 2015 Idaho Statesman

8READ PREVIOUSARTICLES IN

THIS SERIESIdahoStatesman.com

See PRICING, D2

2010

2011

DECEMBER 2009JANUARY 2010

MAY 2010

MARCH 2011

FEBRUARY 2010

OCTOBER 2010

APRIL 2011

St. Luke's buys two surgical centers.

St. Luke's signs a contract with Blue Cross that dictates how much Blue Cross will pay St. Luke's for treatment at one of the centers.

Blue Cross says St. Luke's should have disclosed that it bought the other surgical center and was going to start billing a lot more for it. Because of that, Blue Cross withheld $2.6 million of payments from St. Luke's since May.

Blue Cross agrees to pay St. Luke's half of the disputed charges — $1.6 million.

St. Luke's says Blue Cross owes $3.2 million for 1,093 claims. Blue Cross argues that amount is actually $2.9 million. But the insurance company makes a partial payment of about $800,000 at the health system's request.

St. Luke's starts billing Blue Cross for the other surgical center, at the higher hospital-run rate.

St. Luke's officials meet and exchange emails with Blue Cross of Idaho officials about one of those purchases.

ST. LUKE’S BUYS TWO SURGICAL

CENTERS – AND RAISES THEIR FEES

INSIDE OUR

HOSPITALS

What the St. Luke’s

antitrust trial

documents show

MORE INSIDEHow a hospital system and a healthinsurer negotiated rates D2

Plus, more about St. Luke’s and BlueCross’ comments D2

Who will be the first announced candidate todrop out of the 2016 presidential race?

JOIN THE CONVERSATION AT FACEBOOK.COM/IDAHOSTATESMAN

Eyes on Idaho

ROBERT EHLERT

Page 3: Behind the scenes, Idaho hospitals and insurers fight for pricing power

D2 l SUNDAY, JULY 5, 2015 IDAHO STATESMAN l IDAHOSTATESMAN.COM

once-secret documents re-leased after a successful anti-trust lawsuit against St.Luke’s Health System showthat power struggles andcompetition are two bigones.

Hospitals have contractswith health insurance com-panies. The insurer agrees topay the hospital a certainamount on your behalf. Thehospital wants the most itcan get from the insurancecompany, and the insurerwants to pay as little as pos-sible.

Both sides use negotiatingtactics to get what they want.The outcome can determinewhether you pay $20 moreeach month in insurance pre-miums or $2,000 more for asurgery.

Documents from the fed-eral antitrust lawsuit liftedthe curtain on those negotia-tions. They detail the strate-gies used by hospitals and in-surance companies, includ-ing Idaho’s largest and mostpowerful health care organi-zations: St. Luke’s and BlueCross of Idaho.

The Idaho Statesman ob-tained the documents latelast year through a lawsuit,joined by several media or-ganizations, to open whathad been a mostly closed-door trial between St. Luke’sand the Federal Trade Com-mission, the Idaho attorneygeneral and St. Luke’s com-petitors Saint AlphonsusHealth System and TreasureValley Hospital. The plain-tiffs argued that St. Luke’s ac-quired near-monopoly pow-er over primary care in Nam-pa when it bought Nampa’sSaltzer Medical Group in2012.

The FTC and other plain-tiffs also said St. Luke’s wouldhave too much bargainingpower over Idaho insurancecompanies if it owned Saltz-er, giving St. Luke’s up to 80percent of the Nampa pri-mary-care market.

“I would argue that (insur-ance negotiation is) one ofthe big impetuses for a lot ofthe mergers and acquisitionsthat are taking place today,”said Paul Levy, a former Bos-ton hospital CEO who nowwrites about the health careindustry and advises hospi-tals and medical schools.

“Now, often these hospi-tals that are doing thesemergers and acquisitions ar-gue that they’re doing it forthe benefit of better patientcare. They say, ‘We will bebetter able to manage careacross the continuum of care— primary, secondary, tertiary, rehabilitation andeverything else ... and we’llhave electronic medical re-cords,’ ” Levy said. “Andthere’s an element of truth inthat. But underlying it is abusiness proposition, whichis they want to get big enoughto get better rates.”

THE POWER STRUGGLES

About six years ago, St.Luke’s and Blue Cross of Ida-ho were wrangling overwhat the insurance companyshould pay whenever a BlueCross patient went to a hos-pital owned by the Boise-based system.

St. Luke’s threatened topull its Ketchum hospital —the only one in that region ofIdaho — out of Blue Cross ofIdaho networks “if we do notdramatically increase therates at this facility,” accord-ing to Blue Cross internaldocuments.

When a patient goes to an“out of network” hospital ordoctor, the bill from that visitcan be twice as expensive.Losing a large system like St.Luke’s from its networkwould have damaged BlueCross of Idaho’s ability tocompete with other insur-ance companies.

“Size matters,” Levy said.“And the objective of manyhospitals and hospital sys-tems is to get sufficiently bigin a given geographic area sothat you have leverage overthe insurance company —because if you’re big enough,the insurance companyneeds your facilities in theirnetwork, because if theydon’t have your facilities intheir network, they can’t selltheir product to the employ-ers in town or the individualsin town.”

That was a central themeof the trial: If St. Luke’s em-ployed too many doctors, itsopponents argued, it couldhamstring its competitorsand erode the power of in-surance companies to nego-

tiate lower rates.The lawsuit was a boiling-

over of tensions that hadbeen simmering for years asSt. Luke’s bought hospitalsand formerly independentclinics across southern Ida-ho.

St. Luke’s has argued con-sistently that its goal is to cre-ate a system with a single vi-sion and the girth to achievebetter health care, lowercosts for consumers and ahealthier community.

Levy noted that acquisi-tions are happening acrossthe country, encouraged by amove toward total-cost-of-care payments that rewardhealth care providers forcooperating with each other.

“They actually do not cutcosts,” Levy said. “They arecarried out in great measureto have leverage over the in-surance companies, andthen the rates go up. Now, it’sreally hard to feel sorry for aninsurance company, ofcourse. If you say, ‘I feel sorryfor Blue Cross,’ you feel a lit-tle nauseous. The truth is,they want to do the samething on their side. ... The in-surance company wants tobe big enough to lord it overthe hospitals. ... That’s justthe nature of commerce.”

The trial records showthat St. Luke’s went into ne-gotiations for its 2010 con-tracts with a proposal forBlue Cross: Pay 12 percentmore when Blue Cross mem-bers got medical care at St.Luke’s Ketchum hospital.

Blue Cross had started thebidding at 5 percent. The twowent back and forth, eventu-ally settling on 8 percent.

How did the two power-houses of Idaho health carearrive at that number?

“You start in a place that isideal for you, and figure outwhere in the middle you’rewilling to go, and to some ex-tent in these kinds of rela-tionships, (a) bilateral mo-nopoly, it’s whoever blinksfirst more than anythingelse,” said Deborah Chollet,senior fellow at Mathemati-ca Policy Research, a NewJersey company, where she isaresearcher in private healthinsurance.

The easier it is for eitheran insurer or health systemto get fed up and walk awayfrom a negotiation becauseother options exist in themarketplace, the easier it isto get what it wants. Walkingaway “turns out to be harderfor the health system to dothat than it is the payer, typ-ically,” Chollet said.

St. Luke’s internal docu-ments talk about wanting toget the highest paymentspossible from insurers.

When asked about that, aBlue Cross executive said, “Ithink that sets up the dynam-ic well” for the negotiationsbetween the two companies.

St. Luke’s Chief FinancialOfficer Jeff Taylor took issuewith the Statesman high-lighting one set of negotia-tions as an example of howSt. Luke’s and Blue Crosshave done business.

“To isolate one single hos-pital may take things a littleout of context,” he said.

NEGOTIATIONS

‘MAY GET UGLY’

A year after the Ketchumnegotiations, St. Luke’s exec-utives turned their attentionto 2011 contracts, both sys-temwide and for individualhospitals or regions. They

wanted single-digit raises fortheir Boise, Meridian andMagic Valley hospitals —and they wanted to start set-ting payment rates as a sys-tem instead of going hospital

by hospital.They expectedpublic blow-back from BlueCross of Idaho.

“Luke’s mustbe prepared towalk away, mayget ugly,” Taylor

told other hospital leaders,according to minutes of aninternal meeting in Septem-ber 2010.

Blue Cross of Idaho “willdefinitely go public, Luke’s(needs) to prepare. Bethshould be involved,” he said.

Taylor was referring toBeth Toal, the chief of publicrelations and media for thehealth system. The execu-tives talked about public re-lations playing a role, be-cause, they said, Blue Cross

of Idaho “will say Luke’s isunreasonable.”

Around the same time, aseparate power struggle en-sued.

St. Luke’s was on an acqui-sition streak. It had pur-chased two surgical centersin Boise at the end of 2009,designating at least one ofthem as a hospital facility andbilling services to Blue Crossat higher, hospital-based,rates. Blue Cross did not takekindly to this development.

There were more than1,000 surgery center claimsbilled as though they hadhappened in a hospital, re-sulting in overpayment of ei-ther $2.9 million or $3.2 mil-lion, according to internaldocuments.

Blue Cross said the hospi-tal system was operating inbad faith and withheld $2.6million of payments.

The two businesses met inJune 2010 to talk out their dis-pute. Blue Cross “initiated

the discussion with an expla-nation that St. Luke’s pur-chase of the two surgery cen-ters and subsequent billingof those services as (a) de-partment of the hospital is amajor cost increase for ourpolicyholders,” according tominutes from that meeting.

It took almost a year toreach an agreement, but anApril 2011 settlement docu-ment suggests Blue Crossagreed to pay $1.6 million, orhalf of the disputed charges.

“We value our relation-ship with Blue Cross and ar-rived at the settlementwhere it was basically sharedequally,” Taylor said in an in-terview. “They want to makesure they’re paying appro-priate and valid (amounts),so they would use their pay-ment structure as leverage toget what they want.”

THE NEW REGIME?

Taylor said the adversa-rial nature of negotiations —one side trying to get themost money possible, theother side trying to give upthe least money possible — isafunction of the old model ofhealth care.

Around the time of thesenegotiations, St. Luke’s wasmoving toward a model itsexecutives say rewards boththe insurer and the hospitalfor bending the cost curve ofhealth care.

According to the docu-ments, Blue Cross of Idahowanted to pursue that kind ofarrangement for years withSt. Luke’s. But the two busi-nesses couldn’t agree onterms.

St. Luke’s found a partnerin another insurer.

In 2012, St. Luke’s an-nounced it had created a re-lationship with SelectHealth, an insurance compa-ny based in Utah. St. Luke’swould move its workforce ofmore than 10,000 to a SelectHealth insurance plan, builton a network that consistedmostly of St. Luke’s. Thatwould help Select Health se-cure a foothold in Idaho’s in-surance market. SelectHealth would pay St. Luke’s acertain amount of money to

cover everyone with that in-surance plan, and if St. Luke’swas efficient with that mon-ey, it could keep what hadn’tbeen spent.

This announcementalarmed ZeldaGeyer-Sylvia,the CEO of BlueCross of Idaho.

She wrote in aletter to BlueCross boardmembers that“this recent de-velopmentcould potentially result insignificantly better reim-bursement rates for St.Luke’s, presenting additionalchallenges for BCI, particu-larly given the large numberof provider acquisitions se-cured by St. Luke’s over thepast two years.”

Blue Cross should be care-ful — when negotiating itspayment rates for St. Luke’s— not to agree “to higherprovider rates (that) wouldessentially subsidize thesenew products and could ad-versely impact BCI’s com-peting products,” she wrote.“We need to be careful not tosubsidize their new businessventure. ... ”

Geyer-Sylvia declined tobe interviewed. Dave Jeppe-sen, Blue Cross’s senior vicepresident of sales and mar-keting, said thecompany viewscompetition as“a good thing.”

“It makes usbetter as an or-ganization, andit makes themarket better interms of driving better costto members and the marketin general,” he told theStatesman. “I don’t think anycompany is thrilled when acompetitor comes in.”

Taylor, meanwhile, elabo-rated on why St. Luke’s de-cided to develop its new in-surance model with SelectHealth instead of Blue Cross.

“Blue Cross of Idaho hadroughly 60 to 65 percent ofthe market” at the time, Tay-lor told the Statesman. “Overan extended period of time,(Blue Cross has) enjoyed ...some of the lowest rates inthe market, partly because oftheir size.”

And as a result of its part-nership, St. Luke’s and SelectHealth now “have close to75,000” customers under theumbrella of that contract, eli-gible to go to a network ofmostly St. Luke’s hospitalsand doctors.

Taylor said the relation-ship has paid off. SelectHealth in its third year is of-fering Idaho consumers low-er year-over-year rate in-creases than “has historical-ly been presented in the mar-ket,” he said.

Select Health has retained99 percent of its customers,Taylor said.

Taylor said St. Luke’s goalis to eventually have thesame kind of total-cost-of-care contract with all otherIdaho insurers.

“We believe the paymentmodel needs to change, andwe also are willing to take ac-countability for a global(health care) budget,” hesaid. “Select Health, based onmy interaction, is very happywith our relationship, andwe look at it over a long per-iod of time, and we believethis model will be beneficialfor the entire community in-to the future.”

Levy, the former Bostonhospital CEO, is skeptical. Sois Chollet, the health insur-ance researcher, who said St.Luke’s and Select Health areon the business equivalent ofa first date.

“Let’s say you bring in thatinsurance company andmake it a partner of yours,and the insurer starts to sellproducts with a limited net-work,” Levy said. “Thenyou’ve locked in your cus-tomer base for years tocome.”

Audrey Dutton: 377-6448;

Twitter: @IDS_Audrey

PRICING

CONTINUED FROM D1

DARIN OSWALD / Idaho Statesman file

Blue Cross of Idaho became part of a lawsuit against St. Luke’s Health System over its purchase of a large physician groupin Nampa. Despite the insurer’s contention that its information should not be open to the public, a judge ordered therelease of Blue Cross memos, internal records and data after the trial.

10/08 12/08 2/09 8/09 10/09 1 2/09

0.00%

2%

4%

6%

8%

HOW A HOSPITAL SYSTEM AND HEALTH INSURER NEGOTIATED RATES

Blue Cross of Idaho and St. Luke’s Health System have contracts that spell out how much money Blue Cross pays St. Luke’s when a patient with Blue Cross insurance goes to a St. Luke’s hospital. The two Idaho health care giants went back and forth in fall 2008 and fall 2009, trying to agree on annual payment increases. In 2008, the final number was closer to what Blue Cross wanted. In 2009, the final number was exactly halfway between what St. Luke’s and Blue Cross wanted.

Blue Cross of Idaho

St. Luke’s

Proposed rate increase

to St. Luke’s, systemwide

Source: Lawsuit records. Research: Audrey Dutton. Graphic: Lindsie Bergevin

Final rate:

5.66%

Final rate:

5.01%

AUDREY DUTTON

Audrey read hundredsof documents releasedfrom the St. Luke’s anti-

trust law-suit. She fellasleepmid-page at1 a.m. morethan once,but she

delighted in getting anunprecedented lookbehind the scenes ofIdaho’s health careindustry.

ABOUT ST. LUKE’S AND BLUE CROSS’

COMMENTS

For this story, St. Luke’s executives agreed to interviewsboth with and without a public-relations manager pre-sent. The Statesman conducted three interviews with St.Luke’s Chief Financial Officer Jeff Taylor, who was directlyinvolved with the insurance-negotiation process.

Blue Cross of Idaho declined the Idaho Statesman’srequests to interview its executive in charge of insurancenegotiations, Jeff Crouch, and its CEO, Zelda Geyer-Sylvia, who are among the few people with close know-ledge of the emails, meetings and other documents ajudge ordered Blue Cross to release to the public.

“We felt it was better from a business perspective tonot have (Crouch) take the interview,” said Dave Jeppe-sen, senior vice president of sales and marketing.

Added Blue Cross of Idaho spokesman Josh Jordan:“His role in the case puts him in a unique position, be-cause of his responsibilities here at Blue Cross and hisclose working relationship with the providers and hospi-tals throughout the state, including St. Luke’s. Wewouldn’t want to give the impression that Jeff had any-thing ... in regard to feeling bad.”

Instead, three members of the Blue Cross of Idahomarketing and public-relations team fielded questionsfrom the Statesman.

Jeppesen answered many of the questions with state-ments along the lines of: “We are a not-for-profit, tax-paying mutual health insurance company, and our pri-mary goal is to provide the best access possible to ourmembers, which means having as many hospitals andproviders as possible at the best rate possible.”

Audrey Dutton

Jeff

Taylor

Dave

Jeppesen

Zelda

Geyer-

Sylvia