Blue Cross and Blue Shield of Minnesota claims that the state's largest pediatric hospital has refused to accept payment reductions recently adopted by more than 10 other medical centers.

Children's Minnesota counters that a proposed 33 percent cut to Medicaid rates — one of the biggest sources of revenue for the hospital — would be "catastrophic" and force painful service reductions.

Those charges help explain the continuing standoff between the two medical giants, which threatens to block an estimated 70,000 patients from visiting Children's at in-network rates starting July 5.

Most contract disputes between hospitals and health plans are settled before patients see disruptions, but families that rely on Children's for care are getting nervous.

"We are having conversations with providers to set up some contingency plans," said Stacey Jenkins, 39, who has brought her 11-year-old son to Children's for years to treat problems related to epilepsy. "We can't wait until July 5th and have an issue that day and not know where to go."

Children's is the state's largest pediatric hospital, with campuses in Minneapolis and St. Paul plus 10 community clinics. In 2016, Children's posted operating income of $36 million on $880 million in revenue.

Sam Jenkins, 11, was diagnosed with epilepsy as a young child and has developmental delays. His mother, Stacey Jenkins, is worried that if Children’s can’t settle on a deal with Blue Cross, his care will be disrupted.

By contrast, Blue Cross last year posted an operating loss of $322 million on $12 billion in revenue. In part, the Eagan-based insurer blames the losses on state moves to reduce spending on Medicaid, known in Minnesota as Medical Assistance.

In March, Children's went public with the contract dispute after terminating its contract with Blue Cross. Without an agreement, Children's would become an out-of-network provider in July, meaning patients could still go to the hospital in an emergency but would pay much higher rates for scheduled care.

In April, Children's sent a letter to about 125 large employers that describes the rate cut in Medicaid, the state-federal program that covers many children from low- and moderate-income households.

Services at stake?

The proposed payment rate would be "alarmingly low," said Todd Ostendorf, Children's chief financial officer. He said it would force service cuts, including certain therapies as well as social workers who help families navigate the system. He said those cuts would harm the hospital's ability to provide comprehensive care. Ostendorf said he also doubts other hospitals agreed to absorb such large cuts.

"In February, nearly half of our patients relied on Medicaid," Bob Bonar, the Children's chief executive, wrote in the letter to employers. "As you can well understand, agreeing to this rate cut would be catastrophic to our business."

Blue Cross is offering Children's a "premium" on payment rates to recognize its unique capabilities, said Eric Hoag, vice president of provider relations. But company officials said Children's must agree to rates that are more comparable to the rest of the industry.

"We've had over 10 hospitals just in this last negotiation cycle that have agreed to take reductions and get to levels that we're asking Children's to get to," Hoag said. "Overall, we feel that when you combine our commercial and Medicaid business, we still are providing Children's with a sustainable margin."

Children's said it could quickly come to terms on a contract for patients with employer coverage, but Blue Cross insists on simultaneous negotiations on Medicaid rates. Blue Cross said it doesn't split negotiations because hospitals might sign contracts to treat those with employer coverage and skip Medicaid patients, where payment rates typically are much lower.

"We know how much anxiety and confusion exists around this issue," said Hoag, of Blue Cross. "It's putting a lot of stress on the families and frankly we're just not happy about it. That's why we are committed to getting a new agreement, working with Children's and hopefully solving this before they go out of network."

Employers not fretting yet

Employers aren't overly concerned about the dispute, said Carolyn Pare of the Minnesota Health Action Group, a coalition of large companies that sponsor health plans for workers.

The last big contract dispute between a hospital and an insurer featured Blue Cross and Minneapolis-based Fairview Health Services in late 2016. The dispute resolved shortly before a year-end deadline.

"Whenever disputes like these arise, employers pay attention," Pare said. "But I think we've gotten to the point where we see it happen so frequently, I have to tell you that employers are getting desensitized. It's kind of just all part of the game."

Feeling powerless

But parents such as Stacey Jenkins of Eagan say they can't simply take a wait-and-see attitude.

Sam, Jenkins' son, has regular contact with a variety of doctors at Children's. If there is no contract agreement, some of the physicians would charge significantly higher out-of-network rates. That's also true of the labs those doctors use.

Jenkins hates the idea of trying to find new doctors to avoid higher costs. She said Sam's physicians know his history and rely on that information when making treatment decisions. Plus, caregivers at Children's know how to deal with Sam's developmental delays, which "is a big part of what makes a successful visit," Jenkins said.

Jenkins is a volunteer at Children's and is a fan of caregivers at the hospital. But rather than taking sides in the contract dispute, Jenkins said she simply wants a speedy resolution.

"I think the difficulty is the lack of control," Jenkins said. "I can take care of Sam — on a daily basis we've figured out how to manage his needs and we know who to call. But I can't do anything about this conversation."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck