A contract dispute means that about 70,000 people with Blue Cross health insurance could lose in-network access starting this summer to Children’s Minnesota, the state’s largest pediatric hospital system.

Children’s announced Wednesday that it has terminated its contract with Eagan-based Blue Cross and Blue Shield of Minnesota, which is one of the state’s largest health insurers, and is mailing letters to patients that will notify them about the potential change.

Unless the parties come to an agreement, Children’s would become an out-of-network provider for Blue Cross patients as soon as July 5. That means patients could still go to Children’s in an emergency, but likely would pay much higher rates for scheduled health care.

“We’re hopeful that a new agreement can be reached, and that care and coverage is not interrupted,” said Todd Ostendorf, the chief financial officer at Children’s Minnesota, in an interview. “As it stands, we cannot accept the extreme double-digit reductions in Medicaid rates that Blue Cross has demanded … because doing so would cripple the organization and threaten the long-term financial viability of Children’s.”

Ostendorf added, “We’re talking about a massive double-digit rate cut that is just simply unheard of.”

Blue Cross said it wants discounts on the rates it pays Children’s when the health system treats patients covered by the state’s Medicaid program, called Medical Assistance.

Starting in 2016, Blue Cross and other managed care organizations in Medicaid agreed to new contracts that state officials said provided about $450 million in savings to taxpayers last year. But Blue Cross and Minnetonka-based Medica reported in November that under the new contracts, the two insurers collectively lost about $195 million through the first three quarters last year.

Medica is dropping out of its state contract as a result. Blue Cross remains, but has been seeking discounted rates from doctors and hospitals. Other health care providers are supplying the discounts, Blue Cross said, but Children’s has been unwilling.

“We are trying to bring Children’s in line with what other health systems, and what the market really is on Medicaid payment rates,” said Eric Hoag, vice president for provider relations at Blue Cross, in an interview. Blue Cross still has offered to pay “a premium to Children’s, recognizing the unique services that they provide,” Hoag said.

Medicaid is the state-federal health insurance program that covers many with incomes at or below the poverty level. In Minnesota, the program covers a large number of children in low- and moderate-income households.

The state Department of Human Services, which administers the program, recently signed contract amendments with HMOs like Blue Cross that manage care for enrollees in both Medical Assistance, or MA, and MinnesotaCare. Those amendments included a rate increase based on expected increases in health care cost trends, said Emily Piper, the DHS commissioner, in a statement.

“These increases were not made to supplement the health plans’ bottom line; rather they were made to assure that [Blue Cross] and all other plans maintain adequate networks for public health care program enrollees,” Piper said. “At this point, I need to hear from [Blue Cross] about how they plan to serve children on MA and MinnesotaCare who will no longer have access to Children’s because of their contract dispute.”

Although the contract dispute is focused on Medicaid, it would nonetheless snag individuals and employer groups with commercial coverage from Blue Cross. That’s because the health system and insurer negotiate one contract that applies to all different types of coverage.

Children’s said it decided to send letters now because Medica enrollees in the public programs will need to select a new health plan to manage their care between now and May. In many counties, an HMO from Blue Cross is one of the options.

Children’s said it has done a lot of work to control costs and provide good value to patients and insurers. Blue Cross counters that Children’s is “higher cost than the market.”

Last year, Blue Cross was embroiled in a contract dispute over payment rates with Minneapolis-based Fairview Health Services. The parties came to an agreement in December before patients faced any limits on their ability to continue care with doctors and hospitals at the Fairview system.

A contract dispute between Minnetonka-based Medica and Children’s went public in November 2014 and was settled within a few weeks. Ultimately, there was no patient impact. That also was true of a dispute between Blue Cross and Regions Hospital in St. Paul that was settled in December 2013.

Children’s says it has treated more than 73,000 Blue Cross patients since 2016, including about 54,000 in commercial plans and nearly 20,000 in Medical Assistance.

Blue Cross said the details for what “out-of-network” means for subscribers can vary. Commercial members who may choose to receive care at Children’s after July 4 still would have some level of insurance coverage — but not at the in-network level. That translates into much higher out-of-pocket costs, the insurer said. For Medicaid members, in the vast majority of cases, there are no out-of-network benefits.


Twitter: @chrissnowbeck