CHI St. Luke's Hospital at The Vintage

A local hospital is once again feuding with a health insurance company over a pricing dispute. The details are complex but the stakes are clear. Thousands of patients who expect to be able to use their insurance to cover medical treatment at Houston’s major hospitals could lose a major option.

CommonSpirit Health, the parent organization of CHI St. Luke’s, is set to terminate its contract with Blue Cross Blue Shield of Texas on Dec. 16 in a pricing dispute. A Blue Cross representative stated that CHI St. Luke’s is asking for “egregious” price increases. CHI St. Luke’s indicated that it is asking for “… rates that enable us to preserve access and care to critical health services for the patients we serve …”

According to the available data, CHI St. Luke’s is the lowest cost of the three large hospital systems in Houston. If contract negotiations fail, the higher costs of the remaining providers in the Blue Cross Blue Shield plans may be passed on to employers and individuals.

As Houston slowly makes its way toward the end of the pandemic, the terms of business have changed. Large buyers of health care must think harder than ever about steering their insured patients toward the most cost-effective, high-quality providers. In this case, however, CHI St. Luke’s may be justified in its demand for a rate increase this year, because it charges so much less than its competitors that it cannot cover its costs.

Texas insurers are not required to share information on the prices they negotiate with hospitals, so it is difficult for outside observers to determine whether CHI St. Luke’s is being underpaid or overpaid relative to its competitors. We do have an alternative source of data.

The Houston Business Coalition on Health has partnered with a small (but growing) number of Houston employers to share their claims data with the RAND Corporation to improve hospital price transparency. RAND researchers pool these claims to compute standardized prices for outpatient and inpatient care at individual hospitals. The two other large hospital systems in Houston are Houston Methodist and Memorial Hermann Health System. All three systems have high-quality, nationally recognized health care programs. CHI St. Luke’s had the lowest prices. Standardized outpatient prices from 2016 through 2018 for CHI St Luke’s, Memorial Hermann and Methodist were $178.50, $287.52 and $319.14 respectively. Standardized inpatient prices for these three hospitals (in the same order) were $16,479, $17,525 and $20,330.

The bottom line is simple. Cutting out the cheapest hospital system could raise costs.

Removing CHI St. Luke’s from the Blue Cross Blue Shield network could raise the average cost per insuree as patients seek care from the former’s higher-priced competitors. Higher spending puts pressure on insurance premiums in future years, which must be raised to cover costs. The RAND data suggests that Blue Cross Blue Shield has some room to raise the prices it pays to CHI St. Luke’s, which could hold down overall costs for Blue Cross Blue Shield customers.

One could counter that rather than ask for a higher reimbursement from insurers, CHI St. Luke’s needs to instead lower its expenses and operate more efficiently. Perhaps the organization needs to do so, but CHI St. Luke’s appears to charge the lowest prices of the three main nonprofit health care systems in Houston. Furthermore, CHI St. Luke’s negative net income suggests that it would have suffered the greatest financial pressures from the ongoing coronavirus pandemic.

Houston benefits from three major health care systems in the Texas Medical Center. Causing the lowest-cost major provider to abruptly lose a significant portion of its revenue over a contract dispute in the midst of a pandemic is disruptive to patients and may harm the long-term competitiveness of the Houston health care market.

Ho is a health economist at Rice University’s Baker Institute for Public Policy.

For the last 2½ years, a Dallas couple has battled the fraudulent credit card charges that upended their lives and clouded their financial future.