Paul Markovich, COO of Blue Shield of California, has issued the enclosed letter to customers and members in Southern California that announces an impasse in contract negotiations with UCLA Medical Center and calls on UCLA to "curtail its relentless rate increases." Also enclosed are facts and Q&A about the UCLA Medical Center contract negotiations.
To all Blue Shield of California Customers and Members in Southern California:
We regret that we have reached an impasse with UCLA Medical Center over terms for a new contract beginning in 2012. We would very much like to keep UCLA's outstanding hospitals and physicians in our network, and have negotiated in good faith for months to reach a reasonable agreement that preserves affordability for our members.
Blue Shield of California's mission is to provide all Californians with access to quality health care at an affordable price. That's why we have supported universal coverage since 2002 and advocated for federal health reform. But health reform won't succeed unless care is affordable. Government, business, labor, and individuals can no longer tolerate the current level of rate increases driven by ever higher provider costs, particularly hospital charges.
Hospital costs comprise about half of what Blue Shield pays in health care for our members. Between 2000 and 2010, these costs have roughly tripled. As a result, today you can feed a family of four for five months for the same amount it costs to spend just one night in a typical California hospital.
Blue Shield is attempting to do its part to make care affordable for our members through our commitment to voluntarily cap our annual net income at 2% of revenues and pledging to return the difference to our customers and the community. This has resulted in Blue Shield giving back nearly half a billion dollars to our customers in 2011 alone. In addition, we partner with hospitals, physician groups, and employers on accountable care organizations that provide high quality, less expensive care to 100,000 Californians.
UCLA Medical Center has made the decision to band together with four other University of California hospitals to negotiate as a group. This is a carefully orchestrated negotiating strategy that the university's own executives have described as an effort to increase bargaining leverage to obtain higher reimbursements. If successful, this tactic will give UCLA an overwhelming negotiating advantage, allowing it and the other four UC hospitals to drastically increase their charges and make care less affordable for our members. They are pursuing this strategy despite the fact that they are each clinically and financially independent.
UCLA Medical Center's rates for Blue Shield members have increased 98% since mid 2006 and its inpatient hospital charges are already 41% higher than our Southern California average. UCLA's 15% profit margin is nearly four times the statewide average for hospitals and almost eight times Blue Shield's 2% cap. Moreover, UCLA Medical Center serves a lower percentage of Medicare, Medi-Cal, and uninsured patients than other California hospitals and, therefore, faces less cost pressures than other hospitals.
Because we've capped our profits at 2%, every penny more that we have to pay UCLA and other providers ultimately must come from our customers who are already suffering. We believe UCLA Medical Center should curtail its relentless rate increases so struggling local businesses, labor groups, government agencies, and individuals don't have to pay more than they can afford. We are willing and eager to negotiate agreements with UCLA and other UC hospitals that provide a fair margin while also preserving affordability for our members.
Regardless of UCLA Medical Center's decision, we will ensure all of our members get the quality care they need and deserve. Blue Shield customers will continue to have access to more than 40 hospitals and over 17,000 physicians in the Los Angeles area.
Executive Vice President and
Chief Operating Officer
Facts and Figures (PDF 26KB)
Questions and Answers (PDF 36KB)