One of our responsibilities as a Managed Care Organization, for our mutual clients, is to strive for the highest quality health care at the lowest possible cost. As you know, Southern Health has been successful in delivering on that responsibility for many years. Over the last 18 months, Southern Health has been attempting to negotiate with the HCA Health System (HCA) to meet the goals of our contracting efforts. As a broker partner, you understand the importance of competition in the marketplace in order for employers to have viable choices in their health care options. HCA's unwillingness to negotiate an equitable contract may now threaten the competitive environment, which would limit our employer groups' opportunity for legitimate choice amongst carriers. We need to make you aware of our contracting status and efforts with HCA in the three separate contracts currently in place in Virginia. Thank you for the support you have shown us in the past; we appreciate your continued support as we work through this negotiation.
Richmond
For the last nine years, our agreement with HCA in the Richmond metropolitan area has been an annual contract, effective January of each year. From 2005 to 2008, the negotiated rate of increase for these facilities has been a rate 1% higher than the National Hospital CPI. For 2008 - 2009, HCA has made changes in their billing practices nationally that have resulted in as much as a 6% increase in claims payment to HCA for the same services billed in the prior year. This billing change, plus the contractual increase, has resulted in an increase nearly double the National Hospital CPI at 13% for like services. Even though the current reimbursements have materially outpaced the CPI, HCA's proposed increase for the 2010 contract is almost 10%, or $4 million annually for our Richmond enrollees for the same services.
We are unable to accept this continued rate of increase, particularly in light of the current economic climate, the impact on rising insurance costs, and the obvious need to do everything possible to mitigate the unabated increase in health care costs. While we are making every effort possible to resolve this issue and maintain a cost-effective contract with HCA, to date we have not been able to agree to a contract that would not have a negative impact on the Richmond community. Unless we are able to reach an agreement or extension, our contract with HCA Richmond will expire January 4, 2010.
Southwest
Unlike our arrangement in Richmond, the current contract between Southern Health and HCA has been in force since November 2002 and included incremental annual increases. Over the past few years it has become apparent that our contracted reimbursement rates with HCA have become increasingly uncompetitive in relation to the rates of other health insurance carriers in Southwest Virginia. Beginning in March 2008, we have been requesting the renegotiation of the existing contract to establish market parity with other carriers, but our requests have consistently been refused. After our renegotiation attempts were yet again rejected in April 2009, Southern Health was put in the undesirable position of having to terminate the existing contract to facilitate negotiation of a new one, effective January 4, 2010. To date, HCA has refused to negotiate a contract that would provide competitive and fair terms for our members and employer groups. Maintaining the existing agreement would simply prolong the market disparity, forcing our members to pay higher health care premiums and out-of-pocket expenses compared to non-members receiving the identical services at the same HCA facilities through other insurance carriers.
Northern Virginia
As a result of the negotiation efforts in Southwest and in Richmond, HCA has submitted a termination of the Northern Virginia contracts effective on January 4, 2010 in order to create a single negotiation of all three contracts. Our current contract with HCA in Northern Virginia has been for the PPO product only. In the past, HCA has rejected our efforts to include HMO business in the contract.
Southern Health has enjoyed a long-standing partnership with HCA in Virginia, and we sincerely hope to continue our relationship in a positive vein. We will continue to make every possible effort to negotiate fair and reasonable contracts that address cost and equity, and to provide access to quality health care facilities to our members throughout the Commonwealth of Virginia. However, if HCA continues to refuse to negotiate terms that would be acceptable to our employer groups, we will be left with the undesirable position of not having HCA facilities in the Southern Health network as of January 4, 2010.
