Texas Health, UT Southwestern agree on new contract with Blue Cross

Blue Cross Blue Shield of Texas has reached a multi-year agreement with Texas Health Resources and UT Southwestern Medical Center to keep the providers’ doctors and facilities in the network.

The contract, which has been negotiated for more than a year, ends an impasse that could have affected about 459,000 patients in the Dallas-Fort Worth area.

That’s the number receiving notices that the contract ends today, which would force many patients to switch doctors or face the prospect of much higher deductibles and copays for out-of-network care.

Texas Health and UTSW negotiated the contract through their alliance Southwestern Health Resources, also known as SWHR.

“We value the care that SWHR provides to our members,” Jim Springfield, president of Blue Cross Blue Shield Texas, said in a statement. “We stood up for our members and were able to reach a settlement in their best interest. The agreement reflects our mutual commitment to our SWHR members, clients and patients, who have access to high-quality, affordable care. As a leader in the customer-owned health insurance industry in Texas for more than 90 years, we are pleased to continue our longstanding relationship with SWHR.”

In a statement, a spokesperson for Southwestern Health said the deal allows us to “bring our highest quality care to the hundreds of thousands of patients who give us the privilege of their trust and confidence.”

Terms of the contract, including the increase in reimbursement rates, were not disclosed.

In an email to brokers last month, Blue Cross said Texas Health and UTSW are seeking a $900 million increase over the next 32 months. A Blue Cross official also said the insurer recently updated reimbursement contracts with all major health systems in North Texas — and that Texas Health and UTSW rejected a similar offer.

It’s not uncommon for insurers and providers to clash over reimbursement rates in new contracts and threaten to go their separate ways. They usually make a deal before causing major disruption to patients, and this has happened several times in the past between Texas Health and Blue Cross.

Several experts expected the parties to agree again quickly, with so much at stake.

“Both sides have too much to lose,” said Marian Fazen, executive director of the Dallas-Fort Worth Health Care Business Group, when the conflict surfaced publicly. “This market is too dynamic right now and too big – with a constant influx of new companies and people. Nobody wants to lose a business that is growing every day.”

Blue Cross said it is trying to hold the line on rising medical costs in response to pressure from both employers and members. Health care costs in Dallas-Fort Worth topped $5,600 per person in 2020 — 16 percent higher than the national median, according to the Health Care Expenditure Institute.

Suppliers countered that they were overwhelmed by high inflation and pandemic costs. Inflation is currently at a 40-year high, and the cost of labor, prescriptions and supplies “have all risen dramatically by double digits over the past three years,” the providers said.

This contract dispute stood out in part because of the size of the players. In 2015, UT Southwestern and Texas Health merged to create Southwestern Health, and this venture has even greater market power than in the past.

Southwestern Health said it is the largest provider network in North Texas with more than 5,500 physicians and clinicians, 29 hospitals and more than 650 care access points. It coordinates care for more than 730,000 patients in 16 counties in North Texas.

Last year, Texas Health had nearly 25,000 employees and $5.5 billion in operating revenue. UT Southwestern has nearly 19,000 employees and an operating budget of $4.1 billion.

Across the table was the state’s largest insurer with over 6.8 million members in Texas. Blue Cross Blue Shield of Texas has more than 8,300 employees and said it has an economic impact of $1.7 billion, including wages, benefits, taxes, charitable contributions and real estate costs.

“It’s a battle of the titans,” said Britt Berrett, a former senior executive at Texas Health Resources, as the contract battle escalated.

Southwestern Health said it has been negotiating with Blue Cross since July 2021. Although officials declined to confirm they were seeking a $900 million increase, they suggested the figure was only part of the negotiation process.

“In negotiations, one side always starts high and the other side starts low, and you move together in some way,” Chief Marketing Officer Darin Szilagyi wrote in an email. “We want an increase well below the inflationary pressures that we are all experiencing.”

While some said the requested increase was shockingly large, others pointed out that Texas Health and UTSW have the largest health care footprint in the region. They generate billions in annual revenue from Blue Cross patients.

“Thousands of North Texas patients trust our doctors and caregivers with their health every day — that’s millions of visits each year,” Szilagyi wrote.

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