ASHEVILLE – Mission Health and the state's largest private health insurer say they have been unable to agree on a contract, raising the possibility of higher costs for care for thousands of Western North Carolina residents.

Mission said it notified Blue Cross Blue Shield of North Carolina on Wednesday that it was terminating its contract effective Oct. 5, after six months of negotiations yielded no progress.

If the two sides can't reach an agreement, it would mean people insured by BCBSNC would have to go elsewhere for care or pay more expensive out-of-network rates. An exception would be emergency care, which BCBSNC says it would continue to pay for at in-network rates.

Mission Health operates six hospitals in the region, plus outpatient and surgery centers, and other health care providers including physician practices. Physician services would not be affected until March.

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Mission says the contract BCBSNC has offered would essentially result in no increase in payments for three years at best. BCBSNC says Mission charges its customers more than many other health systems do.

The two sides have wrangled over similar issues before.

BCBSNC announced in November 2001 that it did not expect to have a contract in place by the end of the year because Mission was asking for an increase the insurer considered unreasonable. The two, both nonprofit organizations then and now, came to an agreement the next month.

Mission Health said in a statement that it hopes Wednesday's notice will "bring needed focus to our discussions. ... Providing notice of our intent to terminate is a routine course of business between an insurance company and a provider during negotiations."

A statement from BCBSNC refers to a breakup as virtually an established fact.

"We are disappointed that Mission Health chose to cancel its contract with us rather than work toward a solution to keep health care and health insurance as affordable as possible for our customers in Western North Carolina," said Mark Werner, vice president of provider network at BCBSNC.

Both sides indicate the disagreement is over how much BCBSNC would pay Mission for services.

Charles Ayscue, senior vice president and chief financial officer at Mission, said the most recent proposal from BCBSNC "imposes effective payment rate reductions to our health system at a time when modest annual increases are more important than they have ever been."

"Even if we earn every dollar of pay for performance incentives offered by BCBSNC, we could at best get back to zero for three straight years," he said.

Mission Health President and CEO Dr. Ron Paulus said the health system is happy to work with BCBSNC on experimental ways to reduce costs to the insurer.

But he said Mission could not accept what BCBSNC is offering.

"It is not possible to do, and we will not do it," he said.

BCBSNC said Mission would be the only health system in the state outside its provider network and implied in a statement that Mission is asking too much from the insurer.

"More than 43 other hospitals across the state have agreed to work with us to slow down unsustainable cost increases," Werner said.

BCBSNC said in a statement that Mission "is among the most expensive facilities for common inpatient procedures such as newborn deliveries, knee replacements as well as imaging procedures like chest X-rays and CT scans."

Paulus said Mission has taken significant steps to reduce costs and already operates very efficiently. Rising costs for drugs, medical devices, employee wages and other things Mission pays for mean the amounts it gets from insurers must also rise, he said.

International accounting and consulting firm PwC said health care costs are expected to rise 6 percent this year and 6.5 percent in 2018. That's considerably higher than the 1.9 percent rate of inflation for all goods and services the federal government measured.

Paulus said Mission is challenged because only about 25 percent of its patients are on private insurance, a lower rate than many other health systems.

The number of people potentially affected by the Mission-Blue Cross BCBSNC dispute was not available Wednesday. Mission says Blue Cross BCBSNC accounts for about 72 percent of the commercial insurance market in North Carolina.