Blue Shield warns clients it may end coverage with Sutter Health

Nurses in the emergency room at Sutter Health, California Pacific Medical Center's parent company, in San Francisco. In a medical system notorious for opaque finances and inflated bills, nothing is more convoluted than hospital pricing, economists say. less Nurses in the emergency room at Sutter Health, California Pacific Medical Center's parent company, in San Francisco. In a medical system notorious for opaque finances and inflated bills, nothing is more ... more Photo: MAX WHITTAKER, New York Times Photo: MAX WHITTAKER, New York Times Image 1 of / 1 Caption Close Blue Shield warns clients it may end coverage with Sutter Health 1 / 1 Back to Gallery

A tense contract dispute between Blue Shield of California and the Sutter Health network of doctors and hospitals may leave nearly 280,000 Northern and Central California consumers searching for someplace else to get health care.

Blue Shield notified more than 139,000 customers last week and plans to tell 140,500 more later this month that they should be prepared to find health care providers outside the Sutter Health system. If a contract agreement isn’t reached, those policyholders would have to pay higher out-of-network rates if they choose to stay.

In the Bay Area, this means many Blue Shield consumers could be cut off from Alta Bates Summit Medical Center in Berkeley and Oakland, San Francisco’s California Pacific Medical Center and the Palo Alto Medical Foundation. Some people will have to find new doctors and hospitals by April while others will have until the end of June, depending on their type of plan.

“I don’t want another doctor, and there’s no reason I should have to have another doctor,” said Stephen Lawton of Hercules, who has been seeing the same physician since 1976. “While the whales fight it out, all of us little minnows get squished.”

Contract disputes between insurers and hospitals often come down to the wire, but usually they’re resolved without involving health consumers. The last contract between Sutter and Blue Shield expired Dec. 31, and both sides continue to talk.

The battle pits a major not-for-profit health insurer, with profits of $171million on revenue of $10.5billion in 2013, against a formidable opponent, a nonprofit with 23 Northern California hospitals that made $300million in profits on operating revenue of $9.6billion that same year.

Sutter officials pin the blame for the holdup on a new contract on Blue Shield for the insurer’s proposal to reduce payments for health services by what the hospital network says is too much.

It’s about money

“Unfortunately, this large and very powerful health insurance company continues to demand substantial cuts in reimbursements that would have a devastating impact on Sutter Health’s ability to meet our patients’ needs,” said Sutter spokesman Bill Gleeson.

Blue Shield, in turn, lashes back at Sutter, saying the health network charges 18 to 30 percent more than other providers for its services.

“We can’t keep paying at that level and increasing that amount,” said Paul Markovich, Blue Shield’s president and chief executive, at a meeting with The Chronicle’s editorial board on Wednesday.

Sutter has long been dogged by accusations of using its market clout to demand high prices. The hospital network, along with Dignity Health and other California chains, is part of a state attorney general’s investigation into the link between higher prices and hospital consolidation. Sutter officials deny the system charges too much.

But when it comes to the current contract skirmish, both sides claim to be the reasonable party.

Markovich said he’s drawing a line over one issue: He says Sutter wants a mandatory arbitration clause in the contract that would prevent Blue Shield and self-insured customers, typically large companies that pay their own claims, from suing in open court. A lawsuit against Sutter in April by the United Food and Commercial Workers and its Employer Benefit Trust alleging anticompetitive behavior is winding its way through San Francisco Superior Court.

The arbitration clause, Markovich said, would create a dangerous precedent by shielding Sutter from such lawsuits and ultimately lead to higher health prices. But Gleeson called that a “red herring” and noted that Blue Shield already has arbitration language in its contract, a claim the insurer disputes.

'Battle of big dogs’

Steven Rousso, principal with HFS Consultants, an Oakland consulting firm for hospitals and clinics, said the tussle comes down to two health care powerhouses duking it out over money.

“It all comes down to the financial terms of the contract,” Rousso said. “This is a battle of big dogs; there’s no little dog in this fight.”

Many of the customers are feeling like little dogs in this battle.

Peter Van de Naillen, a federal government retiree who lives in Oakland, said he’s frustrated he may no longer be able to go to Summit hospital and would have to drive to Walnut Creek or San Francisco for care. He scheduled his yearly dermatology appointment before April in case he can’t see his regular doctor.

Patients were especially annoyed that they learned of the contract dispute right after they signed up for 2015 coverage. “Next open season, if there’s no change here and I can’t go to Summit without paying a premium, Kaiser’s looking pretty good,” Van de Naillen said.

Victoria Colliver is a San Francisco Chronicle staff writer. E-mail: vcolliver@sfchronicle.com

Twitter: @vcolliver