Blue Shield of California has suspended its relationship with UCLA Medical Center, one of the state's top hospitals, in a dispute over the cost of treating patients there. It's a disturbing sign of things to come in the healthcare industry, as insurers become increasingly resistant to the cost increases that they routinely passed along in previous years. Although the standoff is hard on the patients who've lost access to UCLA, Blue Shield is right about one thing: The healthcare industry is on an unsustainable path, and every segment must start focusing on cost control.
Defending insurers is a bit like expressing sympathy for the devil, given how their premiums have skyrocketed. Not so long ago, this page blasted Blue Shield of California for proposing three rate hikes in quick succession that threatened to raise some customers' premiums by nearly 60%. Since then, however, the nonprofit has pledged to cap its net income at 2% of its revenue. The cap means that any future increases in premiums will be driven by higher charges from doctors and hospitals, not by increases in Blue Shield's operating margins.
Hospitals costs have risen particularly rapidly, with the average daily fee for a bed in an acute-care ward more than tripling since 2000. UCLA's reimbursements from Blue Shield have almost doubled in the last five years alone, the insurer says. That's partly because the university has been shifting onto Blue Shield some of the expense of treating patients with Medicare, Medi-Cal or no insurance. But it's a trend that even UC officials acknowledge cannot continue.