Why Memorial Hermann Is Digging In During Its Blue Cross Contract Fight

By going out of network with Blue Cross Blue Shield of Texas, the Houston-based health system is testing how much leverage it really has.

Memorial Hermann Health System has gone out of network with Blue Cross Blue Shield of Texas (BCBSTX), marking another high-profile contract breakdown over reimbursement rates.

While the Houston-based health system is at risk of losing patients as a result of the dispute, the stand against BCBS highlights how some providers are attempting to regain leverage in their relationship with payers.

Memorial Hermann and BCBSTX were unable to agree to terms by an April 1 deadline, forcing commercial and Blue Advantage Marketplace members to lose access. The system has been out of network with BCBSTX’s Medicare Advantage plans since January 1.

The Houston-based health system argued that payment rates from BCBS have not kept pace with the rising costs plaguing providers, and said it notified BCBSTX of its intent to renegotiation in August of last year.

“BCBSTX has a national and statewide playbook of asking for unreasonable demands while dragging out negotiations to the last minute in an attempt to force health systems to accept reimbursement rates and contract language that ignore the financial realities facing health systems today, jeopardizing continuity of care and creating unnecessary anxiety for the patients and families who depend on us for their care,” Memorial Hermann said in a statement.

BCBSTX, meanwhile, pointed to a disconnect around affordability, saying in a statement that it’s open to reaching an agreement with Memorial Hermann that allows it to “fairly and prudently cover the cost of care appropriately on behalf [of] our members.”

This isn’t the first time Memorial Hermann and BCBSTX have fallen out of network and publicly played out a contract dispute. In 2022, the two sides failed to reach an agreement by a March 1 deadline before eventually striking a four-year deal to restore in-network access.

It’s in the best interest of both parties to find common ground once again. From Memorial Hermann’s perspective, its absence from BCBSTX’s network creates immediate disruption for patients and employers. Though going out of network gives the system some additional leverage, it also introduces volume risk if patients steer to in-network competitors.

However, Memorial Hermann is signaling confidence in getting BCBSTX to ultimately agree to negotiated terms. In its statement, the organization noted that BCBSTX previously took a similar hardline stance against several other Texas-based health systems, including Ascension Seton, Christus, Covenant Health, Southwestern Health Resources, Baylor Scott & White, and Hendricks Regional Health. All those systems, Memorial Hermann acknowledged, managed to reach agreements with BCBSTX following public negotiations.

Utilizing the court of public opinion in these disagreements with payers is often an advantageous tool for providers. Even as they’ve had to build back lost trust due to misinformation stemming from the COVID-19 pandemic, providers continue to be seen in a more favorable light by the public than insurers. Hospitals recognize that for payers, going out of network is a test on how far they can go in excluding major providers without triggering unacceptable member backlash.

Large health systems especially have become more willing to stomach short-term volume loss to secure long-term rate stability, as well as improved operational terms around administrative friction points like prior authorization requirements and claims denials.

Whether the dispute between Memorial Hermann and BCBSTX is resolved quickly or drags on will depend on who feels the pressure first, but historically, many of these standoffs end in compromise after both sides hit their pain tolerance threshold.