UPDATE: BCBS of Minnesota, Children's Hospital Settle Contract Dispute

Late Friday, Minnesota Attorney General Lori Swanson helped resolve a contract dispute between the state's largest pediatric health system and Blue Cross Blue Shield (BCBS) of Minnesota, although no details have been released on the 3-year pact.

Early Wednesday, Children’s Minnesota had done the unthinkable: it had severed ties with its largest insurer, which would mean up to 66,000 patients would lose in-network benefits. The pediatric health system cut ties when the 2 sides could not agree on Medicaid reimbursements.

Statements released Wednesday pointed to the possibility of a deal, but Children’s raised the stakes by refusing to extend rates while talks continued. Children's put plans in motion to transfer cases to other health systems and Blue Cross had started informing employers of the change.

In the statement released late Friday, Children's CEO Bob Bobnar said, "This new agreement allows Children's to sustainably continue doing what we have always done: provide the best possible care for children and their families. It's a demonstration of our shared commitment to ensuring the highest quality of specialized pediatric care is accessible and affordable to any child in need."

"Blue Cross is very pleased that our members now have clarity on the network status of Children's and can continue to see their doctors," said Michael Guyette, president and CEO at BCBS Minnesota. "Throughout this process, Blue Cross stressed the importance of payers and providers working together to improve the delivery and financing of helathcare in Minnesota."

The dispute fell along lines that are increasingly common: BCBS of Minnesota sought managed care rates on par with what it pays other hospital systems, while Children’s had reported it was already losing 30 cents on the dollar for every Medicaid patient and couldn’t afford to lose more. Before the dispute was resolved, Children’s had said it was given “an impossible ultimatum” that threatened its ability to offer care to the highest levels, according to a statement.

BCBS of Minnesota has its own constraints. Its 2016 annual report showed its reserves have declined from $1.26 billion in 2014 to $990 million last year, and the insurer stopped selling policies on the marketplace under the Affordable Care Act.

The impasse was a sign of the times. Cutting edge academic medical centers, especially those that treat high numbers of patients with complex medical needs, have found themselves pushed out of managed care networks under constant pressure to cut costs.

A study released Thursday by the University of Pennsylvania School of Medicine found that narrow networks increasingly exclude cancer centers associated with the National Cancer Institute. Research by the Robert Wood Johnson Foundation has found a greater trend toward declining network participation from urban hospitals and highly rated hospitals, especially in narrow networks.

Negotiations in Minnesota were fraught because Children’s and Blue Cross are huge players on the other’s balance sheet. BCBS of Minnesota insisted in its statement it offered Children’s a contract with “above market prices” for 2017, “reflecting the value that Children’s provides,” but that its offer was rejected. Children’s said in its statement that Blue Cross “triggered” the dispute by demanding a 31% cut in Medicaid reimbursement rates, “and threatening us with no future inflationary rate increases for care to those with private insurance.”