Contract dispute threatens relationship between Cigna and Chesapeake hospital
Insurance giant Cigna is poised to end its contract with Chesapeake Regional Medical Center June 1 unless the two can reach an agreement over reimbursement rates.
The move would mean that Chesapeake Regional, a public hospital in the state’s second-largest city, would no longer be considered in-network for people in the Hampton Roads region who have Cigna insurance through their employers.
In a statement, Cigna said the company is pulling out of the contract because “the majority of services that our customers access at Chesapeake General are more expensive than other local hospitals, and each year their rate increases have outpaced other area hospitals.”
Chesapeake General is the former name of Chesapeake Regional Medical Center, which was rebranded in 2010.
Chesapeake Regional flatly denies its costs are higher than those at other hospitals, calling the assertion “simply untrue” in a recent press release.
“We’ve asked them for proof of that,” said Reese Jackson, president and CEO of Chesapeake Regional Healthcare, the health system that includes the hospital. However, he said Cigna has not offered specific evidence to show the costs of the hospital’s services are higher across the board, although it has notified its members of the pending termination, citing price concerns.
“I took offense to them sending a letter to their members,” said Jackson. “We’re a standalone hospital. We don’t have the bargaining power of larger systems.”
He contended Chesapeake Regional is “not unreasonable in our pricing structure.”
“We don’t have the same prices as Inova or HCA,” he said, referring to large hospital systems in Northern and central Virginia. “I can promise you that Cigna pays Inova and HCA more than us.”
Cigna, which controlled about 3.5% of Virginia’s health insurance market in 2021, according to State Corporation Commission data, did not respond to a request for information about Chesapeake Regional prices in comparison to other hospital prices.
In its statement, Cigna said it would “continue negotiating and hope that they will do what is best for the community we both serve to reach a fair agreement before our contract ends June 1. If Chesapeake General refuses to agree to a reasonable, affordable contract, we will help our customers find other quality, in-network providers nearby.”
Chesapeake Regional and Cigna have had a contract for what Reese said is over two decades. On Sept. 30, however, the insurer notified the hospital it planned to terminate that agreement. Both agreed in January to extend the term of the contract through the end of May, with negotiations occurring throughout the late winter and spring.
While Reese said “there’s always hope” an agreement will be reached, he said the hospital system is already budgeting for a loss of Cigna members and expects the insurer’s withdrawal to harm its financial situation.
Disagreements over reimbursement rates in recent years have led to other insurers pulling out of contracts with Virginia hospitals. In 2018, Augusta Health left the Anthem Blue Cross Blue Shield network after a contract dispute in which the Fishersville-based hospital accused the insurer of paying it lower reimbursement rates than other area hospitals. The hospital and insurer reached a new four-year deal in June 2018. A similar dispute between Anthem and Valley Health in the Shenandoah Valley nearly led to the end of their contract in 2020, although an agreement was eventually reached.
Hospitals like Chesapeake Regional have argued they are facing higher expenses due to increasing labor, drug and supply costs. The most recent report from health care analytics and consulting firm Kaufman Hall found that while hospital profit margins are stabilizing, “increased material costs associated with drugs and supplies as a result of inflationary pressures continue to negatively hospital margins.”
Margins “continue to sit at razor-thin, near-zero levels, putting hospitals in a vulnerable position should a recession or a new public health emergency materialize,” the report noted.