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Case Study Ch. 3

The document summarizes a case study about Bon Secours Richmond Health System's contract renewal negotiations with Aetna in the late 1990s. Bon Secours had established itself as one of the lower cost providers in central Virginia. However, after Aetna merged with other insurers and expanded its network, it declined to adjust payments to Bon Secours as required by their contract. This led to a multi-million dollar payment shortfall. Bon Secours formed a team to analyze the impacts of various scenarios. Terminating the contract would lose 8% of revenue but accepting large discounts could impact patient care, wages, and community services. Ultimately, Bon Secours only agreed to reduced PPO rates and declined unacceptable HMO rate

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Rafania Kinasih
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259 views4 pages

Case Study Ch. 3

The document summarizes a case study about Bon Secours Richmond Health System's contract renewal negotiations with Aetna in the late 1990s. Bon Secours had established itself as one of the lower cost providers in central Virginia. However, after Aetna merged with other insurers and expanded its network, it declined to adjust payments to Bon Secours as required by their contract. This led to a multi-million dollar payment shortfall. Bon Secours formed a team to analyze the impacts of various scenarios. Terminating the contract would lose 8% of revenue but accepting large discounts could impact patient care, wages, and community services. Ultimately, Bon Secours only agreed to reduced PPO rates and declined unacceptable HMO rate

Uploaded by

Rafania Kinasih
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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UNIVERSITAS INDONESIA

THE BOND SECOURS RICHMOND CONTRACT RENEWAL


STUDY CASE

CORPORATE SOCIAL RESPONSIBILITY & BUSINESS ETHICS

LECTURER
Fahrul Ismaeni S.E., S.H., M.H.

PREPARED BY
Jovita Amaris 2006607085
Yahya N 1606864071
Zafira Fiona Islami 1806230535
Qoirunisa Ayna Fadillah 1806174282
Elzara Chairadilla F 1806229943
Emeraldo L. Samudra 1706066195
Muhammad daffa 1706019476

FACULTY OF ECONOMICS AND BUSINESS


UNIVERSITAS INDONESIA
2020
The Case: Bond Secours Richmond Contract Renewal

In the 1990s, Bon Secours Richmond Health System had established contractual relationships
with every health care insurer in central Virginia. The system's St. Mary's Hospital had sought, in
addition to an excellent reputation for compassionate and high quality services, to be one of the
lower-cost providers for central Virginia. Although insurers early in the decade contracted with
all area hospitals for their indemnity and Preferred Provider Organization (PPO) products, many
tried to control costs by limiting their Health Maintenance Organization (HMO) enrollees to
selected hospitals. Providers accepted lower reimbursement terms in exchange for an increased
volume of patients to their facilities. The financial risks associated with indemnity and PPO
products are borne, in large part, by individuals or self-insured businesses. The insurer under an
HMO product assumes financial risk and reward.

Bon Secours facilities maintained a charge structure 25 to 40 percent lower than that of other
area hospitals, for two reasons: concern for the cost of health care in the community, particularly
for the out-of-pocket expenses of patients, and because such a business strategy enabled the
organization to capture greater market share. This allowed for a lower per-unit expense and an
acceptable bottom line. Bon Secours was, in fact, the preferred provider of health plans for their
HMO product. The "win-win" was more business directed to Bon Secours hospitals for a lower
cost to insurers.

The dilemma for health plans in the mid to late 1990s was how to increase their business. The
choices were fairly simple: either merge with or buy out competing plans, or "open" their limited
HMO networks to resemble their PPO product that gave consumers a greater choice of providers.
Several plans did both.

The merger of US Healthcare and Aetna led to significant changes in the Richmond market.
When Aetna subsequently acquired the central Virginia business of Prudential and NYLCare,
further efforts to reduce payments, in line with Prudential's capitated coütract, became matters
for negotiation. The "new Aetna" proceeded to allow patients to use previously excluded
hospitals — but it continued to pay Bon Secours rates predicated on the basis of a limited
network arrangement, even though the contract specifically called for higher payments in the
event network changes were implemented. Initially, Aetna did not disclose to Bon Secours
changes in its network of providers and afterwards declined to make payment adjustments.
Failure to adjust payments over the preceding 18 months and routine claim denials resulted in a
several million-dollar payment shortfall to Bon Secours.

The local Bon Secours chief executive established an internal strategy team consisting of
managed care, finance, hospital administration, and sponsorship senior team members. The
responsibility of this group was to produce data enabling the team to understand the impact of
various potential scenarios, establish negotiating parameters, and evaluate from several
perspectives the responsibilities and consequences to Bon Secours for this contract. The local
system also worked with corporate staff to establish the approach and acceptance of any final
decision.

The management team determined that whether Bon Secours lost the contract or agreed to a new
pricing structure, significant risks were apparent. If Bon Secours failed to retain its Aetna
business, which represented 8 percent of revenue, the loss of income would place both capital
improvement needs and wage increases in jeopardy. But to agree to such a significant discount in
the current business to the point required by Aetna would adversely affect the stewardship of
resources for the local system. Within a year, Bon Secours could expect other major health plans
to pursue a similar rate structure. In addition to foregoing employee raises and equipment
replacement, Bon Secours could likely face decisions about the level and quality of care
delivered to its patients.

In a mid-September letter to Aetna, Bon Secours was willing to agree to a price reduction for the
PPO contract that would address the needs of local self-insured employers. The HMO rates, in
which all savings accrued to the benefit of the insurer directly, were unacceptable. Thus, at the
end of December 1999, Bon Secours' agreements.
Discussion:

1. What risks or issues are raised for Bon Secours' physicians and their patients by
terminating the contract?
2. What work environment, in terms of equipment and facilities, is needed to care for
patients?
3. What obligations to its employees does the organization have?
4. What community or mission services are put in jeopardy by accepting this contract?
Which impacted the most?
5. What stake does the wider community have in this decision? What options do employers
have for health care services?

Source:
https://www.chausa.org/publications/health-progress/article/september-october-2001/organizational-ethics-case-stud
y-the-bon-secours-richmond-contract-renewal

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