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The trend of health maintenance organizations directing patients to limited hospital networks shifted Friday when the region's largest health insurer announced a four-year contract with Kaleida Health, the area's biggest health system.

Blue Cross and Blue Shield of Western New York inked a long-term deal with Kaleida to treat all of its 570,000 subscribers, including Traditional Blue and the Community Blue health maintenance organization.

About 100,000 Community Blue Advantage members were previously restricted from Kaleida's Buffalo General and DeGraff Memorial hospitals.

The company is also moving to broaden its hospital network for 6,000 Senior Blue members by including Kaleida. Details of the Senior Blue contract are being finalized.

Most Blue Cross subscribers have the same hospital access they always have, but now also know the health insurer is not planning to push them into a new limited hospital network.

The contract injects some stability into forecasting future health benefit rate increases for local employers, because Blue Cross and Blue Shield has set hospital rates for four years. Financial terms of the contract were not disclosed, but representatives for both organizations described the conditions as fair.

"Given the rapidly changing health care market and its wild fluctuations, this gives us some predictability. It's a fair deal for the hospitals and the health plan," said Mark Barnhart, vice president of network management for Blue Cross and Blue Shield of WNY.

The announcement of a wider hospital network comes weeks after Blue Cross and Blue Shield irritated thousands of local residents by restricting its pharmacy network.

Moves by health insurers to limit choice have not been well received in Western New York. Independent Health faced a flood of criticism last year when it announced a three-year contract for its Medicare HMO subscribers which excluded Catholic hospitals.

Kaleida Health officials said the Blue Cross contract improves medical care access for thousands of local residents.

"Obviously for those people who previously were not able to use Buffalo General Hospital or DeGraff, because the Advantage plan did not include them, now they have the option of using those hospitals. I think developing contracts like this with insurers is beneficial for everyone, from the patients to the hospitals to the insurance company," Kaleida spokesman Michael Shaw said.

The contract could signal a trend in the industry toward attempting to gain rate stability through long-term contracts.

Blue Cross and Blue Shield also has a four-year deal with the Catholic Health System which began in January. The company is now trying to negotiate long-term deals with Erie County Medical Center, Roswell Park Cancer Institute and other independent hospitals, Barnhart said.

Other insurers could wind up with similar long-term deals.

"We're clearly looking to have longer-term deals as we negotiate our new contracts. It helps create a foundation for working together and collaborating with the hospitals," said Dr. Michael Cropp, medical director for Independent Health.

New York State historically set the rates insurance companies paid hospitals, although health maintenance organizations were allowed to negotiate deals.

That changed in 1997 when the state ended rate-setting altogether. Now, hospitals and insurers negotiate all rates for services.

After several years of learning to live with an open market, hospitals and health insurers have seen the mutual benefits of settling into longer-term deals, said William Pike, president of the Western New York Healthcare Association.

"It's nice for hospitals because they get a better handle on what their revenues will be. Likewise, insurance companies can more accurately predict their costs," he said.

Hospitals are drawn to longer-term deals for other reasons, particularly in a community such as Western New York that has had far more hospital beds than needed, Pike said.

"Overcapacity is becoming less of an issue with the mergers, but hospitals have feared that if they didn't lock into a long deal, an insurance company would turn around and negotiate a contract with a competitor that excluded them," he said.

Blue Cross and Blue Shield divided the local hospital market in 1996 when it negotiated a Community Blue Advantage contract which excluded the giant Buffalo General Hospital, then led by John Friedlander.

The merger of Buffalo General, Millard Fillmore and Children's hospitals gave Friedlander, who ascended to president of the merged organization, more negotiating leverage with insurance companies.

"I think very clearly, coming together as a hospital network made it quite difficult for the Blues to go in and try to pick off any hospital," Cropp said.

Pike said long-term deals may also benefit patients by cementing a relationship between the parties that encourages them to start or expand health programs devoted to wellness and prevention.

"If you're a hospital dealing with subscribers in a contract that lasts one year, there might not be an incentive to worry about prevention and wellness," he said. "But if you've got a population of patients locked up for the long term, you've got that incentive."

News Medical Reporter Henry Davis contributed to this story.

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