State plan, DUHS ink agreement

After more than a month of tense memo exchanges, Duke University Health System agreed Thursday to rate reductions by the State Employees Health Plan, which had been threatening to end its contract with DUHS effective April 30.

According to SEHP representatives, DUHS--the state insurance plan's biggest client--was the only North Carolina hospital not to agree to reduced rates of compensation for three services: inpatient mental health, rehabilitation and chemical dependency.

The agreement was reached Thursday afternoon when DUHS Chief Financial Officer Kenneth Morris and Assistant Vice President of Managed Care for DUHS Corporate Finance Elizabeth Nowak met with Jack Walker, the executive administrator of the state plan, and Zorba Howell, a hospital contracting specialist. The officers agreed on a contract that sets rates for the three services for a one-year period.

Morris maintained throughout the dispute that DUHS was willing to renegotiate rates in April as part of routine contract discussions, but SEHP representatives repeatedly categorized this as an unacceptable delay.

Although details of the contract are confidential, Paul Sebo, director of operations for the state plan, indicated the agreement was identical to those reached with other state hospitals. "Duke is now in the same boat as everyone else," he said.

Reports that the new rates reached with DUHS would save the state plan approximately $400,000 are accurate, Sebo said. In total, the state plan--which covers state employees, teachers and their dependents--expects to shave about $2 million from its $1.2 billion budget through these rate reductions for the three services.

SEHP anticipates much bigger negotiations for all outpatient services--typically the most lucrative hospital services--later this year, most likely in April. Altogether, SEHP wants to pare about $124 million from its budget from reduced compensation to hospitals and physicians, as part of its goal of raising $555 million total to remain solvent until June 30, 2005.

During the stalled negotiations with DUHS, Sebo expressed pessimism at the prospect of much larger contract negotiations with the Health System, which takes in at least $50 million in business from the state plan. After the success Thursday, however, Sebo's outlook brightened.

"The big contract up in April is a much bigger piece [than the three services], and the hope is that if everyone was able to work on this together, they'll be able to work on that," he said. "We're cautiously optimistic."

Sebo said the ultimate necessity is making sure there are no disruptions in services, a challenge particularly relevant to DUHS, which offers several unique specialty services.

"That doesn't mean that, behind the scenes, there won't be some tough negotiating," Sebo said. "But if that's going to be invisible to the public, then that's okay."

Morris was unavailable for comment, but said in a press release that he recognized the struggles facing employees and health care providers in times of economic distress and would continue to work collaboratively to ensure a mutually beneficial relationship with the state plan.

Both sides previously expressed surprise in the difficulty of negotiations. SEHP's frustration led to a Dec. 31 letter notifying DUHS it would terminate their long-standing contract in April. Morris responded Jan. 8 with a letter expressing "disappointment" at the state's decision.

SEHP notified employees of the decision Jan. 14, and Morris sent a memo Jan. 15 to DUHS executive leaders explaining the situation and responding to "factual errors and misleading statements" included in SEHP's Jan. 14 letter.

"It is regrettable that SEHP has taken an action that is likely to cause concern and confusion for their members," Morris wrote in the Jan. 15 memo.

As late as Feb. 4, Sebo had said, "Officially, there's no change. Nothing has been signed. No meetings have been arranged.... We're still in a pre-negotiating stage."

The Thursday meeting, arranged by Nowak and Howell, came as a sudden and pleasant surprise to Sebo, who said earlier that Duke appeared unwilling to talk. "They came over here. They actually visited us," Sebo said. "It was a rather pleasant meeting.... It sets the stage for better negotiations in the spring."


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