Opinion: Explaining the Anthem, Mercy contract dispute

Adam Kyle

Contract negotiations between insurance companies and providers are just a part of our modern health care system. Every few years, hospitals must revisit their reimbursement terms with the insurance companies they contract with. Usually, this happens behind closed doors, and the average patients and beneficiaries are unaware when a new contract is reached. This was not the case with Anthem Blue Cross Blue Shield in Missouri and Mercy in the fall of 2024.

In mid-September, Mercy announced it was not renewing its contract with Anthem in Missouri for 2025. This decision would affect an estimated 2.1 million people across most of Anthem’s lines of business, including individual plans, Medicare Advantage, group health and Medicaid. The only line of business that was exempt was Anthem’s Medicare Supplement Insurance. For people on individual plans, they could always switch insurance companies during open enrollment, but those on group health plans were stuck.

So, what was the cause of all of this, and why did Mercy decide to go public?

As you can imagine, the dispute was all about money. Insurance companies and providers have contracted reimbursement rates per service. Anthem and Mercy had been in negotiations for months.

According to a statement Anthem gave to local media outlets, “Over the next two years, Mercy wants to increase the prices they charge our members and employers by five times the current inflation rate. Mercy has also demanded contract language that would keep specialty medications unnecessarily expensive when lower cost options are available. Anthem has offered reasonable payment increases in excess of the consumer price index for each of the next two years and we continue working hard to reach an agreement.”

Mercy stated that one of their main concerns was Anthem’s red tape, making it tougher to get access to care for their patients.

Anthem blamed Mercy and Mercy (consistently and thoroughly, over multiple mediums) blamed Anthem. The truth is probably somewhere in the middle, with both companies looking out for their own fiduciary best interest.

Regardless of why it happened, many of us in the insurance industry saw this for what it was: a negotiating tactic on the part of Mercy to force Anthem’s hand in their contract dispute. The bottom line is that both entities are too big to not do business with each other. Anthem is the second largest insurance carrier in the country, and Mercy is the largest provider in Missouri.

What was the big deal? Why didn’t Anthem just agree to their terms?

The answer is that there is a bigger picture here that involves the entire state. What insurance companies pay for services is based on the UCR (usual, customary and reasonable) standard. The point of the UCR standard is to prevent providers from charging patients and their insurance companies whatever they want for services. Presumably, what Mercy was asking for was far in excess of the UCR.

There were a lot of eyes watching how this contract dispute played out, including every other hospital system and insurance company in the state. If Mercy was able to get away with strong-arming Anthem into paying a lot more money, then that would open the door for other hospital systems in the state to do the same with the carriers they contract with. This would be detrimental to the consumer, particularly those on group health plans.

Ultimately, Anthem and Mercy came to a multiyear agreement with undisclosed terms about a month before the contract was set to expire.

This whole fiasco points out a simple economic truth that is not often discussed but affects many industries, including health care and education: If you have a third party with an enormous wallet paying for your services, you can guarantee to see the price of those services skyrocket.

Adam Kyle is a broker specializing in Medicare health plans at Kyle Insurance Services Inc. He can be reached at adam@kyleinsuranceservices.com.