The Cigna-Memorial Hermann Contract Dispute, Explained

The two reached a temporary agreement earlier this week. What led to the standoff, and what does this extension mean for Houstonians?

Macie Kelly / Houston Public Media

Insurance company Cigna and Houston’s Memorial Hermann Health Center this week agreed to a temporary contract extension, providing additional time for both sides to come to an agreement before the new deadline of April 30.

But what led to the standoff, and what does this extension mean for Houstonians?

Cigna is the nation's fourth-largest insurance provider, and an end to the contract could leave thousands of patients in Houston out of network.

Experts suggest an agreement is stalled because Memorial Hermann's price tag is too high for Cigna.

"Over the last few years, the hospital market has become more concentrated,” said Vivian Ho, health economist at Rice and Baylor College of Medicine. “That leads to more bargaining power for (Memorial Hermann.) They can charge higher prices because there are fewer alternatives for insurers to go to.”

The main dispute between the two companies, she said, is on hospital services, not physician services. According to the Bureau of Labor statistics, the price index for hospitals has gone up 49% — which means hospital prices have increased dramatically.

“That’s increasing premiums,” Ho said “It’s why (Cigna is) not willing to agree to these higher prices that Memorial Hermann is asking for.”

In addition to the bargaining power that Memorial Hermann Hospital system has, Ho suggests that Cigna is feeling pressure from its clients. Specifically, clients in the oil and gas industry, who are experiencing a declining oil market.

"Our energy companies are saying, ‘look, this is not a good market for us. We do not want these higher health insurance premiums. Do something for us,’" Ho said.

Ho added that she believes eventually there an agreement will come between the companies, because they are both too big and need each other too much to completely separate.

A similar dispute between United Healthcare and Houston Methodist resulted in court action, and more than 100,000 patients lost in network access to Houston Methodist hospitals.

In a joint statement, Cigna and memorial Hermann said they were "committed to continuing negotiations in an effort to avoid potential disruption in care for patients and their families.”

“We remain hopeful that with more time, we can reach an agreement that provides access to quality care at an affordable cost,” the statement read.

The contract disagreement does not currently impact Medicare Advantage plans, the companies said.

Memorial Hermann also released its own statement this week detailing the temporary extension. In it, the hospital said there are no immediate changes for its Cigna-insured patients, and that any potential changes would not be effective until May 1.

The hospital also provided answers to frequently asked questions as part of this week’s statement.

“It is Memorial Hermann's commitment – first and foremost – to serve the needs and best interests of our community,” read the hospital’s statement. “Our continued focus is to provide patients with accessible, lower-cost care along with exceptional outcomes and experiences.”