Cigna puts premium on pricey hospitals.

• Author: Martin, Edward
• Position: Tar Heeltattler - Cigna HealthCare of North Carolina

If you make patients pay more to go to a certain hospital, they'll choose a cheaper one. And when a more-expensive hospital starts losing patients, it will lower its prices. Elementary economics, right?

It's a lesson that Cigna HealthCare of North Carolina wants to teach some Tar Heel hospitals. But the hospitals are saying it comes from the pages of Machiavelli, not Adam Smith.

Starting next year, Cigna will charge its members $250 per admission to go to some hospitals--and $750 per admission for others. It's a way to reward hospitals that give the insurer price breaks and punish those that don't, says David Garbrick, an analyst with Towers Perrin, a consulting firm in Charlotte.

"Those insurance guys have got long memories," he notes. He points out that one hospital in the high tier--Carolinas Medical Center in Charlotte--struck a hard bargain with Cigna in a contract negotiated last year. Another, WakeMed in Raleigh, has butted heads with the insurer for years.

Steve White, Cigna's CEO in the Carolinas, denies the company is trying to punish recalcitrant hospitals. Soaring fees, he says, leave Cigna no choice. "If a hospital can prove it has higher quality and can convince patients of that, you'd expect patients to be willing to pay a...