A breakdown in contract negotiations between Children’s Hospital Colorado and TriWest Healthcare Alliance has led the nonprofit pediatric hospital system to move to “non-network participating provider” status beginning Jan. 1, according to officials.

Doing so will provide “additional time to work on a sustainable agreement,” said Greg Raymond, president of the hospital network’s southern region that’s based in Colorado Springs.

Officials from Children’s Hospital have not yet determined whether they will sign a contract as a “non-network, non-participating provider” or return to full network status, he added.

As negotiations continue, if the two entities do not reach an agreement by June 1, Children’s Hospital Colorado will make that decision, Raymond said in an interview with The Gazette.

“This is an interim step to allow us to work in good faith with TriWest,” he said. “We’ve got to negotiate a middle ground for TRICARE to save money and for Children’s being able to provide services families deserve and allow for us to be sustainable.”

TriWest deferred commenting on the contract negotiations to the Defense Health Agency.

“TriWest has authority to continue to negotiate in good faith with Children’s Hospital of Colorado and would welcome them to remain in the TRICARE network,” officials from the Defense Health Agency said in a statement to The Gazette.

Patients’ families received a letter on Wednesday explaining the situation. Pre-authorization and approval for services will be the most immediate impact, Raymond said.

As of Jan. 1 military service members with children who use Children’s Hospital Colorado facilities will need to check with TriWest to see if prior authorization is required for services such as outpatient radiology, lab work, pediatric specialty visits and other services.

Parent Edward Tice was upset by the news.

“TRICARE members will be forced to pay for specialty outpatient care out of pocket and then file for reimbursement,” said Tice, who has two special-needs children who use Children’s Hospital.

“To inform TRICARE members of this decision that we will be out of network for care one week before Christmas and two weeks before a new contractor takes over the health care contract is an insult to those who wear or have worn their uniforms and all the needs of their families,” he said.

TriWest will replace Healthnet in the western half of the United States on Jan. 1 as the new benefits administrator for TRICARE, the health benefit plan for active-duty military men, women and their families.

TriWest will determine patients’ co-pays and deductibles, and Children’s Hospital Colorado will bill TriWest for authorized services and receive reimbursement directly from TriWest.

The dispute stems from the federal Defense Health Agency cutting TRICARE reimbursement rates last year for children’s hospitals around the nation. The new pay structure also applies to cancer hospitals and ambulatory service centers.

Current negotiations with TriWest have “not yielded improvements over the cuts we’ve experienced going back to October 2023,” Raymond said.

Since opening a Children’s Hospital location in Colorado Springs five and a half years ago, the system’s southern region has posted operating losses each year between 2019 and 2023, he said. The TRICARE cuts have reduced outpatient reimbursements by 60%, amounting to further losses of $2.4 million per month, Raymond said.

With five military installations in El Paso County, the hospital in Colorado Springs is more adversely affected than other pediatric hospitals because of its high payer mix of TRICARE clients, he said.

Last year, Children’s Hospital Colorado cared for 15,000 TRICARE patients, 10,300 of whom received services in southern Colorado.

TRICARE patients comprise nearly 20% of the clients at the Colorado Springs hospital — making it the second-largest provider of healthcare for patients with TRICARE coverage in the country, Raymond said.

The Defense Health Agency argues in its statement to The Gazette that it is required by federal law to align reimbursement rates for “institutional providers of services of the same type under Medicare” — essentially to pay children’s hospitals based on a similar structure as adult hospitals.

Critics have contended that reducing payments for TRICARE patients does not adequately account for the additional costs of pediatric care and negatively impacts access to care for military families.

The Defense Health Agency’s updated rule, published in April 2023 and enacted Oct. 1, 2023, includes the provision that “additional payments (are) available to these hospitals to ensure that TRICARE reimburses 100% of their costs for TRICARE covered services.”

The agency “recognizes that Children’s Hospital of Colorado would prefer to continue to receive payments above their reported costs; however, TRICARE is committed to maintaining access to a robust benefit and fairly reimbursing providers while responsibly managing taxpayer dollars,” the statement said.

The situation has other consequences, the Children’s Hospital Association said in an email.

“Providing military families with access to local civilian pediatric specialty care is essential for military recruitment and retention, ensuring continuity of care, maintaining quality health care standards and supporting the well-being of military-connected children and their families,” the statement said.

Over the past year, Children’s Hospital Colorado has taken several steps in opposing the change.

Hospital leadership appealed to elected Congressional officials, who on Tuesday called on the Defense Health Agency to “come to the table, ensure fair reimbursement rates and fulfill their duty to military families to provide access to the health care they need.” The statement was issued by U.S. Sen Michael Bennet and John Hickenlooper, and U.S. Rep. Doug Lamborn and Jason Crow.

While visiting Colorado Springs on Wednesday, Colorado Gov. Jared Polis said he agrees, saying the Defense Health Agency and Children’s Hospital Colorado “need to find a way” to reach an agreement.

Children’s Hospital Colorado also unsuccessfully sued to challenge the legality of the rule.

“We’re now in a position to make the difficult decision to not sign the contract with TriWest,” Raymond said. “This is going to be destructive to families and disruptive to their care, and it’s important families take proactive steps.”

For more information, go to www.tricare.mil/west or www.childrenscolorado.org/tricare.