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The public dispute between Blue Cross and Blue Shield of Louisiana and the parent company of Our Lady of the Lake Regional Medical Center over provider fees was nasty but short. Yet the ever-increasing cost of medical care that underpinned the disagreement is not going away.

With national health insurance reform on life support, or at least in limbo, what can be done to reduce costs and possibly prevent another battle down the road between two sides of the same medical industry coin?

The Congressional Budget Office says spending on health care was less than 5% of the Gross Domestic Product in 1960, compared with more than 17% last year, according to the Kaiser Family Foundation.

Further, the CBO says per-capita spending on health care grew from 1975 to 2005 at a rate 2% faster than the overall economy. The agency says new technology, a rise in income, the growth of insurance coverage and the population’s aging all contributed to medical cost increases.

“Seventy-five percent of the cost of health care is for chronic care conditions,” says Scott Wester, president and CEO of Our Lady of the Lake, which is part of the Franciscan Missionaries of Our Lady Health System. “Behavioral changes can modify that.” He says ensuring that patients comply with diabetes treatment, reduce obesity or quit smoking all can make a major difference in a country where people pay the most for health care among developed nations but have a shorter life expectancy than people living in western Europe or Japan.

“You go to Sweden or Norway, the level of obesity rates are much less than what they are in the United States,” he says.

Tort reform would go some way toward lowering the cost of care, he says, removing the threat of imminent lawsuits hanging over providers’ heads, which can lead to overtreatment by way of defensive medicine. A bigger obstacle to lowering costs is the fee-for-service insurance model at the heart of U.S. health care.

“In the industry, we are very much rewarded for doing more,” Wester says. “It’s a production system. More patients using the office means more income for doctors. There’s sometimes a disincentive to make sure we take the time to adequately address the individual needs” of patients. A salaried physician working in a medical home with the goal of improving patient wellness is an alternative, but Wester says the current insurance reimbursement model makes that idea untenable.

Blue Cross CEO Mike Reitz agrees malpractice reform is needed and an overhaul of the fee-for-service model is doubtful.

“TV ads will tell you, ‘Go ask your doctor if this is right for the pain in your back,’” he says. “That’s an office visit, there’s a drug prescription [and a request to] come back in a few weeks. Our current system is a volume-based incentive system. The more services you render, the more you make, right doc?” He says transforming it requires the initiative of a health system such as FMOL, which can electronically link its services and put its staff on salary en masse.

Recently, of course, Blue Cross dug in its heels regarding rising health-care costs, saying a mandate from its customers to keep premiums down meant that the insurer could not agree to the reimbursement increase that FMOL wanted in a new contract. The two sides talked for eight months before finding a middle ground that includes a modest inflationary increase for hospital and physician reimbursement. The new, 27-month contract runs through April 2012.

Reitz says there are three main drivers of health care costs that potentially could mean a 10% premium increase for the state’s 1.2 million Blue Cross customers for 2010. He says utilization—an abundance of patients using the system and of doctors performing tests—is one. “You hear that we’re a sicker society today than we were maybe 15 to 20 years ago. We’re an aging society,” he says, adding, “We have a comfort with using the system.”

Next is the introduction of new drugs and diagnostic technology. He says a single drug can cost $2,000, as in the example of Lucentis, a monthly injection for seniors to combat one cause of blindness. “You can’t say we’re going to freeze research and development,” Reitz says.

Finally, he says, unit cost is the factor that most relates to the FMOL debate: the price per service for patients. Reitz maintains that FMOL is the highest-paid health system in the state, even though data provided by the Lake to the federal government shows that only 55 cents of a Blue Cross reimbursement dollar goes toward direct patient care. The rest goes to offset Medicare, Medicaid and uninsured patient costs, plus charity work and operating costs.

Wester says one reason that care costs more at the Lake than elsewhere is that OLOL receives the most transfers among Louisiana hospitals for high-end treatments such as heart surgery, neurosurgery and other chronic conditions. “Those are more expensive than average medical services,” he says.

He speaks with pride about the Magnet designation that OLOL earned last month for its nursing services, something only about 5% of hospitals in the U.S. receive. Another recent achievement was getting Level III chest pain accreditation, which involves “a whole algorithm of things we need to do” to handle patients complaining of chest pangs. But such standards require investment.

COSTLY CARE: Our Lady of the Lake Regional Medical Center CEO Scott Wester says one reason care costs more at OLOL than elsewhere is that the facility receives the most transfers among Louisiana hospitals for high-end treatments such as heart surgery, neurosurgery and other chronic conditions.

“The technological level and sophistication to maintain that quality of care every day—there’s a cost of doing services that grows every year,” he says. “To maintain a modest rate of return, we need to make sure we get the insurance companies to help.”

Wester maintains that physicians in the FMOL community have been under-reimbursed by the major health plans for years, such that many are “working harder and getting paid less.”

Wester and Reitz agree customers need to change their own behavior to help lower costs—and they’re referring to more than wellness routines. Patients must take charge of their treatment.

A good example is noted in a recent Associated Press article on Baton Rouge-based eQ Health Solutions’ “care transitions” program, designed to preclude rehospitalizations. The program teaches Medicare patients to use the right terminology with providers in order to secure proper care sooner rather than later.

In one case, where a heart-failure patient sought an appointment for insomnia, DeeAnn Broussard of eQ, a home-health provider, says the man really was experiencing shortness of breath because of fluid build-up that kept him awake.

“He needs to say, ‘I can’t sleep because I can’t breathe,’” says Broussard, who teaches patients phrases that cue receptionists to squeeze patients in earlier than later and ideally will lead to a drug remedy rather than another hospital stay, the article says.

“The one thing we know is that we can educate our customers,” Reitz says, including aging baby boomers who need to be aggressive in managing their care. Yet Reitz says education also means being transparent about costs, and that’s where Blue Cross’ advertising campaign against OLOL came in.

Around the holidays, the insurer critiqued the health system in print, on the Web and on TV, and hired political consultant Roy Fletcher to poll customers. The Baton Rougean worked on John McCain’s 2000 presidential bid.

FMOL CEO John Finan had few kind words for the public attacks that created anxiety among Blue Cross patients of FMOL providers suddenly confronted with the possibility of being out of network in lieu of signing a new contract. “We’re not going to discuss the specifics of the offers,” he said during talks that finally resolved last month. “We prefer not to negotiate this in the media.”

But Reitz stuck to his guns. “This isn’t Blue Cross’ money,” he says of customer premiums. “This is the employer in these tough economic times trying to keep health care coverage for his employees. This is us negotiating on his behalf. We are in an affordability crisis. Customers are opting out of insurance left and right. I hope it doesn’t wait 27 months for us to find a more cost-effective alternative to what we are today working under.”