Watching the disparity grow

It isn't often that you get to see an insurance company-hospital negotiation in progress, but here is a descriptive story from SouthCoastToday.com. The key quotes:

After seven months of talks, Southcoast Health System, the region's largest employer, and Blue Cross Blue Shield of Massachusetts, the state's largest private health insurance company, are deadlocked in negotiations over reimbursement rates for care rendered to Blue Cross policy holders at Southcoast facilities.

. . . Keith Hovan, president and CEO of Southcoast Hospitals Group . . . said Friday "We're tens of millions of dollars apart."

"It would be irresponsible for us to accept what's being offered," Hovan said.

. . . McQuaide said Blue Cross is trying to operate under state government-mandated insurance rate caps.

This is what happens when state regulatory authority is applied in an arbitrary fashion. (See previous posts on this matter, starting here and working backwards.) The effect of the state's action is to increase the disparity between the rates of the highest paid providers and those whose contracts happen to come up for renewal. Check this chart to see which hospital is being paid more in the Southcoast service area. Hint, it is not Southcoast's. (Those are the hospital rates: I am confident you would see a similar pattern on the physician side, too, were you to compare the rates paid to the Eastern MA dominant provider group.)

Questions: Why should Southcoast have to justify getting rates at parity with competing hospitals and physician groups? If the negotiations take over seven months, is the system broken even more than we thought?