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BMC HealthNet Plan said Thursday that it will end its contract with Boston Children’s Hospital on Jan. 1 because the struggling insurer can’t afford to pay the hospital’s high rates.

The health plan, which serves people with low incomes, made the decision as it finished the fiscal year ending Sept. 30 with $43 million in losses.

“We’ve been working diligently with Children’s for over a year to bring their rates down,” said Susan Coakley, president of the health plan. “We really cannot afford to continue to pay them at the advanced rate that we’ve been paying.”

The plan has also cut Springfield-based Baystate Health from its network. “We are looking at all the high-cost providers in our network,” Coakley said.


BMC HealthNet is a subsidiary of the teaching hospital Boston Medical Center and manages care for people on Medicaid, the government health plan for the poor. It has about 270,000 members, including about 12,000 who use Children’s Hospital.

The state’s other big Medicaid managed care plans, Neighborhood Health Plan and Network Health, have also struggled, losing tens of millions of dollars after getting a surge of new members and paying the unanticipated expense of covering a popular and expensive new drug for hepatitis C. Government reimbursement rates haven’t kept pace with health care costs, the Medicaid plans said.

Children’s Hospital executives said they negotiated for months with BMC HealthNet. But the lower rates the health plan ultimately requested would have led to unsustainable losses for the hospital, they said.

“It’s unfortunate that we’re not able to keep this relationship,” said Doug Vanderslice, chief financial officer at Children’s. “We want to do everything we can to avoid disruption.”

The hospital still has contracts with Neighborhood Health and Network Health. BMC HealthNet members who want to continue using Children’s Hospital could move their coverage to one of those other plans at any time.


More than 30 percent of patients at Children’s Hospital are covered by some form of Medicaid. The renowned hospital, one of the state’s most expensive, earned a $65 million surplus over nine months this year.

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.