Children's Hospital said yesterday that beginning Jan. 1 it won't accept HMO patients from the Washington area's largest insurer, CareFirst Blue Cross Blue Shield, a decision that represents another sign of tension between insurers and health care providers.

Executives of the D.C. hospital said they have decided not to renew their contract with CareFirst because of a dispute over the rates paid by the Owings Mills, Md.-based insurer.

Patients from CareFirst's non-HMO plans can continue to use Children's services next year, but they will have to pay the insurer's higher out-of-network co-payments, executives from the hospital and insurer said. All CareFirst patients seeking emergency care will be treated at lower in-network rates, they said.

"CareFirst started off the negotiation asking for a 12 percent decrease in rates," said Jody M. Burdell, a Children's vice president. "We asked for a 20 percent increase. CareFirst really needs to pay rates that are comparable to other managed care companies' rates."

CareFirst's account of the negotiations differed. M. Bruce Edwards, a CareFirst vice president, said Children's ended discussions yesterday after the insurer rejected a demand for a 25 percent rate increase.

"We offered a reasonable increase," Edwards said, declining to mention specifics. "Children's is already the highest-paid hospital across the board in our network [of 77 hospitals]. . . . We accepted their termination because we have to try to keep our premiums affordable for our members."

Burdell also disagreed with that. She said CareFirst's reimbursements to Children's are among the lowest that her institution receives from insurers and are also below what other hospitals are paid.

"What CareFirst has paid Children's over the last several years is well below what they are paying other pediatric providers such as Johns Hopkins and the University of Maryland," she said. "And, in addition, they are paying well below our costs."

Both sides said they hope the dispute can be resolved before Jan. 1. But they expressed little optimism.

Said Edwards, "They took the action to terminate our contract -- not us."

Said Burdell, "At this point, CareFirst is showing no desire to close the gap."

CareFirst executives said they plan to ask doctors who use Children's to obtain privileges at other hospitals.

Children's, meanwhile, is drafting a letter to its patients.

"We're notifying patients of the names of other insurance companies that we participate with if they want to change plans," Burdell said. "Especially since it's open [enrollment] season, they'll have the opportunity to change plans and have the continuity of care with their doctors."