Five nonprofit Southern California hospitals alleged in a lawsuit Monday that Blue Cross routinely authorized surgery and other expensive treatment for its members and later refused to pay.
The suit is the latest development in an unfolding scandal over charges that the state's largest health plan operates a special department that illegally searches for excuses to dump individual policyholders after they develop costly conditions, such as breast cancer and heart disease.
Two state agencies are investigating the allegations made in a series of suits filed recently throughout the state by more than two dozen former Blue Cross members.
The suit, filed Monday by Long Beach Memorial and four sister hospitals in Los Angeles and Orange counties, underscores the patients' charges and says the alleged scheme hurt the providers' bottom line.
Indianapolis-based WellPoint Inc., parent of Blue Cross, said it could not comment because it had not seen the suit, spokesman Robert Alaniz said. But he said the company's relationship with its provider hospitals was "very important."
The company has repeatedly denied any wrongdoing in the suits filed by former policyholders. It has said it legally cancels policies if it discovers that members misrepresented something on their applications.
The hospitals' suit may be the first of many against Blue Cross, which has contracts with most hospitals in California. The newest suit alleges the practice is widespread.
"There are many other hospitals in the same boat," said Daron L. Tooch, a lawyer whose Los Angeles firm, Hooper, Lundy & Bookman, represents many California hospitals, including the Memorial group. "It's going to get a lot bigger before it comes to a conclusion."
According to the suit, filed in Los Angeles County Superior Court, the hospitals provided treatment after obtaining authorization from Blue Cross. The health plan later dumped patients retroactively -- alleging that they lied on applications -- and refused to pay the hospitals.
The vague denial letters from Blue Cross mislead the hospitals "into believing that the patients lacked coverage at the time the services were provided without explaining that [Blue Cross] really had rescinded that coverage after services were provided," the suit says.
Echoing the patients' allegations, the hospitals contend that Blue Cross doesn't bother to investigate the information on an application until after it receives a bill. The hospitals allege the investigations -- an illegal practice known as "post-claims underwriting" -- are triggered by bills that reach a threshold cost.
Whether or not the rescissions are proper, the hospitals contend, state law requires health plans to pay them for treatment they authorize in advance.
The hospitals are seeking a court order that Blue Cross stop the alleged scheme and are seeking an unspecified amount of back payments and other damages. Hospitals often are forced to write off the bills, some of which exceed $100,000, because the patients can't pay. The allegations involve individual policies, not those issued through employers or other groups.
WellPoint has said it believes state law allows a health plan to retroactively cancel a policy if it discovers misrepresentations on the application.
But a Blue Cross executive with expertise in its rescission procedures testified in a court case last year that the health plan made no effort to determine whether an application discrepancy was a deliberate attempt at fraud or an innocent mistake.
Legal experts say health plans may rescind coverage only if the member had intentionally withheld material information.
In addition to Long Beach, the hospitals that brought the suit are Anaheim Memorial Medical Center, Miller Children's Hospital in Long Beach, Orange Coast Memorial Hospital in Fountain Valley and Saddleback Memorial Medical Center with facilities in Laguna Hills and San Clemente.