The largest organizations representing California physicians and hospitals joined a lawsuit against Blue Cross of California on Thursday, accusing the state's largest health plan of illegally and routinely refusing to pay them millions of dollars for medical care provided to enrollees whose policies were later canceled.
The move puts the doctors and hospitals on the side of patients, regulators and consumer advocates who have criticized Blue Cross and its competitors for canceling individuals' policies after they incur costly treatment. Such cancellations have left some patients with significant financial or medical hardships.
Blue Cross, owned by Indianapolis-based WellPoint Inc., defends the practice, saying it cancels policies only after determining that individuals submitted incomplete or inaccurate applications for coverage. In such cases, the insurer contends, the patients are responsible for paying the doctors and hospitals.
At issue are individual insurance policies, the kind needed by consumers who can't get group coverage from an employer. Unlike group coverage, where all applicants must be accepted, insurers are allowed to reject individual-policy applicants with preexisting conditions or other medical risks.
Disgruntled former policyholders have filed hundreds of lawsuits against Blue Cross and other carriers in California, accusing them of digging up application flaws after the fact so they can shirk their promise to cover medical bills. They allege insurers are violating state law by failing to determine whether policyholders intended to lie on applications, or merely made mistakes.
Now, the California Hospital Assn., representing about 430 institutions, and the California Medical Assn., representing more than 35,000 physicians, are joining a lawsuit against Blue Cross filed in Los Angeles in October by Coast Plaza Doctors Hospital and Methodist Hospital of Southern California.
They say state law requires insurers to pay doctors and hospitals for authorized treatment even if the insurer later decides the patient should not have been covered at the time.
"The hospitals are saying, 'Just pay us for what you authorized us to do,' " said Jan Emerson, a spokeswoman for the California Hospital Assn. "Hospitals have done the right thing. The doctor referred them to the hospital for a procedure. The hospital called and got authorization for the procedure. We provided the care. And, after the fact, Blue Cross decides to rescind coverage. And the hospitals and the doctors are left holding the bag."
WellPoint spokeswoman Shannon Troughton said it was not that simple. Blue Cross contends that California law bars insurers from revoking authorizations for care, and Troughton said the company complied with that.
"Blue Cross' pre-authorization for healthcare services is an advance determination of the medical necessity of a proposed procedure only; it is not a guarantee of payment," she said, adding that the caveat is "stated expressly" when the pre-authorization request is made.
"Our authorizations for care, based on medical necessity, include express statements that they are not guarantees of payment," she said.
"We do not revoke these authorizations. When we rescind coverage due to fraud, we are rescinding the member's contract."
Although Blue Cross also contends that rescinded patients are responsible for the bills, the consumers often are unable to pay because the medical debt dwarfs their income and they are caught up in a struggle to obtain new coverage -- or come up with the cash for their continuing care.
California Medical Assn. President Anmol S. Mahal, a Fremont gastroenterologist, said Blue Cross' refusal to pay in such cases was unfair.
"We're talking about elective services that are provided by physicians in good faith after getting authorization," he said. "The physicians are not the ones who should be punished."
The suit alleges that such unpaid bills are straining the state's healthcare network. As the state's largest healthcare insurer, Blue Cross does business with most hospitals and physicians. California hospitals reported shouldering $7.7 billion in bad debt last year. It is too early to know just how much of that is due to retroactive cancellations, hospital group spokeswoman Emerson said.
But, she said, "it's fair to say it's potentially millions and millions."
The doctor and hospital groups reiterated allegations of former policyholders that, in many cases, the rescissions were improper in the first place.
"Now the largest representative of hospitals in California and the largest representative of doctors in California have concluded there is a problem here," said Glenn Solomon, a lawyer representing the groups.
William Shernoff, a Claremont lawyer representing hundreds of rescinded policyholders, said the groups brought "a lot more clout" to the issue.
The groups' decision to join the suit comes about a year after the controversy over retroactive cancellations emerged. The litigation snowballed, pulling in more consumers and tagging nearly every insurer, including Blue Shield of California, Kaiser Permanente and HealthNet.
The California Department of Managed Health Care is drafting regulations aimed at curbing rescissions and, since September, has sanctioned insurers in a handful of cases.