Insurance Watchdog Struggles With Suit

For more than 20 years Alvin Saidiner has waged a lonely battle against hospitals that overcharge patients for drugs.

Saidiner, 55, is president of PCC/Drug Data Systems, a small Burbank company that audits California hospital bills--mostly involving workers’ compensation claims--for insurance companies and employers. While other hospital auditing services review bills to check if the services charged were actually performed, or if the bills are in the price range of nearby hospitals, PCC goes a controversial step further.

Saidiner, a former pharmacist, tells his clients if a hospital’s pharmaceutical prices are “reasonable,” and if not, he recommends how much should be paid. Using an intricate formula that includes factors such as a hospital’s location, overhead and the cost of drugs, Saidiner figures he has saved clients an average of 40% of their hospital pharmaceutical charges.

He hands over some computer printouts of hospital bills: $9 for one Tylenol tablet; Saidiner said 50 cents is all that should be paid by his client. One IV solution was $36; Saidiner said $7.30 was fair. An alcohol swab was $2; Saidiner told his client to pay 35 cents.

The company has asked hospitals to back up their prices. “They tell us it’s none of our business,” Saidiner says.

Saidiner’s clients have included large insurers such as Aetna Life & Casualty, Hartford Life Insurance, the California State Compensation Insurance Fund--the state’s largest workers’ compensation carrier--and self-insured employers such as Carnation Co. and Marriott Corp. In 1984, he says, PCC had more than $5 million in revenues and more than 1,600 clients.

But those days are over. Saidiner is the target of a lawsuit by the California Assn. of Hospitals and Health Systems, a Sacramento-based trade group, and 123 of its member hospitals against PCC and five insurers. The suit, filed in federal court in Los Angeles in 1986, alleges that PCC and its clients conspired to fix arbitrarily low prices and restrain trade.

The hospitals are seeking unspecified damages, but their attorney, Peter Aronson, says that in the past six years Saidiner has cost the hospitals $58 million in denied charges. Saidiner’s methods are “an outrageous way of reviewing hospital bills,” Aronson says, because they don’t take into account the many costs of hospital operations.

Saidiner says the hospitals’ suit is “sham litigation” and has countersued, asking for unspecified damages. He accuses the hospitals of price-fixing, restraint of trade and fraudulent and discriminatory pricing methods. “They want to drive me out of business,” he says.

Since the lawsuit, his company has all but closed down. Saidiner has lost 80% of his business, he says, in part because some of his former clients have settled with the hospitals and he suspects they dropped PCC as part of the deal. Saidiner and his wife, Rosalie, PCC’s office manager, once employed 40 people, but are now down to just five workers.

After running up $1.5 million in legal fees, Saidiner keeps waiting for his trial to begin, but that is at least 18 months away. He stays open in part to keep his data current in order to better contest the suit.

If his case does come to trial, it will be closely watched by the health-care industry. “If they put him out of business, it’s a major loss to health care,” says Paul Torrens, professor of health services administration at UCLA’s School of Public Health. Hospitals, Torrens says, “need the watchdog effect of organizations like this to keep them honest.”

Three of PCC’s codefendants have already settled with the hospitals, including the state insurance fund, which was PCC’s biggest client until a year ago. A spokesman for the fund says the cancellation of PCC’s services “had nothing to do with the suit.” He said PCC was no longer needed because the fund now has preferred provider agreements with hospitals for discounted services.

The hospitals contend that when Saidiner reviews their pharmacy bills, he doesn’t take into account the losses hospitals suffer in emergency room care and burn centers. “For years, hospital bills have had loss leaders and the pharmacy is where they make their money,” says Doreen Corwin, vice president of Beech Street Inc., an Irvine health care cost management company.

San Antonio Community Hospital in Upland is one of the hospitals suing PCC. Saidiner cites one San Antonio bill in which the hospital charged $61.80 for 15 multivitamin tablets, and $37.40 for 10 vitamin C tablets. Saidiner says those charges are excessive. But Jack Berens, vice president of professional services for the hospital, says these prices reflect the cost of offering free services to the poor and discounts given to many insurers.

Saidiner says he got the idea for PCC in 1969 when he kept noticing that insurers “had no idea what they were paying for” on hospital bills for workers’ compensation claims. He landed his first client, Century Insurance, when he offered to find out why the company was charged $20 for a vitamin. A year later, Fireman’s Fund and other insurers began signing up for his services.

More than 90% of his business is in workers’ compensation, Saidiner says, because state workers’ compensation law requires charges be “reasonable and necessary.” That phrasing gives him a window through which he can question prices, he says.

He obtains information on hospital charges, profits and costs from federal and state agencies and hospital associations. Plugging this data into his computer, Saidiner figures out how much hospitals can charge for drugs and still make a “reasonable” profit. He won’t say what that figure is. “That’s proprietary,” he says. Saidiner charges his clients a flat rate per bill, rather than a percentage of savings.

Saidiner says his clients generally follow his recommendation to pay only a portion of the bill, and if there is a dispute, the insurers and employers can fight it out in workers’ compensation appeals boards. But the hospitals argue that Saidiner has no right to control their profits. Says attorney Aronson: “When you go to buy a car, are you going to tell Ford how much profit they can make?”

Over the years Saidiner has withstood plenty of criticism and legal attempts to shut him down.

In 1976 the same hospital association filed suit against him for restraint of trade. That case was dismissed without prejudice. In 1985, many California hospitals backed an attempt to pass state legislation that would have required workers’ compensation boards to consider hospital bills as a whole, without itemizing. That idea never made it into law.

Saidiner has also lost battles before workers’ compensation appeals boards, which arbitrate disputes over claims. In 1988, Saidiner was harshly criticized by a Ventura administrative law judge, Laurence Grossman, who arbitrated a workers’ compensation claim involving a burn patient who was treated at Sherman Oaks Hospital. The bill totaled $219,000, but Saidiner recommended the insurer withhold $40,000 in drug charges. Saidiner says the hospital typically charges $42 for an IV solution that costs it only about $1.70, and $6 for a gauze pad that costs 15 cents wholesale.

But Judge Grossman, who ordered the extra $40,000 be paid to the hospital, found Saidiner’s opinions “unreasonable, unsupported and motivated by financial self-interest,” and said in his decision that he couldn’t recall “ever seeing a witness less credible.” Trying to pin down Saidiner’s formula for determining reasonable drug charges was “like trying to nail jello to a wall,” Grossman wrote.

Saidiner says he gave the judge a 50-page document explaining his recommendations. Factors such as the hospital’s location, prices charged by other hospitals with similar services, administrative expenses and profit margins were taken into account, he says, adding that similar information presented at a workers’ compensation board in Long Beach last year resulted in a finding in his favor.

Saidiner spends a lot of time with lawyers these days. Last year his former law firm, Seyfarth, Shaw, Fairweather and Geraldson in Los Angeles, sued him for $215,000 in unpaid legal fees. Saidiner’s liability insurer, Unigard Insurance, paid off his former lawyers and now his new legal team, Blecher and Collins in Los Angeles, is working on a contingency basis.

Saidiner is also suing Unigard because the insurance company paid $800,000 to the hospital association to settle those parts of the price-fixing suit that it might be held responsible for. Saidiner is angry because Unigard negotiated a settlement without his consent.

Even if Saidiner loses his legal battle against the hospitals, says UCLA’s Torrens, “This is not a phenomenon that’s going to go away. . . . The idea of stricter accountability of hospital bills is here to stay.”

Meanwhile, Saidiner says stress from all the lawsuits has given him high blood pressure, and he has filed his own workers’ compensation claim. But his workers’ compensation insurer, Ohio Casualty, says Saidiner’s stress isn’t a work-related injury and is contesting the claim.