Small Hospitals Rail Against a Powerful Insurer

That Blue Cross of California has been successful in keeping costs down for its members is the company’s proudest claim. In 1998 alone, according to spokesman John Cygul, this helped it grow by more than 500,000 customers, to close to 5 million members statewide.

During the same period, Cygul says, there have been insurance premium increases averaging 6%.

But another side of the story is that Blue Cross--

the state’s second-largest health care firm--has been highly resistant to paying more to its doctors, and to upping reimbursements to its hospitals.

Holding down costs is one thing, but potentially forcing small hospitals into bankruptcy, or not giving more to practitioners over as much as five years, is something else.

Maybe, in short, it has to be recognized that a sound health care system means not only fairly treating patients, but the hospitals and doctors as well. Otherwise the quality of care will deteriorate.

There are reports that Blue Cross has begun to loosen up with some doctors and dentists. One dentist says, for example, that when the wife of a Blue Cross executive became his patient, she arranged a meeting for him, and, after five years of no change, he got his reimbursements upped by about 10%.

Last year, some of the larger hospitals, after threatening to terminate their Blue Cross contracts, got increases reported at about 8% over three years.

But with small hospitals, it has not gone so well.

In March, the 126-bed Coast Plaza Doctors Hospital in Norwalk ended a 40-year relationship with Blue Cross and filed a discrimination lawsuit against it, claiming it treats large hospitals more favorably than small ones.

Since then, Los Angeles Judge John W. Ouderkirk has sided with Coast Plaza, saying big hospitals, such as Huntington Memorial, Cedars-Sinai and St. Joseph of Orange, must divulge their Blue Cross contracts to the litigants under seal.

However, Blue Cross has appealed this ruling, and so far none of the contracts have appeared.

Meanwhile, Coast Plaza Chairman Gerald J. Garner reports that Blue Cross has suggested a settlement.

Now, another small facility, the 153-bed Sherman Oaks Hospital, with its famous 30-bed Grossman Burn Center, is complaining publicly that Blue Cross treated it unfairly before and after it signed a new contract May 1.

David Levinsohn, CEO of the hospital, says Blue Cross not only reimburses it well below other health plans--resulting, for example, in a payment of just $3,204 on an $80,338 bill--but otherwise has pushed him to the breaking point.

That point came, he says, when Blue Cross contracted with the State Compensation Insurance Fund to administer the fund’s workers’ comp payments at the hospital, and then sought to downsize all of them to the level of Blue Cross’ own contract with the hospital.

Reimbursements for a sample period would, if Blue Cross got its way, have dropped from $1,640,106 to $769,427, Levinsohn said.

“Frankly, if we had to treat all of our workers’ comp patients under Blue Cross rates, we would be out of business,” he informed Doris Elam, a Blue Cross negotiator. As it is, Levinsohn said, he must charge others more to make up for Blue Cross deficits.

His entreaties to meet higher-ranking company officials for talks were rebuffed, Levinsohn said.

He said he accepted the new Blue Cross contract, with an inpatient per diem rising from $801 in the first year to $920 in the third, because he did not think his hospital could maintain standing without Blue Cross members as patients.

But he intends to resist, perhaps with a lawsuit, the Blue Cross payment scale for patients from the compensation fund.

He showed me a list of charges for six burn patients in 1998 and 1999 of $391,244, saying Blue Cross would have paid just $52,176, while the compensation fund paid $293,433.

At Blue Cross, spokesman Cygul declined to discuss the issues of the compensation fund, nor would he say if Blue Cross intends to negotiate more such contracts.

He insisted in general that the firm has to remain true to its efforts “to keep health care affordable.”

“I can’t overemphasize that,” he said. “We have to balance the interests of our patients, who want affordable care, with . . . relationships with all providers, including our hospitals. . . .

“Specifically, about Sherman Oaks, we negotiated in good faith through the spring with those folks,” he said. “We think our business must be pretty profitable for them.”

Officials of two leading health care associations are backing Levinsohn and his hospital.

C. Duane Dauner, CEO of the California Healthcare Assn., sees big differences between Blue Cross and workers’ comp cases.

In signing with Blue Cross, a hospital takes “a rather broad-based group of the general population,” he said. “Workers’ comp recipients are not the same type. . . . The latter come in as victims of some kind of industrial accident. Blue Cross is trying to apply their rates for a homogeneous group to a very select, high-cost class of patients who have incurred injuries on the job. . . .

“If this spreads, the hospitals will end up getting killed financially.”

Jim Lott, executive vice president of the Healthcare Assn. of Southern California, accused Blue Cross of “predatory pricing” and declared, “The cure, pure and simple, is for the Legislature to pass a law mandating that a set percentage of premiums be dispensed to the providers . . . perhaps 85%.”

Lott said Blue Cross and some other for-profit health plans are now taking as much as 30% of the premium dollar and putting it into profits or investments, while the nonprofit Kaiser Permanente retains less than 5%, spending 95% of its premiums for health care.

Blue Cross’ Cygul challenged Lott’s call for a new law. Mandates by the Legislature that a percentage of premiums be spent on health care, he declared, would “increase costs to consumers.”

These disputes are intensifying. Stay tuned.

Ken Reich can be contacted with your accounts of true consumer adventures at (213) 237-7060 or by e-mail at ken.reich@latimes.com.