Hospital Sues, Claiming Blue Cross Plays Favorites


After two big hospital chains in Northern California and three San Gabriel Valley facilities won higher payments from Blue Cross of California by threatening to terminate their contracts with the firm, other hospitals have tried similarly hard-nosed negotiating with the company.

Some have succeeded.

But it didn’t work at Coast Plaza Doctors Hospital in Norwalk, a 126-bed facility that serves mainly low-income patients.

Coast Plaza board Chairman Gerald J. Garner reports that while other managed care firms usually pay about 80% of his hospital’s applicable patients’ bills, Blue Cross had been paying only 6% to 8%, often very late.


The hospital’s records show, for instance, that it recently submitted bills for 10 patients totaling $50,630 and that Blue Cross reimbursed it only $3,996.

And it wouldn’t permit the hospital any “carve-outs”--cost reimbursements for equipment such as pacemakers--as it does elsewhere.

Garner also said that Blue Cross had been taking over payments to the hospital for some workers’ compensation insurers that have traditionally paid about 75%. Blue Cross paid those companies’ bills according to its 6% to 8% schedule.

Coast Plaza ended its 40-year relationship with Blue Cross--which has 4.7 million customers enrolled statewide--on Feb. 28, and on March 2 the hospital filed a wide-ranging discrimination lawsuit against the firm.

The suit charges that “Blue Cross favors certain larger hospitals to the detriment of other, smaller hospitals in an attempt to put small hospitals out of business.”

The confidentiality that Blue Cross works hard to enforce in its contracts is, in fact, an attempt “to further its discriminatory conduct,” the lawsuit also alleges.

Garner remarked, “This is not a crusade; it’s a matter of survival.”

Blue Cross declined to respond in detail because the matter is in litigation.

However, in general, spokesman John Cygul said that rates “take into account the mix of services that a facility has to offer. Therefore . . . the rates for services will be different for facilities depending on the level of sophistication of services offered. . . .

“If we paid every hospital the rates that they demand, or if we paid every hospital the highest rate negotiated with any one hospital, it would have an adverse impact on the availability of coverage to a large part of the population,” he said. “Not only would customers see their insurance premiums rise, but the increases in those premiums might make health care coverage unaffordable.”

It may be, however, that if indeed a big managed care firm is unfair to some hospitals, it is likely to adversely affect care of their patients.

Some representatives of the bigger hospitals take for granted that they can do better in talks with Blue Cross than small ones.

For example, Kevin Fickenscher, chief medical officer at the 48-hospital Catholic Healthcare West, commented this past week:

“We were successful because we were big enough, and Blue Cross couldn’t ignore us.”

In the recent contract talks, Garner said, Blue Cross offered Coast Plaza a 0.8%increase over the three-year life of a new contract. By contrast, Catholic Healthcare West is said to have received an increase of about 8% in contract talks last year.

According to Garner, when he sought to compare Blue Cross’ payments to Coast Plaza with its payments to other hospitals in a Feb. 25 talk with Blue Cross negotiator Barry Ford, Ford told him the information was all confidential.

Garner quoted Ford as saying, “I’m not allowed to tell you the figures, and the [other] hospitals would be liable for a breach of contract with us, if they discussed them with you.”

When Garner answered that he could find out the precise figures in one case because he served on the board of directors of one of the other hospitals, he said Ford threatened that “if I released it as a member of a board of directors, then I would be personally liable.”


Officials representing hospitals who talked with me about the earlier negotiations with Blue Cross say that Blue Cross has taken no legal action against them for divulging details of those talks, so it may be that Blue Cross suggestions of action to enforce confidentiality are a bluff.

But Cygul emphasized that to Blue Cross, confidentiality is very important.

“As in most business relationships, it is generally in the best interest of all parties to keep negotiations confidential,” he said. “Most health plans and hospitals do not share with the competition the details of the contracts that they complete.”

Still, a 6% to 8% reimbursement level at Coast Plaza seems very low. I wish Blue Cross had been willing to discuss it.

In another development of some bearing in hospital views of Blue Cross, the Healthcare Assn. of Southern California has just released a survey in which 43% of 177 member hospitals responding, or 76 hospitals, rated the 13 largest health plans serving consumers in the Southland.

It would be better had a higher percentage responded. But it is worth noting that in the overall performance ratings, Aetna / U.S. Healthcare scored the highest, and Blue Cross third-lowest.

Aetna was rated good to excellent by 54% of the hospitals responding, PacifiCare by 52%, Blue Shield HMO by 51%, CIGNA by 50%, Health Net by 44%, Prudential by 41%, CareAmerica by 40%, InterValley by 29%, Metra Health by 27%, Foundation by 26%, Blue Cross by 20%, Universal by 16% and MaxiCare by 5%.

Jim Lott, executive vice president of the association, said that at a Feb. 1 meeting Blue Cross “pretty much asked us not to release the data and there were words.”

Cygul observed that Blue Cross has rated well on some other surveys, particularly of customer satisfaction, and said it has gained 516,000 new insureds in the past year.


Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060, or by e-mail at: