4 Hospitals Cut Links With Blue Cross as Dispute Grows

Last August, in an earlier column on differences over how much Blue Cross of California should pay hospitals for care of its 5.5 million members, I concluded, “These disputes are intensifying. Stay tuned.”

Matters have now reached an even more critical point. Good Samaritan Hospital in downtown Los Angeles and three Cottage hospitals in the Santa Barbara area--with more than 1,000 beds altogether--have terminated their Blue Cross contracts because, they said, the health plan would not come close to matching other plans in reimbursements and they were actually losing money on Blue Cross patients.

These hospitals are larger and better known than Coast Plaza Doctors Hospital in Norwalk, which has sued Blue Cross, alleging discriminatory payments to small hospitals, and Sherman Oaks Hospital, which took a new contract only with sharp public complaint.

Andrew B. Leeka, president and CEO of Good Samaritan, told me that as of March 4, “we are no longer a Blue Cross hospital. We were receiving less from Blue Cross than from Medi-Cal. . . . We have had no rate increases for five years.”

For example, in hip replacement surgery, under its Blue Cross contract, Leeka said, Good Samaritan could not meet its costs, while Medi-Cal paid nearly twice as much and Medicare three times as much.

Leeka displayed a chart provided by the California Medical Assn. indicating that Blue Cross keeps much more of its premiums for profit and expansion outside the state than others--about 25% of the total. None of its premium increases over the past five years have gone toward Good Samaritan reimbursements, he said.

He added that on Feb. 18, Andrew Allocco, a senior Blue Cross vice president, proposed over lunch some upward adjustments in the second and third years of a new contract.

But three days later, in an apparent reflection of strains within Blue Cross, Leeka said he had been informed that Allocco, a 26-year employee, had been fired and “escorted off Blue Cross premises.” He said that Dr. Michael Kauffman, chief Blue Cross medical officer, was also relieved.

I reached Allocco at home, but he had no public comment. Kauffman could not be reached.

Blue Cross spokesman Michael Chee declared, “We consider this a confidential personnel matter. . . . Any statement from third parties is complete speculation.”

Leeka said that negotiations continue with Blue Cross, “but we are nowhere near close” on resolving the issues. Chee declined to go into details on those issues.

Meanwhile, Cottage hospitals has sent messages to employers in its area, suggesting that they consider moving their Blue Cross participants to other health plans.

In a Feb. 10 open letter, Cottage President and CEO Ron Werft, declared: “Last September, [Cottage] announced it will no longer accept contracts where reimbursement does not cover [our] costs. Since that time, satisfactory agreements have been reached with all but one insurance company--Blue Cross.”

“In each of the last four years, Blue Cross realized net profits in excess of $200 million,” Werft wrote. “In 1999, more than $4 million of that profit came at the expense of Cottage . . . because of below-cost reimbursements.”

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The unhappiness of Werft and Leeka was seconded by C. Duane Dauner, CEO of the California Healthcare Assn., and Jack Lewin, CEO of the California Medical Assn., representing hospitals and physicians.

“Blue Cross has ratcheted down hospital payments,” said Dauner. “They are one of the worst payers. They have also dramatically slowed down payments. . . . They have taken providers’ money and gone out to buy Georgia Blue Cross, Colorado Blue Cross and Rush Prudential HMO in Chicago. . . . That’s nearly $1 billion that should have gone to providers.”

Lewin remarked, “Blue Cross is being ruthless. . . . I wonder about a stockholder-driven health insurance company that chooses to alienate hospitals and physicians at a time when it’s. . . . possessing of sufficient resources to consider purchasing one of its competitors. . . .

“I’d like to ask Blue Cross to get together with [us] to work out our differences and the problems in the marketplace.”

Answering them was Walter Zelman, president of the California Assn. of Health Plans, who speaks for the managed-care industry.

“I agree that the time has come to try to work out problems in common,” he said.

However, he contended, “There is nothing in law or good business practice that says Blue Cross has to contract with every hospital in Los Angeles. That’s not how the market works. . . .

“If Jack Lewin is going to say that what Blue Cross is doing is not fair, then he has to say what fair will be. He seems to want a colossal regulatory agency rather than the free market. What’s wrong with Blue Cross being tough?”

Chee of Blue Cross welcomed Zelman’s observations.

“With the medical centers in the proximity of Good Samaritan, there will be little disruption for patients in accessing medical care, and most likely zero,” he said. “Even highly specialized services are available through our other participating hospitals.”

But, at Good Samaritan, officials said they have already had patients who can’t find a substitute for what the hospital has to offer.

Leeka and an associate, Sammy Feuerlicht, told of an expectant mother almost ready to give birth who suddenly had been told Blue Cross would pay nothing if she went to Good Sam to use a midwife unavailable elsewhere.

In this case, they said, the woman complained to the state Department of Corporations, which oversees health plans, and Blue Cross was soon ordered to pay the bill.

Chee said he didn’t know the case.

But these reimbursement disputes are critical. I feel if one part of the health delivery system is malfunctioning, it surely must have an impact on other parts.

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