Blue Cross Coverage Extended in Dispute

State regulators stepped in Friday to delay a showdown that threatens access for more than 175,000 Blue Cross members to three hospitals in Los Angeles County.

The state Department of Managed Health Care intervened in a long-running fee dispute that pits struggling hospital operator Centinela Freeman HealthSystem against the nation’s largest insurer, WellPoint Inc.

The state extended by two weeks full Blue Cross coverage for care at Centinela Hospital in Inglewood, its nearby Memorial campus and its Marina del Rey campus, which together have more than 800 beds.

Friday’s order allows Blue Cross members to continue using the hospitals through March 15 as in-network facilities even though the insurer’s contract with Centinela Freeman is set to expire Wednesday.

Blue Cross has asked the Department of Managed Health Care for permission to send its members to other hospitals in the event that they fail to reach a new agreement. Blue Cross members also could use Centinela Freeman hospitals but would be reimbursed at a lower, out-of-network rate.

Centinela Freeman administrators say that they are losing money on service to Blue Cross members and that those losses would mount if the hospital operator agreed to the rates offered by the insurer.

Blue Cross of California, which is owned by Indianapolis-based WellPoint, says it already pays the hospitals more than many others in the area, and is offering an increase of 35% over three years.

“This is a very serious situation,” Department of Managed Health Care spokeswoman Lynne Randolph said. “We’re very concerned [to hear] of any hospital being put in financial risk.”

Randolph said her agency ordered the two-week coverage extension to evaluate whether the Blue Cross contingency plan would serve patients properly.

The three hospitals were in the red when Tenet Healthcare Corp. put them up for sale two years ago, along with 25 others across the country, and have yet to turn a profit. The three lost a total of more than $47 million, according to state records, in the 11 months before a group of physicians, community members and an investment firm acquired the hospitals in November 2004 for an undisclosed amount.

Led by former Tenet administrators, the new operators said they were working to restore the hospitals to profitability -- and to keep all three open. In January, they laid off 100 employees and closed the Memorial campus’ obstetrics unit.

Centinela Freeman Chief Executive Mike Rembis said the company had hoped to go into the black this year. But, he said, that hinged on getting an adequate increase in reimbursements from Blue Cross.

Almost a quarter of Centinela Freeman patients are Blue Cross members but they provide only 9% of revenue, administrators said.

“Our costs go up 9% to 10% minimum a year,” Rembis said. “Nurses’ salaries alone go up more than 8% a year. That’s just the cost of doing business.”

Contracts between hospitals and insurers are generally confidential. But Rembis said he believed Blue Cross paid the Centinela Freeman hospitals far less than others in the area.

Blue Cross officials said Rembis was wrong.

Because the contract was negotiated by Tenet -- which, as the nation’s second-largest hospital chain, has substantial bargaining power -- it is more generous than those negotiated by smaller hospital groups nearby, said Josh Valdez, a senior vice president for WellPoint’s western region.

“Already I think they are overpaid,” Valdez said. “What they are asking for would put them way above the market -- higher than what they already are.”

But hospital administrators said the offer was not as good as it sounded because, for instance, it did not include coverage to limit the hospital’s losses on extremely sick patients.

Pointing to the fact that WellPoint tripled its profit in the fourth quarter last year, administrators said Blue Cross could afford to improve its offer.

“I talk not about the profitability of the hospitals but the survivability of the hospitals and the community and our concern about patients having access to care,” Rembis said. “And all they talk about is budgets and money.”

Blue Cross representatives said they too were concerned about patients and wanted to ensure that they were spending their premiums wisely.

“We want to resolve this issue with a position that allows the hospital to make a profit, but, by the same token, allows us to keep our rates affordable to our members,” WellPoint spokesman Robert Alaniz said.

Valdez said Blue Cross had contracts with more than a dozen hospitals of comparable or higher quality, including St. Vincent Medical Center in downtown Los Angeles and St. John’s Hospital in Santa Monica, where the insurer could send patients in the event of an impasse.