Hospital Sues Blue Cross for Payments

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Times Staff Writer

A class-action lawsuit filed Friday on behalf of all California hospitals accused Blue Cross of California of routinely violating state law by refusing to pay hundreds of hospitals statewide for patient care it authorized.

The suit is the latest salvo in a growing controversy over actions by Blue Cross to cancel the individual health insurance of sick policyholders, sometimes saddling canceled patients with huge medical bills. Although Blue Cross contends that the cancellations are justified partly to crack down on fraud, consumer advocates and policyholders say some revocations are carried out simply as a way for Blue Cross to avoid paying expensive claims.

At issue in the suit, filed in Los Angeles County Superior Court, is the cost of care for patients whose coverage Blue Cross later canceled. In many cases, canceled patients are unable to fully reimburse hospitals.


The suit seeks payment for all treatment the state’s largest health insurer authorized for such patients over the last four years, as well as interest and punitive damages. It also asks the court to order Blue Cross to stop the alleged scheme.

The unpaid bills could be huge because Blue Cross cancellations often involve costly medical procedures for such ailments as tumors and spinal problems.

“We’re seeking payment for all those hospital claims,” said Daron Tooch, a lawyer with Hooper, Lundy & Bookman in Los Angeles who is representing the hospitals. “We anticipate that to be a very large number.”

Shannon Troughton, a spokeswoman for Blue Cross’ parent company, Indianapolis-based WellPoint Inc., said Blue Cross had not yet been served with the suit but was confident that its payment practices complied with the law.

Hospitals don’t know the full extent of the alleged scheme -- or exactly how much it has cost them -- because Blue Cross often denies payments with little explanation, Tooch said.

“We’re going to be investigating what that number is,” Tooch said. “A lot of times it’s unclear whether Blue Cross has not paid a claim because it’s retroactively rescinded or not. That’s kept secret by Blue Cross.”


Jan Emerson, a spokeswoman for the California Hospital Assn., said insurance payment denials such as those in dispute added to the financial strain on the state’s fraying hospital network -- costs ultimately passed on to other patients, taxpayers, investors, lenders and others.

“Hospitals provided care to those Blue Cross patients in good faith,” she said. “In many cases that care is pre-authorized by Blue Cross. When they cancel coverage after that care has been provided, that causes a problem for the hospital.”

The suit alleges that, in many cases, such revocations are themselves illegal, triggered by a purported corporate policy to avoid expensive claims.

The suit alleges that when claims meet a certain dollar threshold, Blue Cross pulls the patient’s past medical records and looks for reasons to revoke, including “any discrepancies in the member’s application, no matter how vague or irrelevant.”

The hospitals contend that state law requires insurers to pay for authorized care whether or not a subsequent cancellation is justified.

Coast Plaza Doctors Hospital, a 123-bed facility in Norwalk, is the sole named plaintiff. But the suit alleges that the practice is widespread and continuing.


“It’s a problem for everyone,” said Lois Richardson, a lawyer with the California Hospital Assn., which is not involved in the suit but supports it.

The hospital allegations come amid a raft of suits filed by individual policyholders against Blue Cross and other health insurers in California, accusing them of illegally revoking coverage after they require treatment. The cancellations involve individual health insurance, the type available to consumers who can’t get group health insurance offered by employers or other organizations.

Blue Cross and other insurers say their goal in canceling policyholders is to root out fraud, such as people who lie about preexisting conditions on applications for coverage. But they also say they believe they have the right to cancel policyholders even for honest mistakes and omissions.

The state Department of Managed Health Care, which regulates health maintenance organizations, disagrees. The agency issued its first sanction in a revocation complaint last month. The agency fined Blue Cross $200,000 after finding it had illegally canceled a woman’s coverage because she did not tell the insurer about corrective surgery she had 23 years earlier.

As for hospital claims, the agency’s position is that insurers must pay for treatment they authorize -- whether or not they later revoke coverage.

Blue Cross, while maintaining it has done nothing wrong, sought to quell an uproar over revocations last month by announcing it would change its procedures and implement safeguards against errors.


But Tooch, the hospital lawyer, said he didn’t see anything in the announcement that would ensure Blue Cross would pay the bills for authorized care.