Hospital operator is sued by state

Times Staff Writer

California regulators have moved to stop one of the state’s biggest hospital operators from billing privately insured patients for unpaid medical services received at its facilities.

The Department of Managed Health Care, in a lawsuit filed Friday in Orange County Superior Court, is seeking to bar Prime Healthcare Services Inc. of Victorville from billing insured patients for unpaid medical bills that the hospital chain contends it is owed from insurers and is seeking from patients as a last resort.

“Prime Healthcare’s ongoing practice of putting consumers in the middle of billing disputes between providers and health plans is the largest example of this egregious practice we’ve seen to date, and it must be stopped,” said Cindy Ehnes, director of the state agency.


“Consumers who have purchased health coverage in good faith deserve to know that it will cover them in a medical emergency and not result in crushing medical debt,” she said.

Prime Healthcare said it believed that it was legally allowed to send the bills to patients and that it wouldn’t have to do that if insurers paid their portion of the medical bills.

Prime “is disappointed that DMHC . . . has resorted to punitive actions against the very providers, physicians and hospitals alike that are essential to maintaining the healthcare safety net relied on by thousands of patients every day,” said Mike Sarrao, Prime’s general counsel. Sarrao said the company “does not believe the DMHC has the requisite legal or equitable standing to bring the suit forward.”

Prime Healthcare is one of the fastest-growing hospital chains in the state and has acquired a dozen Southern California hospitals in recent years. It now rivals Kaiser Permanente in size.

Insurers contend that Prime inflates what it charges them for patients treated in Prime hospitals. In response, many insurers including Kaiser Permanente said they had begun sending Prime only partial payments for members treated at Prime hospitals.

Prime often cancels most private insurance contracts when it acquires a hospital, causing that many of the patients treated in its emergency rooms or who are admitted for longer stays are “out of network,” allowing Prime to charge higher fees for their care.

In response to insurers’ partial payments, Prime acknowledges, the hospital chain has been sending as many as thousands of patients in recent months the unpaid portions of their bills -- some as high as $50,000 -- igniting an outcry from patients, insurers and state regulators.

The controversial practice is known as “balance billing” and is increasingly common across the state. But the size and scope of Prime’s balance-billing practices appear to be among the largest thus far.

Balance billing occurs when doctors and hospitals claim they’ve been underpaid by insurers and ask patients to pay the balance. Some patients wrongly assume that such bills are cleared by their insurer.

For example, a doctor may charge $2,000 for a procedure, but the health plan pays $1,500. Under balance billing, the hospital would ask the patient for $500 -- even though the patient had paid his or her full share of the service.

Many of the bills involve patients who are taken -- some by ambulance -- to emergency rooms that are not in their health plan’s network.

According to a 2006 survey by the California Assn. of Health Plans, more than 1.75 million Californians who visited emergency rooms in the previous two years received $578 million in bills for unpaid balances on top of their co-pays and deductibles. Nearly 60% of patients paid the bills, the survey found.

Kaiser Permanente sued Prime this spring to block the company from billing more than 5,000 of its patients for unpaid medical bills.

In May, the insurer got a temporary restraining order from Los Angeles County Superior Court barring Prime from collecting from patients or reporting the bills to national credit agencies until the case is resolved.

Kaiser is involved in a similar lawsuit with Cedars-Sinai Medical Center.

California laws on the issue are vague compared with those in some states. New Jersey and West Virginia require insurers to pay the doctors’ bills in such disputes. Connecticut, Colorado and Rhode Island indemnify patients against having to pay such bills.

California has rarely acted against insurers or providers for balance-billing problems. One exception came in 2005 when regulators fined Health Net $250,000 for underpaying emergency room doctors and other physicians. The state said the Woodland Hills-based managed-care provider underpaid more than 65,000 claims.

In 2006, Gov. Arnold Schwarzenegger ordered state regulators to ban balance billing. The Department of Managed Health Care spent two years trying unsuccessfully to negotiate a compromise between insurers and providers.

This spring, the agency decided to outlaw the practice and drafted regulations to bar hospitals and their physicians from billing patients for emergency services that are the responsibility of insurers. Because the regulations aren’t expected to be in effect until this fall at the earliest, the state sought recourse against Prime Healthcare in court, a department spokeswoman said.

“Patients shouldn’t be brought into the middle of billing disputes. Period,” said department director Ehnes.