Anthem Blue Cross parent WellPoint Inc. agreed Monday to pay $11.8 million to settle claims from about 480 California hospitals that it failed to cover the bills of patients it dropped after they were treated -- a controversial practice known as rescission.
The hospitals sued after scores of their patients contended in their own lawsuits that Blue Cross had illegally dropped them.
The patients said Blue Cross had improperly investigated their medical histories after they submitted expensive bills in an effort to use purported preexisting conditions as an excuse for canceling their policies.
The hospitals, including most private and public facilities in California, say they provided emergency and authorized care to patients who were, at the time of treatment, Blue Cross members in good standing. Only later, they contended, did Blue Cross drop the patients and renege on its obligation to pay their bills.
Pending final approval from Los Angeles County Superior Court Judge Peter Lichtman, the settlement will allow the hospitals to be reimbursed for disputed bills, said Daron Tooch, a lawyer for Hooper, Lundy & Bookman Inc., the Los Angeles firm representing the hospitals.
As a condition of the deal, the hospitals agreed to stop trying to collect payments for the disputed bills from patients. Anthem Blue Cross still faces separate class-action suits from the state's physicians over bills from patients the company canceled after they treated them. It also faces a class-action suit filed on behalf of more than 6,000 patients dropped by the company since 2001.
The company had reached a tentative settlement with lawyers on behalf of patients more than a year ago. But that deal unraveled when the hospitals and physicians objected that it failed to address providers' medical bills and their efforts to collect from patients.
"You really had to get the hospitals involved to get them to release their claims against the patients," said Tooch, the hospitals' lawyer. "That's why the patients benefit more from this settlement than the prior one."
Settlement talks on behalf of the patients and physicians are ongoing.
Blue Cross also faces regulatory action. The state Department of Managed Health Care announced a $1-million fine against Blue Cross after it concluded last year that its rescission practices were systemically unfair and illegal.
Since then, a California appellate court decision on a rescission case prompted the department to reconsider its case, officials said.
"That decision strengthened the hands of patients," said Daniel Zingale, a healthcare advisor to Gov. Arnold Schwarzenegger. "What's important about that decision is it made clear that it's against the law to take someone's health insurance away from them when they acted in good faith."
Now, Zingale said, the penalty could be stiffer for Blue Cross -- as much as $200,000 per violation on about 1,700 disputed rescissions. Blue Cross, along with competitor Blue Shield, have failed to come to terms with the department over rescissions.
The department is seeking deals that would lead to the restoration of coverage for rescinded patients. Health Net, Kaiser and PacifiCare all have reached negotiated settlements that the department said would lead to such reinstatements.
Department director Cindy Ehnes said, "Anthem Blue Cross and Blue Shield have not agreed to reissue health coverage, so we will be going back through each of their approximately 2,170 rescission cases to pursue individual fines in each case."
Anthem Blue Cross President Leslie Margolin said the company had been trying to reach a deal with the department for months. She said she had a meeting with senior members of the governor's office staff to go over the company's proposal, including the immediate coverage for seven individuals the department previously demanded it reinstate, as well as third-party reviews of other cases.
"We have been in discussions with the department regarding a fine and have expressed willingness to settle on terms comparable to all other industry agreements," Margolin said.