At one time they were suitors. Now, Independence Blue Cross has slapped Graduate Health System's four Philadelphia-based hospitals with a lawsuit for breach of contract.
It also has informed system officials that it won't be renewing its $25 million-a-year book of business with Graduate when current agreements expire next year. Independence Blue Cross said it "can no longer tolerate" the hospitals' refusal to comply with contractual provisions. It contends Graduate discriminated against its subscribers and defaulted on a "prudent buyer" provision of the contract.
The plan's HMO and PPO agreements with Graduate expire next February, and an indemnity contract terminates July 1, 1997. About 12,000 of the plan's enrollees use Graduate hospitals, said Dick Doran, spokesman for the 2.4 million-enrollee insurer.
Harold Cramer, Graduate's chairman and chief executive officer, said he was "shocked as anyone" to receive word of the plan's decision to sever ties. "We look forward to working with them to resolve the dispute," he said.
In a three-page letter dated July 26, Independence Blue Cross cited a particular incident that fueled the row. The letter said Graduate refused to allow a surgeon to use a $1,800 graft in knee reconstruction surgery because the patient's insurer, Keystone Health Plan East, was not on a "list of third-party payers" for which a certain service may be provided. Keystone is the Blue Cross plan's HMO.
"Apparently other insurers' members have been covered for that particular brand of treatment and this one was not," Doran said. The patient's knee graft was finally covered as Blue Cross prepared to bring suit, Doran said. But the insurer still wants to know what the alleged list is all about and why it was excluded. "That sounds like discrimination," he said.
According to Cramer, "nobody's being discriminated against." He said all enrollees received the grafts they wanted to use.
Independence Blue Cross also remains frustrated by Graduate's refusal to allow auditors access to information that would confirm whether the plan is getting as good a deal as other insurers. But Cramer said the prudent buyer clause does not require Graduate to allow such an audit.
Under the plan's prudent buyer clause, Graduate may not charge Blue Cross enrollees more than the best price it gives other insurers. The plan is in arbitration with a number of hospitals over the same issue.
Doran said the plan's lawsuit, filed July 26 in Philadelphia's Common Pleas Court, alleges that Graduate did not comply with payment terms under their contract and refused to provide required medical care. The suit seeks unspecified damages, attorneys fees and an order that Graduate meet its contractual obligations.
A proposed partnership between Graduate and Independence never got off the ground two years ago (Nov. 21, 1994, p. 3). The two organizations were to merge their for-profit operations into a new subsidiary and fold Graduate's not-for-profit hospitals into an integrated network being formed by the Blue Cross plan.