Two of California's largest health plans have been hit with the first of what could become a wave of lawsuits filed by local hospitals claiming the insurers used an illegal coverage-cancellation scheme to avoid paying large medical claims.
On May 8, five-hospital system MemorialCare Medical Centers, Huntington Beach, Calif., sued Blue Cross of California, a unit of WellPoint, for allegedly authorizing costly medical procedures then refusing to pay for them after retroactively canceling the patients' insurance policies. Four days later, 346-bed Methodist Hospital of Southern California, Arcadia, filed a near-identical lawsuit against Blue Shield of California.
The lawsuits come amid mounting allegations that the insurers scour members' original applications after they submit large claims, looking for inadvertent misstatements and omissions to use as a pretext to rescind their coverage and escape hefty costs. State insurance regulators are investigating the charges, first made in a series of individual lawsuits filed in March and April by 20 former Blue Cross members and three former Blue Shield members (April 3, p. 4).
The latest lawsuits, both filed in Los Angeles Superior Court, allege that the insurers' "post-claims underwriting" tactics have hurt the not-for-profit hospitals financially by requiring them to write off hundreds of thousands of dollars in medical bills that patients were unable to pay after being retroactively stripped of their insurance coverage.
Daron Tooch, an attorney with the law firm Hooper, Lundy & Bookman, which represents both MemorialCare and Methodist Hospital, said he expects to file more lawsuits against the Blues in coming weeks. "Many other hospitals have indicated to us that they have had the same problems," Tooch said.
Officials at San Francisco-based Blue Shield could not be reached for comment.
Blue Cross spokesman Robert Alaniz declined to comment, saying the Woodland Hills-based insurer had not yet reviewed the lawsuit. But Blue Cross has denied any wrongdoing in the other lawsuits, saying it only cancels policies if it discovers that members lied or deliberately withheld information on their applications -- a fraud-fighting practice that is allowed under state law.
However, four Blue Cross employees testified in court last year that the insurer made no effort to determine whether the discrepancies on applications were deliberate attempts at fraud or simply accidental. They also indicated that claims for treatment of certain illnesses, including endometriosis and jaw disorders, automatically triggered reviews by a four-person team that checked up to 1,500 policies per week. The depositions were sealed by a judge, but portions appeared in the public court file first disclosed by the Los Angeles Times in April.
Both MemorialCare and Methodist allege that state law requires insurers to pay hospitals for services authorized in advance. Each hospital is seeking unspecified back payments and other damages, as well as a court order putting an end to the alleged "rescission scheme."