L.A. city attorney sues insurer over health policy cancellations

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Liz O. Baylen / Los Angeles Times

Los Angeles City Attorney Rocky Delgadillo, right, meets with Ana Maria and Augustine Simoes and their attorney, William Shernoff, before announcing a lawsuit accusing Blue Shield of California of illegally canceling the health insurance coverage of hundreds of Californians. The couple say they were saddled with $60,000 in medical bills when their policy was rescinded after Ana Maria Simoes had to have emergency gall bladder surgery.

Delgadillo's suit contends Blue Shield of California has illegally rescinded the coverage of more than 850 policyholders since 2002.

By Lisa Girion
Los Angeles Times Staff Writer
July 17, 2008 | Los Angeles Times

When Blue Shield of California learned that Ana Maria Simoes needed emergency surgery to remove her gall bladder, the company OKd the operation but also turned the case over to its investigative unit, according to corporate records disclosed Wednesday.

A Blue Shield investigator scrutinized Ana Maria's medical records and compared them to the application she filled out for coverage, the investigator's notes show. Ultimately, the investigator scribbled "unable to prove" in her notes, and then opened an investigation into Ana Maria's husband, Augustine.

This time, the investigator concluded the Chino dairy farmer had failed to disclose that he had high cholesterol, and the omission was used to justify canceling the couple's coverage.

The cancellation was highlighted by Los Angeles City Atty. Rocky Delgadillo as an example of the allegedly abusive practices at the heart of a lawsuit he filed Wednesday on behalf of the residents of Los Angeles against Blue Shield. The suit contends that Blue Shield has illegally canceled the coverage of more than 850 policyholders including people like the Simoeses since 2002.

Blue Shield spokesman Tom Epstein defended the cancellation of the Simoes' coverage and called the suit "a cheap political stunt" that was "totally without merit."

In the past, Blue Shield has said that it cancels policies rarely and that the practice is a legal and necessary tool to combat fraud. The Blue Shield suit is similar to those that Delgadillo filed earlier this year against insurers Anthem Blue Cross and Health Net. Like Blue Shield, those companies have denied wrongdoing and say they rescind coverage only when necessary.

The latest suit accuses Blue Shield, a nonprofit company based in San Francisco, of using complex and confusing applications for coverage to trick individuals into making mistakes that can later be used against them. The suit seeks fines and penalties of more than $1 billion.

"For decades, health insurers have gamed the system and reaped billions," Delgadillo said. "The time has come to . . . set things right."

The suit also accuses Blue Shield of falsely advertising its coverage, alleging that the company often reneges when its members need substantial medical care.

Dr. Richard Frankenstein, president of the California Medical Assn., and Dr. Robert Bitonte, president-elect of the Los Angeles County Medical Assn., praised Delgadillo's efforts to stop the practice known as rescission.

"Having health insurance does not mean you will receive healthcare when you need it," Frankenstein said. "Insurance companies may promise you the moon and a thousand doctors, but if you really need your medical care you can bet they will be looking for a way to deny treatment or cancel your policy."

Blue Shield's Epstein said Delgadillo "asserts that we have committed unfair practices regarding the payment of claims for 400,000 individual policyholders without a shred of evidence that our actions were improper. He fails to mention that, since 2002, we have paid nearly $4 billion in claims for those policyholders. He claims that we used intentionally misleading applications, but our applications were reviewed and approved by two state regulators."

The company also criticized Delgadillo's consultations with policyholder "lawyers who have a financial interest in rescission cases," Epstein said, saying that "he never spoke to anyone in our company nor asked for any documents in our files."

Blue Shield has "always been careful in our underwriting of health coverage policies and in our investigations of the rare contracts that are rescinded," Epstein said. "This is why we have rescinded a fraction of 1% of individual and family policies."

Blue Shield believes that it is the responsibility of applicants to tell the truth, Epstein said.

"If there were no consequences for applicants who misrepresent significant medical conditions, insurance rates would skyrocket for the vast majority of Californians who complete their applications accurately," he said.

The Simoeses say the cancellation saddled them with $60,000 in unpaid medical bills. They say they were harassed by collection agents, and Ana Maria's credit was ruined.

"I hope that nobody else has to go through this, and I hope there will be somebody out there who can stop the insurance companies," Ana Maria said in an interview after standing next to Delgadillo at a news conference. "It is so upsetting to me and my family."

The Simoeses said they were as honest as they knew how to be on the application. English is a second language for the Portuguese immigrants, and they went to an insurance agent to buy their coverage. They said the agent filled out the application.

They said they gave the agent their physicians' names and telephone numbers as he was filling out the application. They signed the application, giving Blue Shield permission to review their medical records before issuing coverage and, they said, that is what the agent told them would happen.

Delgadillo contends that, to save money, Blue Shield routinely fails to pull records and verify information on applications.

Augustine Simoes said he was not aware he had an elevated cholesterol level. He said his doctor prescribed Lipitor, a cholesterol controller, and explained only that men his age often needed it.

"The records of everything were at the doctor's office," he said. "I don't know why they are accusing me of lying. I didn't make anything up."

Blue Shield's Epstein said the insurer acted properly throughout. "When all the evidence is in, it will be clear that both Simoeses misrepresented significant facts on their applications," he said.

William Shernoff, a lawyer for the Simoeses and other policyholders, is cooperating with Delgadillo's office on the litigation. He criticized regulators at the Department of Insurance and the Department of Managed Health Care for "simply not doing their job."

But Cindy Ehnes, director of the Department of Managed Health Care, defended that agency's actions.

"We have protected consumers and restored coverage quickly to more than 1,200 consumers to date," Ehnes said.

Noting Anthem Blue Cross' and Blue Shield's failure to reissue coverage on rescinded policies, she said, her agency was "going back through each of their approximately 2,170 rescission cases to pursue individual fines in each case."

"The terrible practice of rescissions has caused irreparable harm . . . by making some individuals responsible for large medical bills and hindering their ability to get and keep health coverage," she said.

lisa.girion@latimes.com

California sues over practice of 'balance billing'

The Associated Press

Article Launched: 07/02/2008 06:19:19 AM PDT

SANTA ANA, Calif.—California has sued one of the state's largest hospital operators to stop the company from billing privately insured patients for balances on medical services not paid by the insurer.

The practice—known as "balance billing—is becoming increasingly common in California. The Department of Managed Health Care has banned balance billing, but regulations aren't expected to take effect until the fall, at the earliest.

That agency's director, Cindy Ehnes, said Prime Healthcare Services Inc. is "the largest example of this egregious practice we've seen to date, and it must be stopped."

Ehnes' agency filed a lawsuit Friday in Orange County Superior Court against Prime Healthcare. The suit seeks to prohibit the Victorville-based company from billing patients for unpaid medical bills Prime contends insurers owe.

"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," Ehnes told the Los Angeles Times.

Prime acknowledged it has been billing thousands of patients the unpaid portions of their bills. The company contends it can legally do so—and that it wouldn't have to if insurers paid their full portion of medical claims.

Prime has 12 hospitals in Southern California and has acquired all but one of its properties in the past four years.

The Times reported that when Prime takes over a hospital, it often cancels insurance contracts, allowing it to charge higher rates. Insurers contend they had begun sending Prime only partial payments on members' bills.

This spring, Kaiser Permanente sued Prime to prohibit the company from billing more than 5,000 of its members for unpaid bills. A temporary injunction prevents Prime from such billing until the case is resolved.

State proposes ban on HMO billing practice

June 1, 2008 | By LORA HINES | The Press-Enterprise

State officials, hospitals and doctors are locked in a dispute over whether some patients can be charged if they are taken to an emergency room outside of their health care network. For some, that bill can be a couple of hundred dollars, but for others it can reach into the thousands.

The ban proposed by the California Department of Managed Health Care would affect members of HMOs, such as Kaiser Permanente, not members of other kinds of insurance plans. The department only regulates HMOs. Administrators and hospital-based doctors say the state should be targeting insurance companies.

Statewide, thousands of people get pressed for payment by doctors and hospitals, typically after they are taken to an emergency room outside their insurance plan. Doctors and hospitals that think health care plans and insurance companies have shortchanged them on payment for treatment then try to make up the difference by going after patients who already paid their share. It's called balance billing.

Karla and William Gledhill, of Chino Hills, understand the practice well.

The couple got hit with a $53,000 bill from Arrowhead Regional Medical Center in Colton after their insurance company, Anthem Blue Cross, paid about $25,000. Their 16-year-old son, Ryan, was flown to the hospital after a serious dirt bike crash in Lucerne Valley.

Karla Gledhill said she racked up late-payment fees and bill-collection threats as she repeatedly wrote letters and made telephone calls to the hospital and insurance company. Last week, the insurance company agreed to pay the bill.

Gledhill said she thought she would have to hire an attorney, which sometimes is a patient's only recourse, hospital officials say.

The hospital and insurance company said privacy laws prevented them from commenting on the family's claim.

"You don't know anything about balance billing until you're stuck in the middle, trying to hammer out what's right," Gledhill said.

Balance Billing

More than 1.75 million insured Californians who visited emergency rooms in the past two years were asked to pay more, even after their co-payments and deductibles, according to the California Association of Health Plans. The professional organization represents 40 health care plans that cover an estimated 21 million Californians.

The average balance bill was $300, which added up to about $528 million that patients spent in addition to their co-payments and deductibles, the association said. More than half of the patients who were balance billed paid.

"The practice needs to be banned, period," said association spokeswoman Nicole Kasabian Evans. "The patient shouldn't be placed in the middle. That's what the insurance companies and health care providers are doing."

In July 2006, Gov. Schwarzenegger ordered an end to balance billing after he realized many residents were being charged for medical expenses they didn't owe, said Cindy Ehnes, director of the state Managed Health Care Department. But the department couldn't come up with a suitable solution to HMOs and providers, she said. So, the department decided to merely ban the practice.

"We have tried many other approaches to solve this problem," Ehnes said. "We have decided to go back to our first job, which is to protect consumers."

Ehnes said she had hoped lawmakers would have passed legislation regulating balance billing. At least seven states have balance billing laws, including Colorado and Florida. Meanwhile, state Sens. Don Perata, D-Oakland, and Leland Yee, D-San Francisco, have introduced balance billing legislation.

HMO Vs. Hospital

The ban comes as Kaiser, the state's largest HMO, got a temporary restraining order earlier this month from Los Angeles County Superior Court against Prime Healthcare Services Inc., of Victorville, to stop it from collecting money from thousands of Kaiser patients or reporting them to credit agencies. A hearing is set for Thursday.

"This has been an ongoing dispute for a year or year and a half," said Dr. Ben Chu, president of Kaiser's Southern California region. "... They threatened to trash their credit ratings if they didn't pay."

Earlier this year, Prime Healthcare sued Kaiser, claiming that Kaiser owes $25 million for its patients who were treated at eight of Prime Healthcare's hospitals, including Desert Valley Hospital in Victorville, Chino Valley Medical Center and Montclair Medical Center.

Prime Healthcare attorney Michael Sarrao couldn't be reached for comment.

Prime Healthcare has accused Kaiser of delaying payments by repeatedly demanding patient medical records, claiming that care provided was unnecessary and requiring transfer of members to Kaiser hospitals.

Chu disputed the claims.

"It's not about delaying payment," he said. "It's about substantiating claims."

Calculating Health Cost

Dr. Richard Frankenstein, president of the California Medical Association, said the organization, which represents 35,000 doctors, will fight the state Managed Health Care Department's ban.

"They ought to be regulating the insurance companies, not the doctors, which it does not have the authority to do," he said. "We see this as a $500 million transfer from patients to insurance companies, and the insurance companies aren't paying the bill."

On average, Frankenstein said, insurance companies pay all but about $30 of a doctor's bill.

"If that doctor sees 50 to 60 patients, that $30 does add up," he said.

Some specialists may not work on-call emergencies if insurance companies refuse to pay and they can't bill patients, Frankenstein said.

Frank Arambula, Arrowhead Regional Medical Center's chief financial officer, said the hospital compares its costs to those of other facilities, which are reported to the California Office of Statewide Health Planning and Development. The data are posted on the agency's Web site.

"We set our rates based on market-driven prices," he said. "We think it's a fair assignment and the payer is going to pay those charges."

Conversely, insurance companies rarely show patients and health care providers how they determine what to pay for service, Arambula said.

In a written statement, Anthem Blue Cross spokeswoman Peggy Hinz said the company reimburses out-of-network hospitals for what it considers reasonable and customary costs. It is changing its reimbursement policy to protect members who require emergency care, she wrote.

"It was not the intent of our reimbursement policy to increase out of pocket expenses for our members, who do not have a choice in selecting the place where health care services are performed, such as in the case of an emergency," Hinz wrote.

Anthem Blue Cross bases its reimbursement rates on factors including submitted charges for payment, comparisons of charges for services offered at other hospitals, and service costs that are reported to the state, Hinz wrote.

Fighting the Bill

The Gledhills didn't care whether Arrowhead Regional Medical Center was in their Anthem Blue Cross preferred provider organization network. Their son needed surgery on his pancreas.

"Worst case, we thought we would owe $6,000," said Karla Gledhill, whose husband owns a small Anaheim business.

Anthem Blue Cross first determined the Gledhills owed the hospital $53,273.17 after it paid $25,121.28, according to a claim recap. It paid another $12,606.15 after Karla Gledhill complained to the California Department of Insurance.

The Gledhills still faced a $40,667.12 bill and no explanation of how Anthem Blue Cross determined what it would pay.

"How could I fight a fair fight if I didn't have all the information?" Karla Gledhill asked. "I didn't think Arrowhead's charges were exorbitant for the care my son received."

On May 21, Anthem agreed to pay the rest of Ryan Gledhill's hospital bill after the company "made a one time administrative decision to remit payment," according to the letter the Gledhills received.

The letter did not include further explanation, and Hinz said privacy laws prevented her from offering one.

Reach Lora Hines at 951-368-9444 or lhines@PE.com

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Online Help

California Office of Statewide Health Planning and Development: www.oshpd.ca.gov

California Department for Managed Health Care: www.hmohelp.ca.gov

California Department of Insurance: www.insurance.ca.gov

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1,200 people to have canceled healthcare coverage restored

The action comes after Kaiser Permanente and Health Net reach an agreement with a state agency.

By Lisa Girion
Los Angeles Times Staff Writer

May 16, 2008

Two of the state's largest health plans agreed Thursday to reinstate coverage to nearly 1,200 patients whose policies were dropped after they incurred high medical expenses.

Under the deal, patients whose insurance was rescinded by Kaiser Permanente or Health Net since 2004 will be allowed to purchase new insurance regardless of preexisting medical conditions.

The settlement, brokered by the California Department of Managed Health Care, comes three months after a Gardena hair salon owner won an unprecedented $9-million judgment against Health Net for canceling her coverage while she was undergoing chemotherapy, halting her treatment.

Gov. Arnold Schwarzenegger called the settlement groundbreaking.

"This important settlement should pave the way to similar agreements with other health plans to reinstate health coverage," he said. "Patients should not live in fear of losing their healthcare coverage when they need it most."

The state is trying to reach similar deals with Anthem Blue Cross, Blue Shield and PacifiCare involving about 4,000 rescissions.

Insurance rescissions affect people with individual coverage, which is sold and priced based on an applicant's medical history. Insurers say some enrollees lie on applications in order to gain coverage and that rescinding policies from those who hide preexisting conditions prevents premiums from going up for everyone.

But regulators and law enforcement officials allege that insurers do little to verify applications before issuing coverage and then wait to see what happens. When patients incur substantial medical claims, insurers go back and scour applications for omissions, even innocent ones, in order to rescind their coverage, critics say.

About 2.6 million of the 28 million Californians with health coverage have individual plans.

Kaiser spokesman Mike Lassiter said the insurer proposed the deal to reinstate up to 1,092 former enrollees -- all those whose coverage the health maintenance organization dropped between the time it began the controversial practice in April 2004 and when it halted rescissions in October 2006.

Kaiser agreed to pay a $300,000 fine to the state without admitting wrongdoing. It also agreed to make a number of procedural changes, including developing simpler coverage applications to avoid applicant mistakes that often form the basis for rescissions.

"We want to clear up past issues so we can move forward toward a longer-term solution addressing the larger issues of affordable healthcare coverage," said Jerry Fleming, senior vice president of Kaiser Permanente.

In a similar deal, Health Net agreed to reinstate 85 former enrollees.

In a statement, the insurer said, "Health Net today announced that it will offer coverage to all 85 HMO customers who have been rescinded since 2004 and will work as expeditiously as possible with these individuals to resolve their eligible out-of-pocket costs."

Jane Macauley, a Sacramento mother of five who was rescinded by Kaiser two years ago on the eve of a scheduled hernia operation, said she was surprised by the deal.

"I didn't get the surgery," she said Thursday. "I wrote two letters expressing my belief that it was very unfair that I was canceled. But they basically just said, 'You are out of luck.' "

These "enrollees are clearly getting a win today," said Cindy Ehnes, director of the Department of Managed Health Care. The settlement creates a process through which former enrollees can seek repayment of medical expenses of up to $15,000. Larger and disputed medical bills and other types of claims would be submitted to an arbiter selected by the department and the health plans.

Former enrollees may choose to buy insurance but also opt out of the settlement process, preferring instead to take their claims to court.

"We believe our voluntary 'Kaiser Permanente Fresh Start Program' for previously rescinded members is the quickest way to give people what they really need -- health insurance," said Fleming of Kaiser. "The issue of whether people either intentionally or unintentionally gave inaccurate information on their coverage application is set aside for the purposes of getting a fresh start on their coverage."

The deal comes a month after Ehnes threatened to order the state's top five health plans to reinstate more than two dozen enrollees and to reopen every rescission carried out over the past four years in California for review.

Reinstatement "means someone will not have to delay a necessary surgery due to the lack of insurance," she said. "It means that someone will no longer have to contemplate bankruptcy because of an outstanding medical bill."

In addition to the state's regulatory scrutiny, Los Angeles City Atty. Rocky Delgadillo has sued Health Net and Blue Cross over allegedly illegal rescission practices.

Health Net also is the target of a criminal investigation by the city attorney related to rescissions. Chief Assistant City Atty. Jeffrey Isaacs said Health Net's latest deal with the department would not affect its suit or criminal investigation.

The city attorney's office issued subpoenas to the department Wednesday seeking information related to rescissions.

DMHC spokeswoman Lynne Randolph said the department would "cooperate to the extent that we are able."

Some consumer advocates were disappointed with the deal, saying portions of it appeared designed to help insurers contain their legal liability.

William Shernoff, a Claremont lawyer who represents hundreds of people whose policies have been rescinded, said he would tell clients to "accept the reinstatements because that's wonderful to get the medical care -- that is important."

But, he added, "as far as damages for past harm, there's no doubt in my mind that the best place for them to get their full damages will be in court rather than in an arbitration process."

Jerry Flanagan, a spokesman for Consumer Watchdog in Santa Monica, said the deal was no substitute for regulations promised 18 months ago that the department put on hold pending legislation.

"Punting this issue to the Legislature where insurers have immense lobbying power risks regulation that is more loophole than protection," he said.

Anthony Wright, executive director of Health Access California, a statewide healthcare consumer advocacy coalition, said the department needed to enforce the settlement and adopt a " 'zero-tolerance' policy for further bad behavior."

"It's sad that after all the attention on this reprehensible practice, we don't have the entire industry in agreement yet," he said.

lisa.girion@latimes.com

Balanced Billing Destroys Capitalist Economy - Opinion

By: Alex Wawro

Posted: 4/9/08

If you have health insurance you ought to know what "balance billing" is. Balance billing and the ongoing attempts to outlaw it directly determine how much you pay for medical services.

Typically, if you have medical insurance (say, Kaiser Permanente), your provider will pay any medical fees above your standard co-payment. If Kaiser, however, only pays a standard allotment of $500 for a service a physician would normally charge $750 for (say, an emergency cardiac bypass), the doctor or hospital might send the patient a bill for the missing $250.

What this means for the average consumer is that not only do they have to pay their co-payment, they may receive a second bill for the remaining amount the insurance chose not to pay. Governor Arnold Schwarzenegger supports a bill that would outlaw balance billing.

The less money you have to pay the better, right?

Wrong. The legislation is blatantly unjust; worse, it undermines the foundation of free enterprise that our economy is built upon.

Think about it - when you sign up with an HMO like Kaiser, you agree to pay a standard fee monthly in exchange for a guarantee of financial aid if you need serious medical care.

In return, Kaiser receives monthly income and negotiates flat rates for services with a pool of physicians; those physicians give up the right to charge their own price in exchange for guaranteed business from Kaiser customers.

But if you, as a Kaiser customer, are brought to the ER for emergency surgery, there are no guarantees that the surgeon working is a Kaiser-approved doctor. If that surgeon saves your life, should he or she be forced to accept whatever percentage of the standard rate Kaiser chooses to pay him or her for the service? He does not receive the benefits of being a member of the Kaiser family; why should he be forced to abide by their restrictions?

Essentially, passing this bill destroys the basis of our capitalist economy in favor of a more socialist system in which the government regulates our freedom to spend and charge what we think is fair. By eliminating the practice of balance billing, Schwarzenegger forces all doctors to accept whatever healthcare providers think is fair payment.

Even worse, it makes the entire system of licensed physicians meaningless. A doctor who agrees to accept Kaiser's rates does so in exchange for receiving more business from the company. In essence, what he loses in individual sales he more than makes up for in volume.

If all physicians are limited to collecting only what Kaiser chooses to pay, why bother contracting with doctors in the first place?

Kaiser can pay a doctor whatever they believe they can get away with, and the physician has no choice but to take what he is given.

By removing a practitioner's ability to charge what he thinks is adequate for his services the government is sullying the principles on which this country was founded.

Though this legislation seems to benefit the consumer, in the end only the corporation wins.

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