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State probes Blue Cross

The Schwarzenegger administration has launched an investigation of Blue Cross of California for allegedly letting financial concerns improperly influence medical decisions and for canceling patients' coverage after claims have been filed.

The probe, which began two weeks ago, followed complaints from doctors who said the HMO had asked for patients' confidential patient information in order to drop them from the health plan.

"We received a complaint about Blue Cross from the California Medical Association. That's how this came to our attention, and we began an immediate investigation," said Lynne Randolph, a spokeswoman for the state Department of Managed Health Care, which regulates HMOs in California. "We are looking into two possible violations of law."  There was no immediate comment from the HMO.

The probe stemmed from a Feb. 8 letter to the department from the CMA, which complained that Blue Cross had sent a letter out to doctors seeking medical information about their patients that could be used to cancel their coverage. Blue Cross said its letters, sent to about 1,000 doctors a month, contained routine requests and were similar to letters sent over a period of years without complaint.

But the political environment in the world of health care, particularly over the issue of policy cancellations, is becoming increasingly  charged as HMO practices come under closer scrutiny. In Los Angeles, city attorney Rocky Delgadillo has launched a criminal investigation into the rescission practices of HealthNet. Meanwhile, legislators including Senate Health Committee chairwoman Sheila Kuehl, D-Santa Monica, and Jared Huffman, D-San Rafael, have criticized the department for not being aggressive enough in levying fines against HMOs.

Some of these issues and complaints are expected to be aired in the Senate Rules Committee Wednesday when Dale Bonner, the secretary of Business, Transportation and Housing, comes before the committee for confirmation. The Department of Managed Health Care is part of Bonner's agency.  And while he is expected to be confirmed, he is likely to face some tough questioning from the panel's three Democrats. 

The department points out they have handed out record fines against HMOs in the last several months, and more may be on the way. 

Randloph said the latest DMHC investigation is focusing on possible violations of two sections of the state's Health and Safety Code. The first prohibits an HMO from linking medical decisions to administrative financial concerns. The second bars canceling a patient's coverage after a claim has been filed.

Blue Cross says it has been in regular contact with state regulators, but their spokesman did not immediately comment on the specifics of the latest investigation.

"We are talking to the department … on a daily basis and on a number of issues. We are more than happy to work with them and provide whatever information they need so that they can make a correct finding," said Blue Cross spokesman Nick Garcia.

The move by the DMHC, following demands from the 35,000-member CMA, raises the stakes for Blue Cross which, with its branded affiliates, provides health services to 6.8 million Californians. It reflects the longstanding dispute between HMOs and doctors, who have been among the sharpest critics of the health organizations, and who have angrily urged the state to crack down.

CMA General Counsel Francisco Silva, in his Feb. 8 letter, said the information request in Blue Cross' letter was "deeply disturbing, unlawful and interferes with the physician-patient relationship."  He described a number of alleged violations by Blue Cross, including the company's meddling with a physician's ability to provide medical care "hindered by fiscal and administrative management." Silva also blasted the practice of "post-claims underwriting,"  the practice of an insurer canceling coverage after medical claims have been filed–one of the alleged violations under investigation by the DMHC.

The cancellation practices of Blue Cross and other health management organizations are sparking political fireworks in the Capitol — and new legislation sponsored by CMA and others. A number of bills have been proposed targeting the health care practice known as rescission, in which a health care provider abruptly cancels a patient's coverage. A major hearing on the practice is scheduled March 27 before the Senate Health Committee, headed by Kuehl, who has authored health-care reform legislation. The oversight hearing was scheduled to consider DMHC's regulatory effectiveness, but the committee also is expected to hear testimony on rescission, patient confidentiality and other issues. 

Last week, in an unrelated case that brought still more Capitol attention to HMO practices, an arbitrator found against HealthNet ina  record $9 million decision — $8.2 million of it in punitive fines — for cancelling the coverage of a cancer patient. Los Angeles City Attorney Rocky Delgadillo launched a criminal investigation of individuals linked to Health Net's practice of allegedly providing incentive payments to executives who reduce patients' coverage. Delgadillo also filed a civil case against HealthNet over alleged business-practice violations.

A bill by Assemblyman Ted Lieu, D-Torrance, would prohibit insurance companies from offering bonuses to employees for limiting, canceling or rescinding policies. The bill, AB 1150, passed the Assembly on a 76-0 vote last month. Huffman's AB 1155 would require the department to become more aggressive in levying fees against HMOs found to be in violation of state law.

The Blue Cross letter sent to physicians said that "within the first two years of membership, Blue Cross has the right to cancel the member's policy back to its effective date for failure to disclose material medical history."   Blue Cross said it sought to "identify members who have failed to disclose medical conditions on their application that may be considered pre-existing….any condition not listed on the application that is discovered should be reported to Blue Cross immediately."

Garcia said earlier that the HMO sought the information to "ensure that it mirrors what is reflected in the physician's notes for that member. We believe the sending of the application satisfies this obligation. This notification process has been in place for several years, and to date we have not received any calls or letters of concern." Garcia added that "it is important to note that of the approximately 300,000 new individual Blue Cross members each year, this letter pertains to less than 1,000 HMO members per month."

Capitol sources said Blue Cross halted the letters after the state threatened the HMO with a cease-and-desist order, a regulatory sanction and potential precursor to fines and potential suits or prosecution. Garcia said he was not aware of any cease-and-desist order.

 The CMA-backed bill, AB 1945 by Assemblyman Hector De La Torre, D-South Gate, was introduced last week. De La Torre's bill comes in the wake of regulators levying fines against major HMOs including HealthNet, Blue Cross and Blue Shield after it was revealed they actively sought to purge sick, and therefore expensive, members from their rolls. HealthNet was even offering bonuses to employees for information that led to policyholders being dropped.

Those revelations first came to light after a series of stories in the Los Angeles Times.

The proposed legislation seeks to end "the days where insurance companies served as judge and jury over their policyholders, and ensures public oversight over the cancellation practices of insurance companies," CMA President Richard Frankenst
ein said earlier.

"They need a retroactive rescission regulation saying they cannot go back and tell someone that they are not covered and refuse to pay their medical bills. The only time they could potentially do it, is if the patient intentionally deceived the insurer. We need rules and regulations that spell that out," said Jamie Court of the Foundation for Taxpayer and Consumer Rights, who met last week with DMHC officials. "Our concern is that the sate isn't going as far as Schwarzenegger said it would in his State of the State Address," he added.

In that January address, Schwarzenegger alluded to a San Diego cancer patient whose coverage had been cancelled. "We are taking action so what happened to Todd will not happen to any other Californian," Schwarzenegger had said.


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