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Los Angeles hospital sues insurer for paying patients directly

June 6, 2016

A lawsuit filed by a Los Angeles community hospital alleges Blue Cross and Blue Shield of Georgia is retaliating against the provider for being out-of-network by paying patients directly for emergency services.

Martin Luther King Jr. Community Hospital alleges in the lawsuit that the insurer is paying patients rather than the hospital as a way to pressure the hospital to accept its contract rates, or become “in-network.” The 131-bed hospital, which opened in 2015, alleges this payment system makes it difficult to get paid for providing services to the insurer's members.

Some of the patients don't know that they're supposed to endorse the insurers' checks to the hospital, and others spend the cash on personal expenses, meaning the money is often gone when the hospital attempts to collect it, according to the lawsuit.

“It's a big issue for all kinds of providers, not just hospitals,” said Daron Tooch, a partner at Hooper, Lundy & Bookman, who is representing the hospital in the federal lawsuit. “It's basically a way to punish providers for being out-of-network.”

Some California providers have entered into contracts with Anthem Blue Cross and/or Blue Shield of California under the Blue Cross and Blue Shield Association's BlueCard Program. The program allows patients of a Blues plan in one state to get in-network healthcare services while traveling or living in another Blues carrier's service area.

But Martin Luther King Jr. Community Hospital has not entered into a contract with Blue Cross because the “contracts have demanded such low rates and have become so onerous and one sided,” according to the complaint.

An attempt to reach Blue Cross and Blue Shield of Georgia was not immediately successful Monday morning.

The Martin Luther King Jr. Community Hospital lawsuit describes several patients, using their initials only, who are covered by the Georgia Blues carrier and went to the hospital for emergency services. The insurer directly paid those patients more than $250,000, but the patients then refused to pay the hospital for services, according to the complaint. At least one of those patients allegedly visited the emergency department a dozen times within a year and a half.

“It becomes a profession for them,” Tooch said of the patients. The patients live in Los Angeles but work for a company that has its health insurance through the Georgia insurer.

Tooch said he plans to file more lawsuits on behalf of other hospitals making similar allegations against the insurer and others. Other lawsuits have also alleged insurers are punishing hospitals for being out-of-network. Last week, Prime Healthcare Services, also based in California, sued at least half a dozen insurers, saying the insurers underpaid them for treating patients out-of-network. Prime also alleged in that lawsuit that it could not accept the insurers' in-network rates because they were too low “onerous and one-sided.”

Jack Hoadley, a research professor at Georgetown University's Health Policy Institute, said the idea of paying patients directly for services is a throwback to the way insurers used to operate. It was a system that caused problems for patients, who sometimes never collected what they were due, and for providers, who sometimes were never paid by patients, he said.

It's difficult to know exactly why Blue Cross and Blue Shield of Georgia is paying Martin Luther King Jr. Community Hospital patients directly without knowing the history of the relationship between the two entities, Hoadley said. But the retaliation scenario alleged in the lawsuit is possible, he said.

A number of state legislatures have actually passed laws requiring insurers to pay providers directly, said David Kaufman, a partner at Freeborn & Peters, who was previously general counsel for Blue Cross and Blue Shield of Illinois.

Kaufman said insurers sometimes pay providers directly only when they're in-network as a way to entice providers to become in-network.

"It is another way insurers try to hold down costs, by providing a benefit to joining their networks," Kaufman said.

The lawsuit involving Martin Luther King Jr. Community Hospital seeks damages of $250,000, an injunction requiring the insurer to start paying the hospital directly for services it provides to the insurer's members and a declaration that paying its patients directly is illegal.

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