Herrera sues Blue Cross, Health Net for underpaying SFGH for emergency services

Medical insurers ‘shortchanging public hospitals, and sticking taxpayers with the bill,’ according to City Attorney’s lawsuit

SAN FRANCISCO (May 25, 2011)—City Attorney Dennis Herrera this week sued two Blue Cross affiliates and Health Net for an unlawful scheme to systematically underpay San Francisco General Hospital and other public hospitals for emergency services provided to those companies’ insured policyholders. The lawsuit filed in San Francisco Superior Court additionally charges the medical insurers with deliberately delaying payment of claims, and unjustly enriching themselves at the expense of California’s public hospitals. Blue Cross of California, Anthem Blue Cross Life and Health Insurance Company, and Health Net are all named as defendants in the civil action, which Herrera brought under the state’s Unfair Competition Law. By pursuing the case on behalf of the People of California, a favorable ruling could benefit public hospitals statewide that have been deprived of full payments by these insurers’ illegal practices.

In filing the litigation, Herrera is seeking an injunction to immediately halt the medical insurers’ unfair business practices; a court order imposing full restitution for all underpayments, together with interest; civil penalties of up to $2,500 for each violation of California Business and Professions Code section 17200; and full recovery of the City’s costs to pursue the case.

“The insurers we’ve sued are shortchanging public hospitals, and sticking taxpayers with the bill,” said Herrera. “California law imposes a duty on San Francisco General Hospital and other public hospitals to provide emergency treatment to all patients in need, regardless of their ability to pay. And that’s a duty San Francisco’s public hospital fulfills. Unfortunately, Blue Cross and Health Net are flouting their own obligations under the law, refusing to fully reimburse public hospitals for the emergency medical treatment their policyholders receive. This business practice is not only unfair and illegal, it jeopardizes the City’s ability to provide critically necessary emergency health care. And I intend to move aggressively to make these insurers pay every dollar they owe to San Francisco General and other public hospitals.”

According to Herrera’s civil complaint, the defendants are defying state law by routinely refusing to make payments based on the full amount of such charges, but instead applying arbitrary reductions to the bills they receive from San Francisco General Hospital and other public hospitals. But in order to provide quality emergency health care services as required under state law, San Francisco General Hospital and other public hospitals depend on prompt and full payment by health insurers. San Francisco General Hospital is a public hospital administered by the San Francisco Department of Public Health and provides the only Level I trauma center for 1.5 million residents of San Francisco and northern San Mateo County, and the only psychiatric emergency services center in the City. The hospital receives 30 percent of all ambulance traffic, and provides 20 percent of all acute inpatient care in San Francisco. Its emergency department receives over 50,000 visits per year, 18 percent of which result in admission. The rates charged for treatment provided at San Francisco General Hospital and other public hospitals, including emergency medical treatment, are determined under state and local law.

All three defendants named in Herrera’s legal action have recently faced administrative and regulatory actions for similar conduct. On Nov. 29, 2010, Blue Cross reached an agreement with the California Department of Managed Health Care, which levied $900,000 in administrative penalties for the company’s failure to comply with claims and provider dispute provisions; a $400,000 portion of that penalty was suspended pending demonstration of compliance. Health Net entered into a similar agreement with DMHC on Jan. 25, 2011, in which regulators assessed $750,000 in administrative penalties for claims and provider dispute violations, with $250,000 of those penalties suspended pending compliance. And on Feb. 22, 2010, the Legal Division of the California Department of Insurance filed an order against Blue Cross Life after DOI found 1,308 separate violations of claims handling procedures mandated by the Insurance Code or DOI regulations.

The case is the People of the State of California v. Blue Cross of California, Inc. et al., San Francisco Superior Court No. 11-511181, filed May 24, 2011. Case documents are available on the City Attorney’s Web site at https://www.sfcityattorney.org.

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