California doctors look to join suit accusing insurer of rescinding coverage

The California Medical Assn. is joining patients and hospitals in taking the state's largest insurer to task for what they believe amounts to the company inappropriately abrogating patients' individual health coverage and then skipping out on the bills for authorized medical care.

Physicians are asking to join a class-action lawsuit that the state's hospitals filed against Blue Cross of California last October, not long after patients filed a separate class-action suit in May 2006.

The medical community and patients accuse Blue Cross of digging for supposed misstatements or omissions on patients' policy applications after they have been granted coverage, and then retroactively cancelling patients' benefits to avoid paying steep claims.

The lawsuits underscore doctors' ongoing frustrations with managed care practices that undercut reimbursement at the expense of patient care.

The lawsuits rely on California law that prohibits insurers from repealing health coverage unless patients fraudulently misrepresent their medical history. State insurance regulations also forbid health plans from denying payment for medical treatment given in good faith after it was approved.

"The whole health care system depends on doctors and hospitals and patients being able to rely on the representations of health plans as to patients' coverage, and people make decisions what to do based on those representations," said Catherine I. Hanson, CMA vice president and general counsel. "It's absolutely unworkable to be forced to constantly wonder whether the authorization is meaningful or not."

Doctors say Blue Cross verified that their patients were eligible plan members and authorized physicians to treat them.

Even in rare circumstances where fraud may have occurred, "that is a fight between the health plan and the patient and should not be an issue for doctors," Hanson said.

Blue Cross' refusal to pay puts doctors in the difficult position of having directly to bill their patients, many of whom already are sick and cannot afford the costly services, said attorney Daron L. Tooch, who represents the CMA and the hospitals.

"We're not saying health plans can't make sure they aren't defrauded, but they need to do that before they tell doctors and hospitals it's OK to go ahead and perform the services," he said.

Insurers also should contact patients before their coverage is voided, so if necessary, patients can seek insurance from another carrier, Tooch added.

"But this is the worst of all worst, where patients already incurred the cost and are told later that the health plan is not going to pay for it," he said.

Blue Cross denies any wrongdoing.

Blues spokeswoman Tammy Taylor said California law requires health plans to prove any "willful misrepresentation" before withdrawing coverage, but only if insurers fail to investigate any questions with an application before issuing a policy to a patient.

"Rescission is a proper and appropriate legal action where someone has obtained health insurance through misrepresentation," Taylor said.

She declined to comment further on doctors' payment concerns.

Patients' lawyer William M. Shernoff said policy application questionnaires health plans use are intentionally ambiguous, going back 10 to 15 years, so that insurers can justify withdrawing benefits.

"The law is pretty clear that if it was an honest mistake or you just didn't know or remember and weren't trying to cheat, [insurers] would not be entitled to rescind in that case," Shernoff said. "These lawsuits are bringing to the forefront this practice, which seems quite unfair when everybody else gets stuck with paying the bills."

State regulators get involved

Complaints about Blue Cross and other individual health plans in California have sparked a broader investigation by state regulators.

California's Dept. of Managed Health Care is proposing changes to further clarify the law, spokeswoman Lynne Randolph said. A public hearing is scheduled for Jan. 29.

"As we've seen with Blue Cross, [insurers] are interpreting the law differently, particularly ignoring the willful misrepresentation part, which could be actual evidence of out-and-out fraud, but not just an inadvertent misinterpretation of the patient's condition," Randolph said.

The DMHC in September 2006 levied a $200,000 penalty against Blue Cross for inappropriately cancelling one member's policy. Blue Cross denies the allegations and is contesting the fine.

State regulators also fined Kaiser Permanente $100,000 for similar violations in October 2006. Kaiser paid the penalty and reinstated the patient but denies any wrongdoing. Randolph said the insurer was cooperating with regulators to make improvements in their policy review process.

"Even if someone was giving solid medical information to dispute [a pre-existing condition], the companies were ignoring it," Randolph said of the violations.

She added that Gov. Arnold Schwarzenegger's recent proposal to mandate and guarantee individual health insurance also will help address the issue by making it more difficult for plans to rescind coverage.

Blue Cross, meanwhile, remains mired in mediation over a number of other individual patient lawsuits, some of which have settled under confidential terms, according to Shernoff. The insurer did not confirm the settlements.

A Los Angeles County Superior Court judge is expected to rule at the end of January on whether doctors, hospitals and patients can combine their class-action lawsuits against Blue Cross.