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Hospitals Threatening to Drop Blue Cross

Health care: Dispute involving insurer indicates California's turmoil over medical costs has expanded beyond HMOs.


Nearly a tenth of California's hospitals say they will stop accepting Blue Cross health insurance within the next two weeks, a strong sign that the trouble in the state's health-care system has extended beyond health maintenance organizations.

Barring a last-minute compromise, the Catholic Healthcare West chain and the independent St. John's Hospital & Health Center in Santa Monica say they will allow their contracts with Blue Cross to expire this month because Blue Cross does not pay them enough to cover the cost of patient care. Nonprofit Catholic Healthcare West operates 43 hospitals and two medical groups in the state.

That hospitals are willing to cancel their contracts with Blue Cross, of all health plans, means that the fissures in the state's health-care economy are deeper than many people imagine. Blue Cross has long been considered a premier health plan because it offers consumers the closest thing in the marketplace today to the old-fashioned style of fee-for-service medicine, where patients can see just about any doctor they wish and go to any hospital.

"It reflects the increasing tensions between hospitals, health plans and medical groups," said Peter Lee, president of the Pacific Business Group on Health, which represents large employers in their negotiations with health plans. "All too often, patients get caught up in these disputes."

It is difficult to say how many patients would be affected, because most are signed up with doctors and not hospitals for care. But Blue Cross represents 5.3 million Californians, and just one of the hospitals--St. John's--served 33,000 Blue Cross members in the last 18 months.

"There is a huge amount of push-back on the part of providers that we did not see last year," said Ruth Given, a health economist who studies the California market. "They're canceling contracts, and they're not bluffing."

Blue Cross is certainly not the only health plan to feel the ire of hospitals and doctors, and not the only plan to play hardball when negotiating the fees paid to take care of patients. And it is not the only one to raise rates to consumers while cutting back benefits.

But Blue Cross is emblematic because of its history and size, and because, unlike most health plans, it offers consumers a broader degree of choice.

"It's difficult to fathom that we and Blue Cross would be in this position," said Bruce Lamoureux, chief executive of St. John's. But, he said, Blue Cross has not increased the amount it is willing to pay the hospital to care for patients for the past five years, and the fees do not cover the cost of providing care.

Unlike administrators at Catholic Healthcare West, who extended the chain's contract with Blue Cross for several months while negotiations continued, Lamoureux said he notified the giant health plan that relations with St. John's will cease as of midnight Friday unless an agreement is reached.

"I have to believe that on Aug. 5 I will not be a contracted hospital provider and will not be servicing Blue Cross patients unless they are willing to accept an additional economic burden to be here," he said.

Blue Cross patients who want to go to a hospital that does not accept Blue Cross will theoretically still be able to do so, but if they are HMO patients, they might have to pay for some or all of their care. Patients in the looser plans known as preferred provider organizations will have to pay more out of their own pockets because the hospitals will be out of the network.

For its part, Blue Cross' parent, Thousand Oaks-based WellPoint Health Networks, is well aware that it has a public relations problem, said spokesman Michael Chee.

"I don't think there's any denial on our part that there are challenges and there is discontent in the marketplace right now," Chee said. "We hear what's going on and we are taking steps to resolve these issues." For example, Chee said, the company has taken a lead role in consolidating paperwork so it will be easier for doctors to file claims. And Blue Cross now offers some bare-bones health plans for consumers who cannot afford their richest plans.

He pointed out that in the majority of cases, Blue Cross has settled its disputes with hospitals, albeit often going right up to the deadline, and said doctors and patients were still signing up for the company's plans.

The willingness of St. John's and Catholic Healthcare West to quit Blue Cross if the company does not agree to pay more for care comes after years of increasing rancor between providers and the health plan, which switched about a decade ago from a not-for-profit organization catering to doctors and hospitals when it became part of for-profit, bottom-line oriented WellPoint.

The company has done well financially. At a time other insurers are barely holding on, WellPoint is reporting hefty profit and rewarding executives with multimillion-dollar bonuses.

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