Blue Cross and Blue Shield

Featured Health Business Daily Story March 7, 2008

Reprinted from The AIS Report on Blue Cross and Blue Shield Plans, a hard-hitting independent monthly newsletter on business strategies, products and markets, mergers and alliances, and financing of BC/BS plans.

Blue Cross of California, once again under fire for its individual customer cancellation policies, this month agreed to change one policy that particularly irked both providers and regulators. The California Medical Association (CMA) and other provider groups had decried a letter from the plan asking physicians to review new individual policyholder applications for medical errors or undisclosed pre-existing conditions. WellPoint, Inc., Blue Cross of California's parent company, said the policy has been in place for a number of years. Nevertheless the outcry spurred the plan to state on Feb. 12 that it would stop sending the letters to providers.

The plan contends that the letter was a means to help control costs caused by individual policyholders who willfully misrepresented themselves on their coverage applications. It's the latest twist in a saga that has ensnared multiple insurers in California in lawsuits and fines, including rival and fellow Blues plan Blue Shield of California, which faces a $12.6 million fine from the California Insurance Commissioner's Office related to its policy rescissions. Blue Cross of California itself was assessed a $1 million fine imposed by the California Department of Managed Health Care (DMHC) in March 2007. The company had appealed that fine. Blue Cross of California also last year said it revised its individual application form to make it less confusing for applicants.

Still, both plans maintain that their policies are legal and contend that the actions are to protect them from the high costs of medical fraud caused by persons who don't accurately fill out their applications. Court cases allege that the plans are failing to do up-front underwriting on enrollees, and are completing the underwriting later — when the individual's medical fees become too high.

The Blue Cross of California letter sent to providers stated that its purpose "is to help you identify members who have failed to disclose medical conditions on their applications that may be considered pre-existing. Personal Blue Cross HMO policies do not have waivers or waiting periods for maternity care. Any condition not listed on the application that is discovered to be pre-existing should be reported to Blue Cross immediately." The letter goes on to say that it has the right to cancel an individual's policy "back to its effective date for failure to disclose material medical history." It asked that providers complete a "Specialty Review Request Form" and return it to the plan.

"It is our responsibility to assure all member records are accurate and up to date both for the benefit of our members and the providers in our HMO network. One of the ways we do this is to send the member's application for medical coverage to the physicians 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," writes WellPoint spokesperson James Kappel in a statement supplied to The AIS Report.

CMA, DMHC Say Letters Were New to Them

Both CMA spokesperson Karen Nikos and DMHC spokesperson Lynne Randolph tell The AIS Report that they had never seen the letters before or heard of providers receiving the letters before.

Randolph says the department was aware that the plan "said they were going to do this, but we had not seen any letters nor gotten any complaints." She adds that DMHC is looking into the issue and keeping in touch with both Blue Cross of California and CMA regarding the issue.

CMA sent a letter to DMHC and the insurance commissioner's office on Feb. 8, stating that "the CMA demands that the [DMHC] order Blue Cross to cease and desist such practices and require the company to notify all physicians already in receipt of any such letter to disregard it. Blue Cross' motivation for the letter…is plainly spelled out: Blue Cross wants information that might justify its rescission or cancellation of health plan policies, and wants physicians to help by informing on their patients."

The provider advocacy group charges that by enclosing a patient's health coverage application, "which typically includes medical information, Blue Cross is very likely disclosing protected health information in violation of the Health Insurance Portability and Accountability Act (HIPAA)." CMA adds that the information being disclosed "is not to provide quality care, but rather as part of the underwriting process, which should have been done by Blue Cross prior to issuing the plan contract." The doctors' organization further alleges that California Blue Cross' requests for protected health information as part of the underwriting process "are not covered in HIPAA's definition of 'healthcare operations.'"

"By asking physicians to become agents for Blue Cross for purposes of canceling any health insurance policy on which it may have to pay claims, Blue Cross is trying to place physicians in an adversarial position with their patients, breaking the trust and privacy that is the foundation of their relationship with patients," CMA contends. The letter states that if patients know their care providers "are assisting HMOs with such practices, they may be reluctant to provide complete medical histories or to otherwise fully communicate with their physicians, hindering the physician's diagnosis and treatment."

WellPoint Seeks to Defuse Issue

WellPoint's Kappel responds that the plan "highly values the trust of its members and understands the personal relationship members have with their physicians and medical groups."

CMA charges that "after issuance of the plan contract, HMOs may only rescind for 'willful misrepresentation.' However, by providing the physician a laundry list of general sources of 'health history discrepancies,' Blue Cross does not suspect willful misrepresentation, but rather is seeking to illegally complete its medical underwriting after issuance of the plan contract."

Among the health history discrepancies that WellPoint suggested may be indicative of willful misrepresentation in the letter are: pre-existing pregnancies — identified if the policyholder's last menstrual period date is effective prior to coverage, member requests to specialists outside the medical group of providers who the member had previously seen, requests for specialist referrals for chronic conditions, claims from outside providers requesting payment or first-year hospitalizations.

Kappel said Feb. 12 that "we reached out to our provider partners and California regulators and determined this letter is no longer necessary and, in fact, was creating a misimpression and causing some members and providers undue concern. As a result, we are discontinuing the dissemination of this letter going forward."

Kappel maintained 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." He added, "To put the dissemination of this letter in context, it pertained to a small fraction (.0015 percent) of our more than 8 million Blue Cross members."

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