Insurer denials prompt penalty

State fines CareFirst, MAMSI for improper refusals to pay bills

August 04, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

The state insurance commissioner yesterday fined CareFirst BlueCross BlueShield $79,000 for improper denials of claims, but said a 15-month study had not established a pattern of arbitrary use of care guidelines to refuse to pay hospital bills.

Mid Atlantic Medical Services Inc. (MAMSI), a Rockville health maintenance organization, was fined $10,000 for improperly refusing to pay claims.

The ruling by Commissioner Steven B. Larsen stemmed from a complaint last year by the Maryland Hospital Association, charging CareFirst, the state's largest health insurer, and MAMSI with failing to pay millions of dollars in claims.

The insurers also must pay the claims that were deemed improperly denied. Larsen and CareFirst said they did not have a total cost. Calvin M. Pierson, MHA president, estimated that the claims were worth "several hundred thousand dollars."

Pierson said the penalties supported the association's contention that CareFirst had been "illegally and inappropriately denying medically necessary care." He said the association would continue to press the issue of claim refusals.

But John A. Picciotto, CareFirst's executive vice president and corporate counsel, said the insurance regulators had generally found the insurer acted properly, and the MHA's claims of vindication were "similar to General Custer claiming that Little Big Horn wasn't a bad day for him."

Larsen said of the conflicting claims of victory, "The truth lies somewhere in between. Unquestionably, the most significant allegation against BlueCross proved not to be true. On the other hand, we did find merit to two other allegations."

Larsen noted that he had fined another HMO, NYLCare, $100,000 this year for "downcoding" claims, and said the law allowed him to fine CareFirst up to $125,000 for each category of improper action.

"Downcoding" refers to denying payment for a procedure already performed, paying instead at the rate for a less complicated, lower priced one.

The issue in the case was not whether the patients would receive care. Rather, hospitals complained that after they had delivered services, CareFirst would say in retrospect that some of the services were unnecessary and refuse to pay. In such cases, the hospital, not the patient, absorbs the costs.

Although hospitals are providing needed care, Pierson said, "the danger is that the [insurers] are providing a strong incentive for hospitals and doctors to do the wrong thing."

The MHA filed its complaint in April 1998, providing Larsen with about 100 cases from 1997 in which it said CareFirst and MAMSI had illegally refused to pay some or all of a hospital bill.

Larsen's staff reviewed those cases as well as 399 randomly selected 1997 denied claims from CareFirst. The Delmarva Foundation for Medical Care Inc., an Easton-based nonprofit that reviews medical quality on state and federal contracts, had doctors look over the 399 cases to see if they agreed with CareFirst's decisions.

Of the 100 examples selected by the hospitals, Larsen's staff found that nearly half involved patients who were not subject to review by state regulators because they are covered by self-insured employers or by Medicare, Medicaid or federal employee insurance programs.

In the remaining cases, Larsen found CareFirst had improperly denied 13 of 24 claims and MAMSI had improperly denied 10 of 35. They were fined $1,000 in each case.

In the random sample of 399 CareFirst cases, Delmarva found its doctors agreed with more than 90 percent of claims denials, a rate it called "remarkable."

The review found no evidence to support many of the MHA's charges, including that CareFirst arbitrarily and inappropriately used national benchmarks to deny payment for claims that did not fit guidelines.

However, Delmarva also found two types of cases where the agreement rate was lower: in cases where CareFirst refused to pay for days in the middle of hospital stays, for example, while the patient was awaiting tests, and in cases where CareFirst refused to pay for tests and other "ancillary charges" on days for which it had denied payment.

Larsen imposed a penalty of $50,000 on the ancillary services, where the Delmarva reviewers agreed with only 74 percent of more than 300 denials -- enough, he said, to establish a pattern.

On the refusal to pay for some days in the middle of hospital stays, Delmarva disagreed in eight of 49 cases. That was not, Larsen said, enough to establish a pattern, but he fined CareFirst $16,000, or $2,000 per case.

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