The Dept. of Managed Health Care defends its cease-and-desist order against the largest health plan in California

Blue Cross of California has challenged in court the California Department of Managed Health Care's legal order to stop what some deem as unfair contract negotiations.

In November, the department issued a cease-and-desist order to Blue Cross, who wanted to require a health care provider, such as a hospital or medical group, to sign an agreement that gives Blue Cross the authority to choose the attorney who can represent the provider in contract negotiations.

The legal order came months after officials at Blue Cross had verbally agreed to stop the practice this past summer. At the time, the Department of Managed Health Care even issued a press release about the agreement.

"I thought we had a deal," said Cindy Ehnes, director of the DMHC. "Then my attorneys told me Blue Cross said they were not going to comply with our agreement."

Ehnes issued the legal order after losing confidence in Blue Cross to uphold its original commitment, she said.

In late November, Blue Cross took the issue to an administrative judge in Sacramento, claiming the department does not have the authority to issue such an order. The judge heard from both sides over a period of three days. The judge is expected to make his decision on the matter within a few months.

In the meantime, Blue Cross cannot force the hospitals or medical groups to comply with certain "confidentiality" provisions in contract negotiations. The disputed clause is within a confidentiality section of the negotiation contract, which Blue Cross required its providers to sign, or if not, it has told the provider that the health plan would refuse to contract with them for two years.

Since Blue Cross is the largest health plan in the state, it could be financially devastating for providers to be locked out of the plan, Ehnes said.

"I felt I had to step in."

Blue Cross has given notice to the Department of Managed Health Care, that it may terminate contracts with several hospitals by the end of this year, causing more than 600,000 people to find other hospitals for medical care. Those contract negotiations are ongoing.

Blue Cross officials took the issue to a judge because they believe their policy is within the law.

"We do not share the department's characterization that the confidentiality agreement is illegal or unfair," said Nick Garcia, spokesperson for Blue Cross of California. "This agreement does not limit the use of a specific legal counsel or consultant."

"Instead, what it does is provide protection of confidential information and bars consultants from sharing Blue Cross data with other providers and competitors. Since 2002 we have executed over 125 of these agreements with over 30 different consultants that have led to the overall growth of our network," Garcia said.

In terms of the verbal agreement this past summer, Blue Cross officials said they agreed to temporarily stop the negotiating practices after hearing the Department of Managed Health Care's concerns. After further evaluation, they deemed the practice appropriate, Garcia said.

"In our opinion, we felt both parties had a clear understanding of expectations," said Ehnes.

The state doesn't have an army of people to police Blue Cross or other health plans to make sure they comply with agreements. Once the department lost its confidence in Blue Cross, the legal order was necessary, Ehnes said.

The attorney who represents many hospitals knows what the health plans, including Blue Cross, pays the other hospitals he represents. Armed with this inside information, the attorney is able to negotiate better reimbursement rates for the hospitals, Ehnes said.

Blue Cross knows what it pays all the hospitals and doctors for a variety of services, so the attorney that's used to negotiate for many providers just levels the playing field, said Jan Emerson, spokeswoman for the California Hospital Association.

"They want to make the negotiations lop sided," Emerson said. "Blue Cross would have all the power."

Protecting members' interests, including keeping health care costs affordable, is why Blue Cross moved forward with an appeal of the department's order, Garcia said.

"We are confident that we are operating within the law and look forward to a positive outcome from the recent hearing before the administrative law judge. These agreements are routinely used in other industries and are not unique to Blue Cross — in fact these types of agreements are being utilized by other health insurers," he said.

Both sides await the judge's ruling. Until then, the cease-and-desist order stands.

—By Troy May

Troy May is the executive editor of the Healthcare Journal. You can reach him at tmay@healthcarejournalnorcal.com.