Blue Cross of California is facing a revolt from hospitals, which continue to terminate their contracts and turn away Blue Cross patients because of low reimbursement rates paid by the state’s second largest health insurer.

Little Company of Mary in Torrance, which operates two 350-bed hospitals in the South Bay, has decided to end its Blue Cross contract on April 11, after negotiations broke down April 4. It’s the latest in a string of hospitals that over the past few months have either terminated their contracts or announced plans to do so.

Little Company of Mary officials say they lose money on every Blue Cross patient they admit, and can’t afford to do business anymore with the firm.

“Our (Blue Cross) reimbursement rates aren’t covering our expenses. Of all the insurance companies, Blue Cross is the poorest payer we have today,” said Blair Contratto, chief executive of Little Company of Mary Health Services. “In the last five years, our rate reimbursement has gone up only 3.4 percent, while medical costs have skyrocketed.”

Meanwhile, Good Samaritan Hospital near downtown Los Angeles ended its contract with Blue Cross on March 4. Executives at that 408-bed medical facility also said they could no longer afford to do business with Blue Cross, after going nearly five years without any increase to the reimbursement rate.

Last year, the hospital was forced to subsidize Blue Cross members, who had constituted 10 percent of the hospital’s patients, to the tune of $2.5 million, said Good Samaritan CEO Andy Leeka. “Under Blue Cross, the daily patient room rate we received was less than what Medi-Cal (which provides services to the poor) and Medicare (which provides services to the elderly) were paying us.”

Registered nurses announced last week that they will picket both Good Samaritan and Blue Cross’ Woodland Hills headquarters on April 12 after the hospital cut nurses’ benefits a move prompted by the financial losses from Blue Cross.

In January, Santa Barbara’s three Cottage Health System hospitals, with more than 1,000 beds combined, terminated their Blue Cross contracts because they too were losing money on Blue Cross patients.

Also planning to drop its Blue Cross contract is giant hospital operator Catholic Healthcare West, which has sent the HMO notice of its intention to terminate effective July 15. Most of its 44 California hospitals would be affected, company officials said.

In addition, Coast Plaza Doctors Hospital in Norwalk has sued Blue Cross, alleging discriminatory payments to small hospitals. The 126-bed facility ended its contract with Blue Cross on March 1, 1999.

So far, these defections have caused only a small dent in the number of Blue Cross-affiliated hospitals, which total 468 in the state, nearly 150 in Los Angeles County. But if the defections continue, they could represent a serious problem for the big HMO.

“I think it is going to have a substantial impact, because if Blue Cross’ members can’t get access to nearby hospitals, they’ll leave the insurance plan,” said Jamie Court, advocacy director for the Foundation for Taxpayers and Consumer Rights.

Blue Cross of California, a subsidiary of WellPoint Health Networks based in Thousand Oaks, maintains it offered rate increases to Little Company of Mary and Good Samaritan, but the medical facilities turned them down, according to Blue Cross spokesman Michael Chee, who would not disclose the proposed rate increases.

Hospital officials, who also would not outline what they requested, said the proposed higher reimbursement rates still would not have been nearly enough to bridge the financial gap to treat Blue Cross patients. “We are so behind in paying for our costs that we will need a substantial increase from Blue Cross to catch up,” Leeka said.

Blue Cross maintains that, to keep its premium costs competitive, it can’t provide hefty reimbursement rates to hospitals.

“We believe in negotiating a fair and equitable rate on behalf of our members that could result in an increase of rates for the hospitals but keep premiums affordable for employers and patients,” Chee said.

Nevertheless, insurance brokers point out that Blue Cross premiums have increased about 15 percent in the last three years, and are expected to go up again this year.

Though many HMOs are struggling financially, Blue Cross’ parent is an exception. Wellpoint reported net income for the fourth quarter ended Dec. 31 of $80.7 million ($1.21 a diluted share), compared with $67.3 million (98 cents) for the like period a year earlier. Revenue was $7.3 billion, up from $6.3 billion.

“That’s how they are making money. They’re slashing their reimbursement rates to unacceptable levels,” Court said. “You can’t take care of a patient on the rates they’re paying.”

Tough times for patients

With all this bickering going on between Blue Cross and local hospitals, the real losers are patients.

“We are the primary hospital for the large Koreatown population in the Mid-Wilshire area, and that community is very upset,” said Sammy Feuerlicht, vice president of strategic planning and business development at Good Samaritan.

Consumers covered by Blue Cross’ health maintenance program must find other hospitals that take Blue Cross patients. Those who once used Good Samaritan now will have to go to St. Vincent Medical Center near downtown, Cedars-Sinai Medical Center near Beverly Hills, Barlow Respiratory Hospital & Research Center near Dodger Stadium, or Huntington Memorial Hospital in Pasadena.

Patients who are covered by Blue Cross’ preferred provider program can still go to hospitals that don’t have a Blue Cross contract, but they will incur more out-of-pocket expenses.

Also feeling the bite are doctors. Physicians such as Dr. Lawrence Dorr, whose Bone and Joint Institute is located at Good Samaritan, are having a tough time figuring out how they are going to treat their Blue Cross patients.

“I called St. Luke’s Hospital in Pasadena to ask if I could use their facility to perform my procedures there on my Blue Cross patients, who are about 20 percent of my practice. They turned me down because they said they lose too much money on Blue Cross patients,” Dorr said. “I’m not sure what to do right now. They didn’t teach me anything in medical school about dealing with insurance companies.”