THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Friday, October 7, 1994 TAG: 9410070602
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LON WAGNER, STAFF WRITER
LENGTH: Medium: 75 lines
Despite finding ``disturbing'' practices in Blue Cross' administration of health benefits to 87,000 state workers, the state has renewed the Richmond-based insurer's contract.
Virginia awarded Trigon Blue Cross Blue Shield the medical and surgical insurance coverage of state employees, a contract which brought in $310 million in premiums last year for Trigon.
But Trigon failed to win the entire insurance package. Sentara Mental Health Management of Norfolk beat out Trigon for the state's mental illness and substance abuse contract, worth an estimated $3.5 million.
Sentara lost out to Blue Cross two years ago, but was awarded the contract Thursday after teaming with Green Spring Health Services Inc., a national mental health services company based in Columbia, Md.
Awarding of the contracts had been delayed for weeks after Attorney General James S. Gilmore III wrote Gov. George F. Allen asking him to postpone a decision until an investigation of Trigon was completed.
Gilmore said Thursday the state had carved out a better deal with more oversight authority compared to the previous contract with Trigon.
The Attorney General's office, however, said its investigation of the previous arrangements with Blue Cross showed the earlier contract to be ``ridiculous,'' and said numerous aspects of the contract had to be reworked.
Gilmore's investigation found that Blue Cross had been overbilling state employees the same way it had overcharged individual and group policyholders.
Blue Cross has agreed to reimburse its policyholders millions of dollars for overbillings during a 10-year period. The overcharges occurred when Blue Cross negotiated discounts with hospitals, then required consumers to make a co-payment based on the retail rate.
In Blue Cross' contract with the state, Blue Cross had agreed to return at least 8 percent of hospital charges to the state.
``If the actual discount Blue Cross received was more than 8 percent of hospital charges, Blue Cross would determine how much of the excess to keep and how much to return to the commonwealth,'' Gilmore said.
Not only did the state not have a say in how much of the discount it would receive, under the previous contract state officials were prohibited from looking at Blue Cross's records so they could calculate the amount. The state had negotiated a contract with Blue Cross without knowing how much it was paying for Blue Cross's services, Gilmore said.
``We had no way of knowing whether Blue Cross kept for themselves $2 million or $20 million,'' Gilmore said.
Gilmore said Trigon had not violated the terms of its contract. He said the state had just done a poor job in looking after the interests of its workers.
State employees paid $310 million in health benefit premiums last year, and Blue Cross credited the state $21.3 million for hospital discounts.
The state Bureau of Insurance last month fined Trigon $5 million, and made the company offer refunds to people who made co-payments from 1984 through 1993.
Insurance Commissioner Steven Foster estimated Blue Cross could have to refund ``tens of millions of dollars'' to policyholders who had been overbilled.
The Attorney General's investigation into Blue Cross' billing practices focused on the mammoth insurer's dealings with state employees. The state insurance bureau has no jurisdiction to monitor self-insured operations, a category which includes the state.
Under the new contract, Blue Cross will have to disclose the amount of a discount it negotiates with hospitals or other health care providers. Blue Cross will then have to return 85 percent of that discount to the state.
``No longer will the commonwealth or its employees be required to pay retail while Blue Cross pays wholesale and pockets much of the difference,'' Gilmore said.
And just to be sure, this time the state will be allowed to examine Trigon's books. by CNB