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Blue Cross Ordered to Pay $108 Million for Withholding Payments from Hospitals

Little River Healthcare claimed that the insurer was part of a conspiracy, breached their contract, and didn't provide prompt payment.

An arbiter has ordered Richardson-based Blue Cross Blue Shield of Texas to pay $108.3 million in damages and attorneys fees to Little River Healthcare, which operated rural hospitals in central Texas until the facilities went bankrupt in 2018.

Via arbitration, former Supreme Court Justice Harriet O’Neill ruled that BCBSTX breached contracts and did not meet the Texas Prompt Pay statutes. An exhibit in the case reads that BCBSTX owes over $65 million, among other amounts, because “BCBSTX breached the contracts in issue by failing to pay for laboratory services provided to BCBSTX members, improperly recouping funds previously paid to Little River for provided services, and failing to timely and appropriately adjudicate the laboratory claims submitted by Little River.”

Lawyers fees, interest, and other violations make up the rest of the money owed. “BCBSTX shall take nothing on its counterclaims and is entitled to no damage award in its favor,” the exhibit reads.

In 2018, Little River began legal demands against Blue Cross, including breach of contract, and Blue Cross responded with claims of its own, including fraud. Little River operated the only hospital in Milam County, a Critical Access Hospital, as well other hospitals, clinics, diagnostic and imaging centers, and a physician network.

The suit was essentially centered on Little River’s laboratory billing practices. To counteract financial struggles, Little River enacted a growth strategy between 2013 and 2016, adding physician practice locations, imaging centers, expanding lab services and improving its financial situation. The facility made plans to construct its own lab and serve its patients. As lab payments went to local and third party labs, the payments caught the attention of BCBSTX.

In 2015, patients complained to BCBSTX, which was the largest commercial plan holder for Little River’s patients, about Little River’s billing practices, saying they never received certain services or had never been to the hospital where they were being billed. Blue Cross began to investigate the claims and performed a pre-payment review on Little River, meaning they would not pay claims until they verified that they were accurate. They eventually paid for the services in 2015, but BCBSTX continued to question Little River’s billing practices after that and later refused to pay for them, leading to the current ruling.

The arbiter shot down Blue Cross’ extension of the pre-payment audit in 2016 and 2017 without giving proper notice to Little River saying the insurer violated the Texas Prompt Pay Law (TPPL). “BCBSTX further violated the TPPL by failing to first pay 100% of the claims to be audited. Accordingly, BCBSTX had no right to invoke the TPPL audit provisions, including the 180-day investigatory period,” the ruling reads.

Neither side’s argument is unprecedented. Last year, arbiters awarded BCBSTX $29 million from Jack County Hospital District northwest of Fort Worth for breaching contracts and improperly billing for laboratory services performed by third parties or for patients who never came to the hospital.

Meanwhile, another rural hospital district west of Fort Worth is making similar claims that BCBSTX is withholding claims while the insurer says the hospital is practicing fraudulent billing schemes. That $21 million case between Knox County Hospital District and BCBSTX is currently headed to arbitration as well. BCBSTX has claimed that Knox County is employing fraudulent pass-through billing practices in that case as well.

The money will be paid to Little Rivers creditors, vendors, and employees, though the ruling was not enough to recover costs for the owners or reopen the hospital. Little River sought $400 million in damages connected to the bankruptcy that were not awarded. The exhibit says Little River claimed that the withholding of payments and termination of contracts  “exacerbated [Little River’s] financial condition forcing [Little River] to file for bankruptcy,” but the arbiter says that “it was Little River’s burden to rule out other potential contributors or causes, which would have required some type of  forensic accounting review or financial review to determine the complete range of causes for [Little River’s] liquidity issues.”

“While Blue Cross and Blue Shield of Texas is pleased the arbitrator denied the vast majority of Little River’s claims, BCBSTX is disappointed with the ruling allowing Little River to recover for lab services performed by third parties or for people who never visited the hospital. BCBSTX is committed to standing by its members and its customers in challenging billing practices that may be fraudulent, wasteful, or abusive,” BCBSTX said via statement.

Little River also claimed that BCBSTX coordinated and conspired with other insurers to eliminate competition and reduce supply of third-party laboratories in central Texas and fraudulent induced Little River into new contracts, but there was insufficient evidence according to the arbitration.

Read the full decision here.

An earlier version of this Article incorrectly stated that BCBSTX “eventually paid” the amounts it owed to Little River for laboratory services. The sentence was in referenceto 2015 claims and not those at issue in this ruling. BCBSTX has not yet paid any of the amounts owed to Little River under the Arbitration Award.”