By David S. Hilzenrath
Washington Post Staff Writer
Wednesday, March 11 1998; Page A01

Jacqueline Lee of Bethesda fell off a 40-foot cliff in the Shenandoah Mountains while hiking in the summer of 1996 and was taken by helicopter to a Virginia hospital with fractures of her skull, arm and pelvis. Her HMO, Optimum Choice Inc., refused to pay the hospital, saying it failed to obtain "pre-authorization."

More than a year later, after the hospital sued her for $10,238.08, Lee sought help from the Maryland Insurance Administration. Optimum Choice partly relented in January, agreeing to pay $5,353 of emergency room and air ambulance charges.

But Maryland Insurance Commissioner Steven B. Larsen said that wasn't good enough. Last week, he fined the HMO $1,000 and ordered it to pay the entire bill.

The injured hiker's case illustrates the latest struggle that hospitals and doctors in the mid-Atlantic region say they are facing in their long-running battle with health maintenance organizations and other health plans: getting paid.

Increasingly, health plans are delaying and denying payment for care that has already been delivered, hospital executives in Maryland and Virginia say. Insurance executives, for their part, say they are becoming more adept at spotting inappropriate bills.

The controversy has become an issue in the Maryland legislature, where some lawmakers have proposed tightening regulation of medical payments and increasing penalties for violators.

In many instances, doctors say, Maryland health plans have refused to pay emergency room charges for medical emergencies -- visits that insurers are obligated to cover under a 1993 Maryland law.

Instead, health plans have left Lee and other patients responsible for the bills, doctors say.

Optimum Choice's corporate parent, Mid Atlantic Medical Services Inc. of Rockville, has even boasted to Wall Street of its success in finding reasons to invalidate medical claims it already has paid. The company sought at least $12 million in refunds from health care providers last year. Returning the disputed amounts is not necessarily a matter of choice: In mailings to doctors, MAMSI said it would dock future payments if they failed to comply.

"Probably the brightest spot in our operations is the improvement in our claims-auditing capability," MAMSI Chief Financial Officer Robert E. Foss said in a recent conference call with stock analysts. "We have identified and taken advantage of significant opportunities to reduce current and future medical expenses by more closely challenging the contractual and medical appropriateness of claims received."

The tug of war over payments is another front in the conflict between health care providers and cost-cutting insurance plans. Previously, the two groups have clashed over issues such as health insurers' efforts to shorten hospital stays, restrict access to medical specialists, limit patients' choices of doctors and hospitals, and require advance approval for tests and procedures.

As formerly passive insurers become strict disciplinarians, much of the health care system finds itself tied in bureaucratic knots.

Health care providers say payment denials and delays have intensified as health plans struggle to improve their profitability. Hospitals say the unpaid bills make it harder to serve the public.

Among Maryland hospitals, the frustration is so widespread that "every one of our acute care hospitals . . . have agreed that they will participate in a coordinated appeal to the [state] insurance administration," said Nancy Fiedler, spokeswoman for the Maryland Hospital Association. The hospitals plan to cite Blue Cross and Blue Shield of Maryland, MAMSI and possibly others, Fiedler said.

MAMSI Vice Chairman Thomas P. Barbera said he was unaware of their grievances but welcomed a review of the facts. "It's very difficult for us to fix it if they don't show us it is broken," he said. "If in fact we can improve, we will."

Blue Cross Administrative Director Kevin C. O'Neill said his company is examining bills more closely to ensure "that we're not paying for things needlessly or inappropriately." Even so, he said, the volume of denied charges is "minuscule" in relation to overall payments to hospitals.

Both companies said they pay promptly except when they have reason to question a bill.

Some of the loudest complaints have come from physician groups that staff Maryland emergency rooms. They have asserted that many charges are being rejected outright or "downcoded" to amounts that do not reflect the extent of the care provided.

A recent study of MAMSI's payments for emergency care at five Maryland hospitals found that it rejected physicians' charges in 29 percent of cases over several months. In those instances MAMSI paid only a "screening fee," the minimum payment required by law in non-emergencies (typically $20 for MAMSI), according to Reimbursement Technologies Inc., the doctors' billing agency.

Maryland law prohibits HMOs from requiring prior authorization for treatment of emergencies. In addition, Maryland was the first state to mandate that health plans pay for emergency room visits when a patient has reason to believe he or she is experiencing a medical emergency, such as a heart attack -- even if the pain is later diagnosed as simple heartburn. Now, some emergency doctors and firms that process their bills say the laws aren't working as intended.

HMOs have denied as non-emergencies visits by an insulin-dependent woman whose husband found her "pale, sweaty and unconscious" and a patient with a cardiac history who suddenly developed "crushing chest pain," emergency doctor L.D. Romane, treasurer of Emergency Physician Associates in Frederick, Md., wrote in a November letter to a legislator.

Columbia Medical Plan, a Blue Cross HMO, disputed charges for a 76-year-old woman whose doctor sent her to the emergency room with a broken arm, Romane said. The HMO agreed to pay the full amount only after the case was referred to the Maryland Insurance Administration, he said in an interview.

In a letter last week, the agency told Columbia Medical Plan that "we strongly disagree" with the HMO's position that several other cases on appeal were not medical emergencies.

Maryland Blue Cross officials said they could not comment on specific cases, citing patient confidentiality. But Robert Sheff, president of the company's HMOs, said, "We apply the statute in the very best and most honest way we can."

MAMSI sees only the final diagnosis -- not the patient's symptoms -- when it receives an emergency claim, making it hard to evaluate the merits, MAMSI Senior Director Elizabeth Sammis recently told a Maryland House committee.

Hospital executives say health plans are often justified in rejecting claims. But they contend that health plans are rejecting many valid claims by applying arbitrary standards and ignoring the complexities of individual cases.

"There are many aspects of this denial of payment situation which are, to put it simply, unfair and wrong," three executives of Northwest Hospital Center in Randallstown, Md., said in a letter they sent to legislators.

In some cases, hospitals kept patients longer than necessary because they were waiting for the health plan to authorize transfer to a nursing home or because no beds were available at rehabilitation facilities on the health plan's approved list, executives said.

Often, bills are rejected with only perfunctory explanation, as a Feb. 2 rejection letter from Blue Cross and Blue Shield of Maryland to the Randallstown hospital illustrates.

"Our decision has been rendered by experienced clinical staff based upon recognized medical criteria for acute inpatient care which are applied to all BCBSMD members," the letter said.

The patient, a retired state employee, had been hospitalized because an accumulation of fluid in his abdomen was impairing his breathing, physician Ira Copeland said. Northwest was ready to send the man to a nursing home on Dec. 24, but Blue Cross did not give its approval until Dec. 28, when its offices reopened after the holiday weekend, Copeland said.

"What are we supposed to do? Put him on the street? It's ridiculous," Copeland said.

Blue Cross's O'Neill said the company keeps "normal business hours" and "there is some substance to" criticism that approvals could be hard to get on weekends.

In other disputed cases, hospitals admitted people for evaluation of serious symptoms but doctors failed to diagnose a serious illness. Doctors and hospital executives say they lack the benefit of hindsight when deciding how to treat such patients.

That was the trouble last April when Washington County Hospital in Hagerstown admitted a woman with "severe excruciating abdominal pain which did not respond well to narcotic pain medication," according to a pending complaint to the Maryland insurance commissioner by physician Allen W. Ditto. Though the pain virtually disappeared and the patient was sent home within 48 hours, the doctor said in an interview that he thought she might have been suffering from appendicitis or a ruptured ovarian cyst.

Blue Cross rejected hospital charges and a subsequent appeal, saying, "Observation of the patient, while appropriate, could have been carried out in an environment established for that purpose."

"Sounds like a hospital!" Ditto wrote.

Though providers have the option of appealing rejected claims to the insurer and requesting more detailed explanations of payment decisions, many say that is poor recourse. Appeals can be costly and time-consuming, and they are sometimes decided by the same people who made the initial decision.

Hospitals' grievances seem unusually pronounced in Maryland, where state law prohibits managed-care companies from using one of the industry's standard cost-cutting techniques: negotiating discounted hospital rates.

Rejecting unusually high volumes of bills could undercut rates set by the state, said Robert B. Murray, executive director of the rate-setting Maryland Health Services Cost Review Commission.

The extent of the denials varies from hospital to hospital. For example:

* At Washington County Hospital, the number of inpatient days that HMOs refused to cover rose 18.4 percent last year, to 599 from 506 a year earlier, even as the total number of days patients spent in the hospital was declining, said Beverly David, a hospital administrator. Each unpaid day represents about $1,000, David said.

* St. Joseph Medical Center in Towson has been denied payment for 808 days patients spent there since July 1, at a cost of about $2,000 a day, said Bruce Gordon, vice president for medical affairs. Blue Cross accounted for 85 percent of the denials but only 19 percent of the hospital's inpatient cases, he said.

* Inova Fairfax Hospital last year appealed $7.7 million of denials "and got most of that back," Inova Health System Chief Financial Officer Richard C. Magenheimer said. Among commercial insurers, claims that were initially denied rose to about 3.4 percent of billings last year from about 2 percent in 1996, he said. Inova spends $500,000 a year reviewing managed-care remittances for underpayments, he said.

* Northwest Hospital estimates that, based on a five-month trend, payment denials will triple this fiscal year, forcing it to write off $3 million of care provided to HMO patients, hospital President Robert W. Fischer said.

"This has caused us to freeze employee salary increases and to begin identifying painful cost reductions, including programs and services such as our community health outreach program," hospital executives said in the January letter to legislators.

The volume of unpaid bills at Maryland hospitals increased 17.9 percent from the third quarter of 1995 to the third quarter of 1997, the most recent period for which data is available -- from an average of 60.8 days of claims receivable to an average of 71.7 days, according to the Maryland Hospital Association.

MAMSI believes health care providers are "making fewer and fewer mistakes" when billing the company, spokeswoman Diane Landry King said. But MAMSI audits have uncovered some glaring overcharges.

The company paid one hospital $178,888.35 for medications for two patients that should have cost only $1,100, King said. MAMSI later recovered the difference. In another case, a physician treating a patient for a broken arm submitted separate bills for nine follow-up visits that should have been included in MAMSI's flat fee, King said.

MAMSI has "a strong level of confidence" that the refunds it seeks are appropriate because "we've had very few appeals," Chief Executive George T. Jochum told analysts during the recent conference call.

Last year, the company reclaimed $12 million of payments made in 1996, CFO Foss told analysts. That was one of the main reasons the company rebounded from a 1996 loss of $2.8 million to report a profit of $14.5 million in 1997.

In response to the ruling on the injured hiker, MAMSI's Barbera said consumers "should be reassured knowing" they can appeal to state regulators.

For Lee, that was no excuse. "It really appears to me that they're trying to find an out so that they don't have to pay for the proper care," she said.

Her troubles continue. Last August, after undergoing follow-up surgery, Lee went to the Suburban Hospital emergency room because she worried she was suffering serious complications. She said she checked with MAMSI and her doctor's office first. But MAMSI notified Lee it would pay only a screening fee because the visit was "not considered a medical emergency."