Whistleblower suit revealed against Premera Blue Cross
A long-secret whistleblower lawsuit against Premera Blue Cross has become public record because of the insurer's own legal moves — and could complicate its efforts to convert to a for-profit company.
The suit, filed by an unidentified person in 2001 and kept under seal by law, involves operations in Premera's Medicare billing services. The federal government is investigating the allegations but has not decided whether to join the suit. Because of the secrecy, it's unknown how serious the allegations are, or even what they are.
But the mere revelation of the probe comes at a sensitive time for Premera.
The Mountlake Terrace insurer is seeking the state's approval to convert to a for-profit company. Premera's conversion application has drawn widespread opposition from doctors, hospitals, labor groups and community organizations. In January, the Washington State Hospital Association filed a lawsuit seeking to block the conversion as illegal and detrimental to consumer access to affordable health coverage.
Premera's foes, who learned of the whistleblower case this week, speculated that it could give weight to their efforts to block the conversion. Among other things, the state law that governs conversions directs the insurance commissioner to consider the "competence, experience and integrity of those persons who control" the company before approving it.
Details of the whistleblower case remain secret. By law, complaints brought by whistleblowers under the federal False Claims Act are kept sealed and are not initially disclosed even to the defendants.
The False Claims Act is most commonly used in health-care fraud cases against providers, such as hospitals and physicians, that bill for services they didn't perform or for inflating charges.
According to court documents, the whistleblower's allegations involve Premera's operations as a Medicare intermediary. Premera is responsible for reviewing hospital claims to ensure that Medicare pays only its share if another insurer or party has primary responsibility for the bills.
The fact that the lawsuit had been filed became a matter of public record July 24. That's when a U.S. District Court judge denied Premera's request to file a motion, under seal, restricting the whistleblower's use of internal Premera documents related to the case. Instead, the court agreed to partly lift the seal just for Premera's motion — making the filing a part of the court's open records.
Meanwhile, momentum is shifting nationwide against nonprofit conversions.
Regulators in Kansas, Maryland and North Carolina have derailed efforts by their Blue Cross and Blue Shield plans to become or to merge with investor-owned insurers. The conversion attempt by Maryland's CareFirst, for instance, ended acrimoniously, with legislators passing a bill to replace half the insurer's board members. And Maryland's insurance commissioner threatened to file civil charges against CareFirst executives; the chief executive stood to reap a $40 million payout if the company's conversion and subsequent sale to WellPoint of California succeeded.
On Wednesday, the Kansas Supreme Court upheld an insurance commissioner's decision to disallow the sale of Blue Cross and Blue Shield of Kansas to for-profit Anthem Insurance of Indianapolis.
Premera contends that conversion decisions in other states should have no bearing on its application. Premera spokesman Scott Forslund also said that an internal investigation found no cause to "believe that the company has violated the False Claims Act."
Ele Hamburger, an attorney for a coalition opposed to the conversion, said the whistleblower case could affect Premera's chances of winning approval for the conversion if the charges are borne out and if the financial impact is great.
"It definitely bears watching to see what happens" with the fraud lawsuit, Hamburger said.
The final ruling on the conversion will be made by state Insurance Commissioner Mike Kreidler. He must decide, among other things, whether allowing Premera to shed its nonprofit status would hurt consumers by raising premiums and reducing access to health insurance.
Scott Schoengarth, a spokesman for Kreidler, would say only that "anything that may affect the company financially would be considered by the commissioner."
According to Premera's Forslund, the insurer informed Kreidler's office about the whistleblower case in January. The company has seen no reason to set aside any reserves to pay potential penalties or fines, he added.
Premera is Washington's largest insurer, with about 845,000 members. It submitted its initial conversion papers in September.
Premera since has become embroiled in tussles over releasing corporate documents sought by state consultants, over the deadline for Kreidler's ruling, and over opponents' legal standing as interveners in the case.
According to a schedule outlined last month by a state-appointed special master assigned to the conversion application, it may be February or later before Kreidler rules on the matter.
Premera has said it wants to convert to an investor-owned company so it can better raise capital to fund growth. If the conversion is approved, Premera would create a nonprofit foundation and endow it with money equal to the estimated asset value of the existing company. Premera then would sell shares in the new for-profit company to investors.
The federal government can opt to join, or intervene, in a whistleblower case. If it doesn't, experts say more than 90 percent of such lawsuits eventually get dismissed.
Kyung Song: 206-464-2423 or ksong@seattletimes.com