Medical Center Sues Kaiser Foundation Health Plan For $4M

Oct. 26--The Queen's Medical Center is suing Kaiser Foundation Health Plan Inc. for more than $4 million, saying Kaiser underpaid Queen's for care given to Kaiser members.

Queen's and Kaiser, Hawaii's largest health maintenance organization, have had an arrangement for years by which Kaiser members can go to Queen's for services not available at Kaiser.

Queen's said that since March, Kaiser has been paying a discounted rate, typically 80 percent, for services provided to Kaiser members. Queen's is suing to force Kaiser to make up the difference between the discount and the full price. Queen's also is asking that Kaiser pay unspecified punitive damages. The lawsuit was filed in Honolulu Federal Court on Oct. 19.

Kaiser Permanente Hawaii Vice President Sharon Thomson said in an email that Kaiser was just notified of the lawsuit and had not had a chance to review it.

"We value our long-standing relationship with the Queen's Medical Center and work closely with the organization on member care and community initiatives," she said.

Queen's spokeswoman Makana McClellan said the hospital does not comment on pending litigation.

In the lawsuit, Queen's said it agreed in 1996 to care for Kaiser members at discounted rates through the end of 2011. Kaiser failed to extend the agreement or negotiate a new contract with Queen's, according to the lawsuit. Without a new contract in place, Queen's claims Kaiser should pay the full price for services provided to Kaiser members, the lawsuit says.

Kaiser paid the full price in January and February but in March began reimbursing Queen's at a lower rate, the lawsuit says.

"Kaiser began to pay less than 100 percent of billed charges, typically paying only 80 percent or less," the complaint says. "These underpayments resulted in a significant shortfall in compensation."

Though Queen's would not disclose the number of Kaiser patients it has served since the contract expired, the hospital said it has never turned away a Kaiser patient seeking treatment.

Queen's said it notified Kaiser that it would no longer receive discounts on hospital services in the absence of a new contract, information Kaiser ignored, the lawsuit says.

Queen's is also suing Stratose Inc., formerly known as Coalition America Inc., a so-called "repricing firm" that Kaiser hired in 2007 to help arrange discounted prices, the lawsuit says.

Stratose claims Kaiser is entitled to discounted pricing based on Stratose's relationship with a third party, Health Management Network Inc., which has had a participating hospital agreement with Queen's since 2005, the lawsuit said.

Queen's said in March it suddenly began receiving underpayments that had been "repriced" by Stratose, an entity previously unknown to the hospital, the lawsuit said.

In the suit, Queen's said it has repeatedly asked Kaiser to explain the discounts it is taking and demanded a copy of its agreement with Stratose.

Kaiser responded that the contract is "proprietary and confidential" and that attempts to obtain a the agreement "could be construed as attempting to interfere with Kaiser's contractual relations," the lawsuit says.

Queen's says in the suit that Kaiser and Stratose are attempting to "perpetrate a scheme that is known in the healthcare industry as a silent PPO arrangement," when an insurer, repricer or other entity attempts to "use a series of complex, often proprietary or confidential contracts to take improper discounts on medical services. (Their) ongoing efforts to conceal the details of their relationship constitute fraud," the lawsuit says.

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