State Tries To Block ‘Fishing Expedition’ Against Blue Cross

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LOS ANGELES, CA — When the Schwarzenegger administration in July struck a deal with Anthem Blue Cross that required the insurer to resell medical coverage to dropped policyholders and pay a record $10 million in fines, some attorneys  questioned if state regulators had offered the company sweet concessions in exchange.  

Would the governor, for example, try to shield insurers from ongoing lawsuits over controversial rescissions?  

The answer could come later this month in a court-ordered deposition of an unnamed Anthem Blue Cross executive in a related lawsuit brought by Los Angeles City Attorney Rocky Delgadillo.  

The deposition is expected to air confidential details about negotiations  between the health plan and the state’s Department of Managed Health Care.  Both have fought hard to stop the deposition from taking place – even asking the state Court of Appeal to intervene this week. That deposition, slated for today, has been postponed by an appellate judge. A ruling on whether the public gets a peek could come within weeks.  

Representatives for Delgadillo, who sued Anthem Blue Cross and two other health plans under the state’s Unfair Competition Law, said they want court oversight of the rescission deals.  

"The resistance that we have encountered to taking a simple deposition has done nothing in making us less interested in learning what it is these people don’t want us to know," James Colbert, an assistant city attorney, said this week.  

State lawyers called the lawsuit a "fishing expedition" in briefs filed last week in Los Angeles County Superior Court, where the case is being handled.  

The flap stems from the settlements reached earlier this year between the Department of Managed Health Care and the five major health plans in California over the practice of rescission, in which health plans revoke medical coverage from sick policyholders after they submit claims. More than 10,000 Californians have had their coverage rescinded since 2004.  

Schwarzenegger, who appoints the department’s director, praised the settlement with Blue Cross and others as a win for consumers. And in September, the department helped Blue Cross mail notices to more than 1,700 dropped policyholders offering some compensation and new medical coverage.  

Private attorneys, meanwhile, have fought those notices, saying they violate pending class actions by communicating directly with class members without court approval. Los Angeles County Superior Court Judge Anthony Mohr has yet to rule on whether to halt those notices.  

Some legal experts described the dispute as an escalating turf war between the Schwarzenegger administration and Delgadillo over who has the legal authority to sue state-regulated insurers.  

Department of Managed Health Care officials said Delgadillo’s lawsuit  against Blue Cross should be thrown out. "Some of the remedies [the city attorney] is seeking are starting to impose on the department’s settlement,"  Amy Dobberteen, chief of enforcement, said. "We have already regulated in that area and provided restitution."  

Dobberteen also said that the court would create dangerous precedent if it allowed the city attorney to block the state-sanctioned settlement notices.  

The hotly contested deposition is particularly worrisome to state officials.  

As part of his lawsuit, Delgadillo is seeking to interview a "person most knowledgeable" at the company about the settlement talks with the Department of Managed Health Care. Sources said that person had not been named but would  likely be a mid-level company executive or in-house counsel.  

Mohr, who oversees the class action proceedings and related cases against Blue Cross, approved the deposition last month. But Blue Cross, represented by Morgan Lewis & Bockius, filed a petition for writ of mandate seeking to set aside that court order. And on Wednesday, the 2nd Appellate District of the Court of Appeal delayed the deposition, which was slated for today. The fight will resume on Nov. 17.  

Dobberteen said her department is fighting to halt the deposition because it is inappropriate to air the state’s confidential negotiations. She said that would have a "chilling effect" on any future negotiations with regulated industries. 

In a rare move, the Department of Managed Health Care filed two amicus  briefs on behalf of Blue Cross last month seeking to block L.A.’s lawsuit against the company. In a brief filed Oct. 22, lawyers for the department argued that it had "exclusive jurisdiction to regulate the conduct of health plans." Delgadillo’s unfair competition complaint tried to "second guess" the agency’s settlement and set new terms, attorneys argued in that brief.  

Bryan Liang, executive director for the Health Law Institute at the  California Western School of Law in San Diego, called the dispute a "very unusual situation where two government parties are going against each other" to enforce the same law. "The challenge," Liang said, "is can the city attorney actually intervene and sue to enforce state law? The department says ‘no.’"  

The department filed another brief on Oct 30 to halt the deposition. In it, lawyers called the discovery in Delgadillo’s lawsuit a "fishing expedition."  They argued that the agency’s "executive privilege" to have candid settlement talks with insurers "outweighs the public interest in disclosure."  

Some consumer advocates slammed that move, saying they believed the deposition could reveal that the Schwarzenegger’s administration, not just the regulatory agency, played a direct role in negotiations with Blue Cross, which would be politically embarrassing.  

"Obviously they are worried," said Jamie Court, president of Santa Monica-based Consumer Watchdog. "It is unfathomable that an administration that grandstanded in the media about these unlawful cancellations would suddenly reverse course and become the biggest advocate for a legal position espoused only by Blue Cross."  

Schwarzenegger has received more than $1 million from the health insurance industry and about $256,000 from Blue Cross alone, according to Consumer Watchdog. Health Net, which also cut a rescission deal with the state, gave $50,000 to Schwarzenegger as recently as last month, according to the group.  

Liang said the Department of Managed Health Care had a larger issue of legal precedent at stake.  

"If you are the state, you have supremacy power over jurisdiction and you don’t want cases out there that say your decisions aren’t binding," Liang said. "If individual cities and counties don’t like how things are enforced, what ends up happening is that cities and counties have veto power over decisions the state makes."  

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