Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 22, 1995 TAG: 9508220063
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: JAN VERTEFEUILLE STAFF WRITER NOTE: Lede
DATELINE: LENGTH: Medium
Lynchburg and Charlottesville, which have health insurance plans for their municipal employees administered by Trigon, filed suits in their circuit courts alleging fraud, negligence, inflation of charges, breach of fiduciary duty and breach of contract.
They charge that they overpaid Trigon, formerly Blue Cross Blue Shield, because Trigon withheld from them the discounts it received from various hospitals.
The two are believed to be the first municipalities to sue over the discounts. Other cities for which Trigon administers insurance plans, including Roanoke, have shown interest in doing the same.
Trigon has admitted keeping the discounts, which were negotiated with hospitals so that Trigon would pay less than the stated fee on a policyholder's bill. For example, if Trigon was supposed to pay 80 percent of a $1,000 bill but got a discount, the patient was still charged for 20 percent of the original $1,000 bill, rather than 20 percent of the discounted bill.
The law has been changed to forbid such discounting.
Trigon paid a $5 million fine to the state, as well as $23 million in restitution to individual policyholders. But employers who provide their workers benefits through Trigon have received no reimbursement.
The controversy, fueled last month by a critical report from state Attorney General Jim Gilmore over the secret discounts, comes at a bad time for Trigon. The company hopes to offer stock for sale to the public. Such a move must be approved by the State Corporation Commission.
Ken Schrad, spokesman for the SCC, said the legal problems of Trigon surrounding the discount issue will come into play when the state looks at the company's request to become a public stock company.
"This is going to be used as an example of whether or not the company should be allowed to do that," he said.
Trigon said it will fight the lawsuits.
Colonial Williamsburg, as a private employer, filed suit against the company in May.
Lynchburg had been negotiating with Trigon since April for a refund of the discounts. The insurance company told the city about 10 days ago that it would not voluntarily pay anything.
"Since Trigon has refused to make any type of settlement offer, this is the only way the city could recover this money," City Attorney Walter Erwin said.
Lynchburg said in the lawsuit it does not know how much money it has overpaid since 1983 because Trigon has refused to turn over its books for an audit. An expert hired by the two cities estimated that Lynchburg is owed $1 million and Charlottesville $750,000, not including interest.
That is money that Trigon should have put back into the cities' self-insurance plans. Instead, Trigon kept up to half of it, Erwin said.
The city knew that Trigon had negotiated discounts with various hospitals, but thought all the discounts were being put back into Lynchburg's plan, Erwin said.
The suits say Lynchburg and Charlottesville relied on Trigon, placing "special trust and confidence" in the insurance company to manage their plans fairly.
In a statement Monday, Trigon said Lynchburg and Charlottesville are "large, sophisticated purchasers of health care services. They received the benefits of the contracts they negotiated, and we fulfilled our obligations under those contracts. We plan to vigorously defend these lawsuits, and we expect the court to find in our favor."
Trigon also noted that Lynchburg and Charlottesville have renewed their contracts with the insurance company. The new contract gives Lynchburg 80 percent of the discounts Trigon negotiates with hospitals, Erwin said.
Roanoke City Attorney Wilburn Dibling said the city has talked to attorneys for other municipalities, but that the issue has not been brought before City Council for discussion, a necessary first step in pursuing any action with Trigon.
He said he does not know how much money might be involved in Roanoke's contract with Trigon.
Staff writer Sandra Brown Kelly contributed information to this story.
Memo: ***CORRECTION***