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"What we found was a lot of sweetheart arrangements," Neil says.
It's too early to say what Arizona Insurance Department investigators will find, but there is no doubt they are closely examining whether health insurance companies are sharing discounts they receive from health-care providers.
The department began an investigation into discount pricing last June in the wake of Florida's settlement with Humana, state Insurance Department Director Chris Herstam says.
Unlike most department investigations, which are triggered by consumer complaints, this probe was launched at Herstam's request. Herstam, a former state legislator and former chief of staff for Governor Fife Symington, had one word for the discounting practice.
Arizona may find it tougher to rid the state of secret discounts than Florida did. In 1992, the Florida legislature passed a law specifically requiring insurance companies to share discounts with their customers. Arizona does not have a similar law.
But that doesn't mean Herstam will easily drop the matter, especially if cases like the Sells' claim against CIGNA can be prosecuted on a criminal level.
"It is my opinion when insurance companies negotiate discounts with hospitals, it is only fair that those discounts be passed on to insurance consumers," Herstam says.
The department will rely on a variety of other state insurance laws to force Arizona health insurance companies to pass along discounts, he says.
"Our investigation may still discover some form of material misrepresentation that could be utilized if we find wrongdoing by an insurance company," he says.
Legislative action to require insurance companies to pass discounts along to their customers already is in the works. State Senator John Huppenthal, Republican-Chandler, has held informal meetings with the insurance department and the state Attorney General's Office to discuss the matter.
"They both appeared supportive of the idea of passing new legislation," Huppenthal says.
Huppenthal, who played a crucial role last spring in helping thousands of investors get their money back after the collapse of Phoenix-based Charter Title Agency, scheduled the meetings after New Times questioned him about problems experienced by the Sells with CIGNA.
Last week, Huppenthal met with representatives of the state's top health insurance companies, including Blue Cross/Blue Shield, Humana, Intergroup, FHP Healthplan and State Farm, to discuss the issue. Notably missing from the meeting was CIGNA, which was asked to attend, but did not send a representative.
The companies were not enthusiastic about legislation requiring insurance companies to share hospital discounts with consumers. At the same time, Huppenthal says, the companies attending the meeting assured him that any discounts they receive are shared equally with their customers.
There is reason, however, to question those assurances.
CIGNA is probably not the only health insurance plan in Arizona that refuses to share the benefits of secret discount pricing agreements with its customers.
A March 8, 1993, confidential memorandum prepared by Phoenix Children's Hospital's legal department shows the hospital has more than 30 different contractual arrangements with Arizona health-care plans. Nearly all the arrangements involve discounts.
Most of the discounts to the insurance companies range from 20 percent to 33 percent off amounts billed to patients. Some discounts even include a 25 percent deduction charge on transplant services, according to the memo, which was prepared by PCH paralegal Laurie Johnson.
In a recent interview, Johnson said the discounts are passed directly to insurance companies, in those cases when patients pay a flat rate for services provided by the hospital.
She was unsure, however, whether patients who pay for hospital service on a percentage basis--patients like the Sells--benefit from the discount.
The percentage those patients pay is "probably based on the full bill charges," Johnson says.
Among the insurance companies receiving discounts from Phoenix Children's Hospital are FHP Healthplan, AETNA, CIGNA, Baptist, Humana, Intergroup, Maricopa Foundation of Health Services, Preferred Plan of Arizona, Metropolitan Life, Samaritan Health Plan, Smith's Food and Drug, US Health Net and a company simply, and perhaps appropriately, known as OUCH.
The confidential memorandum also clearly shows that there is no set price for services provided by the hospital.
For example, Phoenix Children's Hospital charged patients insured by Metropolitan Life $3,265 per day for staying in its pediatric intensive care unit. The charge to CIGNA-insured patients for the same service was $1,804 per day. Charges varied widely for other services, including psychiatric treatment, neonatal intensive care and routine pediatric care.
Charges vary, hospital officials say, depending on the number of people enrolled with the various insurance companies. The more people enrolled, the more likely some will end up in the hospital.
Signing contracts with insurance companies provides hospitals with a steady supply of patients, allowing lower operating costs. In exchange for the stream of patients, hospitals agree to discounts from the typical bill that would be sent to an uninsured patient.
While discounts are widespread, they are not widely advertised. Ken Diamond, vice president of managed care for Mercy Health Care, which operates St. Joseph's Medical Center in Phoenix, says it is up to the insurance companies to notify their customers about any discounts the insurers receive from St. Joseph's--even though the hospital bills patients at a nondiscounted rate.
Diamond says the hospital is not obligated to inform patients that their insurance company may be receiving a significant discount compared to the patient, because the hospital has no contractual obligation with the patient.
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