Physical therapy network targeted by consumer group.

PTPN Inc., a pioneering network of physical therapy providers with more than 300 offices statewide, finds its business model under attack by a leading consumer rights group.

The Foundation for Taxpayer & Consumer Rights, on behalf of two physical therapy practices, has sued the Calabasas-based company, accusing it of violating state antitrust laws.

PTPN was formed in 1985 to funnel sustainable levels of business to its therapists by limiting the number of its contracted therapists through the requirement of a minimum distance between them, depending on population density.

What started as a shaky proposition 20 years ago has turned into a highly successful business, with the network the sole provider of physical, occupational, speech and pediatric therapists to Blue Cross of California's preferred provider organization. It also has contracts with more than 100 other insurers.

Consumer attorney Harvey Rosenfield, founder of the taxpayer group, charged that the network is clearly a "trust" that raises the income of its members by suppressing competition through the limitations of the size of its provider network. He maintains that other provider networks, by contrast, are generally open to all licensed health care providers.

"It strikes us as a straightforward violation of antitrust laws," said Rosenfield. "You are not allowed to set up a corporation that limits competition to maintain higher prices."

Blue Cross of California is also a defendant in the Los Angeles Superior Court lawsuit, filed June 23. The named plaintiffs are Lori Rubinstein Physical Therapy Inc. and One On One PT, two physical therapy practices that have been unable to gain entry into PTPN's network.

Jay Hertz, an attorney for PTPN, defended the company's practice of limiting its network size, claiming it is allowed under a provision of the insurance code that the Legislature amended in the late 1980s.

"We don't think it's anti-competitive. We think it's what the Legislature has found to be in the interests of consumers," he said.

Michael Chee, a spokesman for WellPoint Health Networks Inc., parent of Blue Cross of California, would not comment directly on the lawsuit, but noted that insurers in California are not mandated to contract with all licensed providers--unlike in other states with "any willing provider" laws.

Still, a document filed with the lawsuit purports to show that PTPN, fearing a lawsuit, loosened its geographic restrictions earlier this year to allow 20 percent more therapists in its network than it has traditionally.

The document, a PTPN membership letter, also states that the company traditionally has had a 75 percent rejection rate and that some therapists have been on a company waiting list for 12 years.

Found Wanting

The state Department of Managed Health Care, assailed by critics for not providing enough oversight of the proposed merger between WellPoint Health Networks Inc. and Anthem Inc., is now being attacked for failing to do its job in general.

The California Medical Association has published a 51-page denunciation of the agency, created five years ago as the nation's very first department whose sole job is to regulate the managed care industry.

The state doctors' association claims that the department has made a woeful effort to enforce the law by failing to make sure that insurers pay timely claims, contract with doctors at reasonable rates, and push forward with a plan to limit the number of financial audits doctors' groups must perform for plans.

Cindy Ehnes, who was recently appointed director of the department by Gov. Arnold Schwarzenegger, promised in a prepared statement to make enforcement of prompt payment, regulations one of her "top priorities." But she was silent on perhaps the biggest complaint in the report: that the agency has not stepped in to regulate reimbursement rates.

The CMA has been calling for the agency to regulate rates for years, but it's unlikely that a Republican administration would be open to the idea.

Steve Tough, chief executive of the California Association of Health Plans, a managed care industry trade group, called the document a "self-serving biased report" that exaggerated the problems doctors have with plans.

However, he said the industry was ready to work with doctors and the agency to move ahead with an initiative to limit financial audits.

Quality Counts

First they were out. Now they are in.

City of Hope National Medical Center and St. Vincent Medical Center were among the 38 hospitals that the California Public Employees' Retirement System dropped earlier this year from its Blue Shield of California HMO hospital network in an effort to cut costs.

However, the renowned Duarte cancer hospital and St. Vincent. L.A.'s oldest hospital and a big organ transplant center, were among four hospitals that Calpers announced earlier this month were being added back on.

The move came after Blue Shield recalculated the costs of its network hospitals, while reviewing quality data that raised the ranks of the hospitals despite their higher absolute costs.

Calpers took the unprecedented measure of reducing the size of its Blue Shield hospital network after seeing its basic HMO premiums rise 25.1 percent in 2003 and 18 percent this year. The reduction of facilities and other measures trimmed the 2005 rate increase to 9.7 percent.

Cedars-Sinai Medical Center, Presbyterian Intercommunity Hospital, St. Mary Medical Center, West Hills Hospital and USC University are the Los Angeles County facilities that remain cut from the network.

Staff reporter Laurence Darmiento can be reached at [phone], ext. 237, or at [e-mail].