Jefferson Health is alleging Independence Blue Cross used a string of reimbursement policy changes this year to cut what it pays the health system by an amount approaching $100 million in a new lawsuit.
The July 22 complaint, filed in Philadelphia’s Court of Common Pleas, laid out five policy shifts the health system says breach its current contract with Independence, including two that limit when the insurer pays higher inpatient rates.
In April, Jefferson sued Aetna in Pennsylvania federal court over a nearly identical “level of severity” inpatient payment policy for Medicare Advantage members, arguing it conflicts with CMS’s two-midnight rule. The rule generally requires Medicare to pay for a hospital stay as inpatient when a physician expects the patient to need care across two midnights. Since 2024, MA plans have been required to follow it too.
In its complaint, Jefferson said that Independence’s denial or downgrading of inpatient stays that did cross more than two midnights has cost the system more than $24 million.
Another alleged breach of contract involves a policy the insurer issued March 5 that applies to emergency inpatient admissions of up to five days. Jefferson says Independence runs those stays through InterQual criteria and pays the lower observation rate when the case doesn’t look severe enough, even in cases the policy treats as covered inpatient admissions. That in turn lets the insurer tell CMS and members it covered an inpatient stay while paying the hospital an outpatient rate, according to the complaint. Jefferson said that damage totals more than $11.5 million.
The third alleged breach is over a readmission policy Independence issued April 1 for both its MA and commercial plans. Jefferson says the insurer stretched the window in which it refuses to pay for a readmission from six days to 30, and that there is no path for a physician-to-physician conversation to argue the case. The alleged damage there is more than $18.3 million.
The fourth alleged breach is a site-of-care reimbursement policy effective June 1 for MA and commercial plans that requires a list of certain elective procedures to be performed in an ASC rather than a hospital outpatient department. Jefferson argues the policy has cost it $35.4 million and ignores clinical reasons a case may not belong in an ASC, adds scheduling delays and travel challenges for patients, and effectively rewrites the contract’s outpatient fee schedule.
Finally, Jefferson alleges Independence never corrected its drug payments after the U.S. Supreme Court ruled in 2022 that CMS had unlawfully underpaid 340B hospitals. Because the contract ties drug payment to the Medicare rate, Jefferson says it is owed more than $7.2 million.
Jefferson is seeking a jury trial and a judgment that the five policies breach its contract, along with a permanent injunction barring Independence from applying them.
“We don’t comment on pending legal matters. We value our provider partners, honor our contractual commitments with them and regularly discuss any issues,” an Independence spokesperson told Becker’s. “It’s unfortunate that Jefferson chooses to do this in the public arena, but if you’ve kept up with the news you can see this is typical of their playbook. IBX acts in the best interest of our customers and members and protects their access to high quality, affordable care.”
Jefferson posted a $252.6 million operating loss through the third quarter of fiscal 2026, including $94.6 million in restructuring costs, on $13 billion in operating revenue. Independence Health Group, the insurer’s parent, reported a $423 million net loss in 2025 on $36.3 billion in revenue.
Becker’s has reached out to Jefferson for comment and will update this story if more information becomes available.
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