Jackson Hospital alleges Blue Cross Blue Shield withheld $1.4 million after bankruptcy filing

MONTGOMERY, Ala. (WSFA) – Jackson Hospital announced a lawsuit against Blue Cross Blue Shield of Alabama Tuesday over alleged withholding of crucial funds as the hospital continues fighting to remain operational.

The lawsuit, filed in the U.S. Bankruptcy Court for the Middle District of Alabama, accuses Blue Cross Blue Shield of withholding nearly $1.4 million in funds following the hospital’s chapter 11 bankruptcy filing last February.

According to the lawsuit, after the hospital began chapter 11 proceedings, federal bankruptcy law enacted an “automatic stay,” a legal injunction that generally prevents creditors from independently seizing funds without the approval of bankruptcy court.

The lawsuit alleges that Blue Cross Blue Shield took the funds without court authorization despite being aware of the bankruptcy filing.

Jackson Hospital said those funds were crucial for the hospital’s ability to maintain essential healthcare services in Montgomery.

“During the period Blue Cross Blue Shield allegedly withheld these funds, Jackson Hospital struggled to remain in operation,” a spokesperson for Jackson Hospital said. “Jackson Hospital is requesting that the Court enforce the automatic stay, which is designed to protect debtors from creditors taking funds post-filing without court approval.”

Jackson Hospital is now seeking a judgment against Blue Cross Blue Shield for money withheld, sanctions for the alleged stay violation and a prohibition against Blue Cross Blue Shield from withholding or controlling further funds without court authorization.

Blue Cross Blue Shield responded Tuesday to Jackson Hospital’s lawsuit, stating that the lawsuit’s claims were inaccurate and that the organization had taken steps to help the hospital navigate its financial difficulties:

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