Reimbursement for Emergency and Non-Emergency Services Provided by Out-of-Network Physicians: The Issue of Balance Billing

By Jeffrey Gold, Esq., Danielle Drayer, Esq., and Cara Zucker, M.P.A., Healthcare Association of New York State, Rensselaer, NY

While there has been considerable evolution in health plan and provider relationships in collaborative care models and in federal and state healthcare reform, still significantly unresolved are myriad issues around what constitutes proper compensation for out-of-network physicians performing services, particularly at in-network hospitals, and how to insulate patients from receiving substantial balance bills for seemingly covered services. Federal and state legislation, regulatory oversight, litigation, modifications to network designations by insurers, and creation of a new not-for-profit database out of settlement monies from actions by the New York Attorney General have all attempted to address pieces of this puzzle, but problems have continued to percolate nonetheless.

Many of the fact patterns that generate disputes around balance billing arise out of treatment for covered emergency services that health plan enrollees seek in emergency rooms of hospitals that participate in their health plan’s network. Certain emergency services, or indeed all professional services in the emergency department, may be provided by out-of-network, or non-participating physicians. Frequently, these are services where call coverage may be difficult to obtain, such as for plastic surgeons, orthopedists and the like, or where some history of unhappiness around rates that a health plan pays in-network has resulted in physicians dropping out of the plan’s network. The non-participating physician provides care and then may generate a bill in excess of the health plan’s contract rates for participating physicians. What should the health plan pay? What should the physician accept as satisfactory compensation? Should the enrollee be compelled to pay the difference between what the plan is likely to pay through its coverage methodology for out-of-network services and what the physician will accept, especially when the enrollee had little choice but be treated, in this scenario, by an out-of-network physician? Should regulators or a legislature intervene? This is the balance billing problem at its most basic.

Plan enrollees, that is, patients, are often surprised to discover that necessary covered services in a participating hospital can result in a balance bill, often of significant size. These issues arise outside of the emergency room as well, such as for radiology services, anesthesiology, or neo-natal consults by out-of-network specialists who may be called in for advice. While most HMO¹ patients may be insulated from balance bills by state law or plan coverage documents, PPO² plan or POS³ plan members are not usually so fortunate. These examples just describe the in-hospital environment. Out-of-network and balance billing issues similarly exist outside the hospital.

The result: patients can be surprised and unhappy at receiving balance bills. Health plans are dismayed at having to figure out some way to satisfy member needs, pay fair compensation, and not be criticized. Hospitals struggle with what they can or should do to figure out a solution that allows them to staff call coverage and have physicians participate in the same plans that hospitals contract with. And physicians, who have essentially already rejected the plan’s contract rates, need to figure out what constraints, if any, they are prepared to accept on the value of their services and whether balance billing of their patients is ultimately a good idea.

Federal Legislation

Section 10101 of the Patient Protection and Affordable Care Act added numerous new patient protections to the Public Health Service Act (“PHS Act”), including Section 2719A which, inter alia, requires group health plans that cover emergency services to provide such coverage without the need for prior authorization, regardless of the participating status of the provider, and at the in-network cost-sharing level.⁴

In order to implement Section 2719A of the PHS Act, the Secretaries of the Departments of Health and Human Services, Labor, and the Treasury issued regulations that require the patient’s group health plan to reimburse out-of-network emergency service by paying “the greatest of three possible amounts - (1) the amount negotiated with in-network providers for the emergency service furnished; (2) the amount for the emergency service calculated using the same method the plan generally uses to determine payments for out-of-network services (such as the usual, customary, and reasonable charges); or (3) the amount that would be paid under Medicare for the emergency service.”  While this addresses the payor’s responsibility for emergency services in an emergency department of a hospital, the PHS Act does not address all other out-of-network services or the balance billing of patients in excess of the health plan’s responsibility.  Thus, “[o]ut of network providers may, however, also balance bill patients for the difference between the providers’ charges and amount collected from the plan . . .”⁵

There is also concern that an unintended consequence of requiring group health plans to reimburse out-of-network physicians at the same rate as negotiated with network providers or at the Medicare rate for the emergency services rendered is that it creates a de facto default rate, thereby reducing an incentive for health plans to form large, robust networks.  It also limits the ability for participating providers to protest unfair reimbursement by voting with their feet by leaving the network that is paying inadequate compensation.  It would be an undesirable irony if patients were to face increasingly larger balance bills because of the widening divide between the “default rate” paid pursuant to the regulation and the amount sought by emergency service providers from the patients.

 Usual Customary and Reasonable (“UCR”) and the Cuomo Settlements

Much of the debate around compensation for out-of-network services derives from what had been the industry-wide use of UCR charges for determining insurer liability for out-of-network payments.  Ingenix, a wholly owned subsidiary of UnitedHealthcare, had provided health plans with a database to calculate UCR charges.  However, in 2008 New York State Attorney General Andrew Cuomo began an investigation into Ingenix for allegedly operating “a defective and manipulated database that most major health insurance companies use to set reimbursement rates for out-of-network medical expenses.”⁶  Without admitting wrongdoing, UnitedHealthcare settled the matter for $50 million and agreed to discontinue the sale of healthcare pricing information in New York.  Ultimately, the investigation yielded settlements totaling nearly $100 million from UnitedHealthcare and 11 other carriers doing business in New York, a portion of which was set aside to create a new, nonprofit database to calculate UCR charges for out-of-network providers in New York.

“The nonprofit UCR database, FAIR Health, Inc. was established in October 2009 to help ensure fairness and transparency in out-of-network reimbursement. FAIR Health was created to serve as an independent, objective, and transparent source of healthcare reimbursement data for consumers, insurers, healthcare providers, researchers, analysts, and policymakers.”⁷ It remains to be seen if FAIR Health turns out to be a more reliable database for calculating out-of-network reimbursement than Ingenix because the FAIR Health began preliminarily providing cost estimates for common medical procedures on August 1, 2011 but is not yet sufficiently populated with data to report estimates on all treatments and services.⁸

In fact, the FAIR Health database has already found its way into proposed legislation in New York. In the 2011 legislative session, some New York physicians supported legislation (A.7489) that would have prohibited the sale of insurance products that purported to offer out-of-network benefits but did not provide significant coverage of the UCR charges for services rendered by non-participating providers.  The bill, which passed the New York State Assembly but was later recalled, established a minimum payment for out-of-network services by defining usual cost of out-of-network services as “the eightieth percentile of the actual charges for a health care service provided in the same county and performed by an out-of-[network] physician in the same or similar specialty as reported in a benchmarking database maintained by a nonprofit organization [FAIR Health] without affiliation with an organization certified under this article or an insurer licensed under the insurance law, created as a result of settlements entered into during the year two thousand nine between the department of law and individual health insurance organizations . . .”⁹  The bill’s supporters contend that the legislation is important because it would compel payors to explicitly disclose their method of reimbursement for out-of-network services and express such reimbursement in a standardized format as a significant portion of the 80 th percentile of the actual charges for a healthcare service. The bill did not, however, foreclose physicians from balance billing patients if they deem compensation under the proposed statute to be inadequate.

State Regulation of Balance Billing

Individual states have adopted differing approaches to address the issue of balance billing; while some jurisdictions restrict or prohibit the practice, others permit it.

Maryland , for example, passed a law in 2002 which prohibits healthcare providers from balance billing HMO members for covered services through the requirement that all health plan – provider contracts contain an enrollee hold harmless clause, thereby insulating HMO patients from balance bills for covered services.¹⁰  Instead, Maryland law requires that health plans pay trauma physicians the greater of two possible rates for emergency services: 140 percent of the current Medicare rate or the HMO rate as of January 1, 2001.  All other out-of-network physician services, except services rendered by trauma physicians, are paid at the greater of either 125 percent of the average HMO rate as of January 1 of the previous calendar year or 140 percent of the Medicare rate as of August 1, 2008, adjusted for inflation.  HMO patients are completely insulated from financial responsibility, except any applicable copayments and deductibles.

California proscribes the practice of balance billing by network physicians for unpaid claims related to the provision of emergency services. In 2009, in Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, et al., the California Supreme Court held that the practice of balance billing HMO members for payment related to the provision of emergency services was unlawful regardless of whether care is provided by a participating or nonparticipating provider.  “Billing disputes over emergency medical care must be resolved solely between emergency room doctors, who are entitled to reasonable payment for their services, and the HMO, which is obligated to make that payment. A patient who is a member of an HMO may not be injected into the dispute. Emergency room doctors may not bill the patient for the disputed amount. ”¹¹ The ruling was consistent with California regulations promulgated in 2008 which defined balance billing as an unfair billing practice prohibited under state law.¹²

The New Jersey Department of Banking and Insurance also prohibits physicians with a contractual relationship with a health plan from balance billing HMO members and extends the ban on balance billing to out-of-network providers who treat HMO members based on a referral from a participating provider or the HMO itself.¹³  After receiving a number of complaints concerning an Aetna policy that purported that payments received by out-of-network providers be considered as payment in full, the Department of Banking and Insurance ordered HMOs to “pay the non-participating provider a benefit large enough to insure that the non-participating provider does not balance bill the member for the difference between his billed charges and the . . . payment, even if it means that [the HMO] must pay the provider’s billed charges less the member’s network copayment, coinsurance or deductible.”¹⁴ Here too, HMO patients are completely insulated from financial responsibility, excepting any applicable copayments and deductibles.

Texas’ approach to balance billing mandates that payors directly reimburse out-of-network providers at the prevailing rate for services rendered through its assignment of benefits law, where prevailing rate is defined as “the highest contract rate” (and not UCR.) Although this requirement ensures some payment of out-of-network claims, it neither addresses the concerns of non-participating providers that contractual rates are often inadequate nor does it empower patients to negotiate the cost of services with non-participating providers prior to billing to reduce the size of the balance bill.

Other Options

Numerous non-legislative options are available to health plans, providers, and patients to resolve ongoing issues related to balance billing.  The BlueCross BlueShield Association, for example, recently devised a nationwide initiative that would have required all hospital-based physicians and key specialists who provide services in a Blue Distinction Center for Excellence to participate in the health plan’s network. The hospital would have been expected to hold enrollees harmless from all amounts charged by a non-participating provider in excess of the in-network rate for similar eligible services rendered under the enrollee’s benefit plan. The BlueCross BlueShield Association ultimately did not move forward with the proposal in that form.

Aetna has taken a more direct approach by filing lawsuits against out-of-network providers who submit what it believes are excessively large claims. The lawsuits are intended to signal that “billed charges have to be based on reasonable factors that make sense in the marketplace.”¹⁵ As a matter of policy, Aetna attempts to insulate its enrollees from balance billing by paying out-of-network physician claims in full.¹⁶

Hospitals themselves can choose to prohibit facility-based physicians from engaging in balance billing for any services performed on-site and requiring all physicians seeing patients at the hospital to contract with all payors with which the hospital contracts as a condition of privileging.  Other hospitals may choose to notify affected patients upon admission that they may be financially responsible for some services provided during their stay and attempt to persuade physicians to reduce balance bills.

Conclusion

A satisfactory methodology for adequately compensating out-of-network physicians has yet to be agreed upon. Whatever solution or variety of solutions is found, hopefully patients will no longer find themselves surprised and dismayed to receive balance bills for services they perceived to be fully covered by their health insurance plans.

For more information on this topic, the Health Law Section is hosting a webinar "Emerging Issues in Out-of-Network Provider Payments" on December 1, 2011.

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