Aetna, Providers Battle Over Billing Practices

A $120 million lawsuit filed last month is the newest front in a national insurance carrier's legal campaign against healthcare providers it accuses of price gouging.

Although the opposing sides disagree on the motives, a raging court battle in Texas is part of a national legal strategy at one of the country's largest commercial insurance carriers over healthcare provider billing practices.

Last month, Hartford, CT-based Aetna Inc. filed a $120 million lawsuit against North Cypress Medical Center, which features a 139-bed hospital in Cypress, Texas, and three standalone emergency room facilities. The suit is the latest salvo in a legal struggle that began in February 2013, when North Cypress sued Aetna in US District Court alleging underpayment for medical services.

North Cypress is an in-network provider for several major payers, including United HealthCare, Cigna Healthcare, and Blue Cross Blue Shield of Texas. The healthcare provider is not in Aetna's provider network.

J. Edward Neugebauer, chief litigation officer for Aetna, says the crucial issue in the ongoing legal dispute is an "out-of-network strategy" at North Cypress to incentivize physicians to refer Aetna members to seek care at North Cypress facilities.

"The strategy is, 'Let's go to a market, build up facilities, then we'll find where the doctors are and give them a piece of the action," he said this week. "It's not rational from a member's perspective unless something else is going on. They have these strategies and business plans to get around health plan designs."

In the lawsuit filed last month, Aetna accuses North Cypress of hatching an illegal billing scheme: "The scheme includes paying illegal kickbacks to physicians in exchange for patient referrals disguised as ownership interests in North Cypress, charging grossly excessive fees, implementing improper billing techniques, and forgiving members' financial responsibility (i.e., deductibles, co-pays, and co-insurance), in order to make the scheme work. Absent this, patients would not knowingly be treated at North Cypress and agree to pay much higher out of pocket amounts required under the terms of their plan, when they could get the same services at a fraction of the cost at hospitals in Aetna's network within close proximity of North Cypress."

North Cypress's spokeswoman and attorney say Aetna's lawsuit is more about payer profits than violations of law.

"This is happening a lot these days, where companies file frivolous lawsuits to get media attention," North Cypress spokeswoman Karen Hinton said this week.

Many of the allegations in Aetna's lawsuit have already been aired in court and rejected, she says, referring to a counter-claim the payer filed in the suit that North Cypress launched in 2013. "It's the same complaint filed in a different courtroom. It's classic venue shopping. We're confident this will be sent to the old judge and dismissed, or the new judge will dismiss it. This is the way Aetna does business."

The North Cypress lawsuit against Aetna is slated to go to trial in October.

North Cypress' attorney in the legal struggle with Aetna, J. Douglas Sutter of Houston-based Kelly, Sutter & Kendrick PC, says self-interest is the prime motivation behind the $120 million lawsuit that the insurance carrier filed last month. "There's an incredible amount of competition among the payers. Big plan sponsors like school districts will jump from payer to payer every two years to get the best deal."

Sutter says Aetna has filed multiple lawsuits across the country on behalf of plan sponsors so the insurance carrier can bank a percentage of court-ordered restitution. "The majority of these claims come from plan sponsors." Payers, he says, are awarded as much as 50% of restitution garnered from healthcare providers in billing-practice lawsuits. "[Payers] have a financial incentive in these cases because there is a contingency."

Aetna Filing Coast-to-Coast Lawsuits
Neugebauer, who has been litigating Aetna lawsuits for two decades, says the Connecticut-based payer began noticing a spike in billing for medical services in 2009 and started filing suits related to billing practices in 2010.

"We saw groups of physicians had dramatically increased their charges. Their charging practices were way outside the norm. They were billing at 9,000% of the Medicare rate and expecting to get paid for it."

In addition to the lawsuit against North Cypress, Neugebauer says Aetna has sued physician practices, surgical centers, and other provider organizations in many states, including California, New Jersey, and Pennsylvania. He says the payer has been forced to go to court because strict federal laws against patient referral schemes and kickbacks in Medicare and Medicaid billing do not apply to commercial payer contracts. "We don't have that same kind of regulatory framework or enforcement on the commercial side," he says.

In April 2012, Aetna filed a lawsuit against Houston-based Humble Surgical Hospital, LLC that includes accusations similar to those the payer has leveled in its legal dispute with North Cypress.

"[Humble Surgical Hospital] sought and received millions of dollars in exorbitant fees from Aetna by charging fees far higher than the reasonable charges for the same services in the relevant market," the 2012 lawsuit states. "HSH LLC, through its owner-physicians, is financially abusing Aetna members via referrals to the Center's out-of-network facilities in which the referring physicians have a financial ownership."

Filing lawsuits has helped the payer develop ways to root out improper billing practices. "It's helped us internally to identify these kinds of processes and how to get ahead of them," Neugebauer says. But although it's lobbying for new laws against improper billing practices at healthcare providers. "Litigation is not a good policy mechanism… You can't make consistent policy through litigation."

Lawyer: Aetna Playing Hardball with Providers
Sutter says the wave of lawsuits pouring out of Aetna is a power ploy engineered at the highest levels of the payer's management structure.

"You can see from all the press releases… each release is almost identical in what they're saying," the Houston-based lawyer said. "For the larger providers, Aetna's goal is to pressure them into network. We have four of these lawsuits in the Houston area alone… If the physicians don't cooperate, they just terminate their contracts."

Among the largest insurance carriers in the country, he says Aetna stands out for playing hardball with providers. "[North Cypress is] in-network with almost all the major payers and has been for four years," Sutter said. "It is very difficult with Aetna. They want us at the table so they can dictate their terms."

Economist: Boost Patient Cost for Out-of-Network Care

Uwe Reinhardt, PhD, a healthcare economist, and professor at Princeton University, says Aetna should consider setting stricter rules for payment of out-of-network medical services.

"It occurs to me that the problem here lies in the contract Aetna has with its insured. Aetna could stipulate that when the insured go to an out-of-network facility like North Cypress Medical Center, patients have to pay the hospital directly and then seek reimbursement from Aetna, which would pay the insured what they would pay for an in-network facility, plus perhaps a little more—such as 10% more or something like that. [With that kind of contract,] NCMC would be much less attractive to patients," Reinhardt said.

"Here, it seems that Aetna picks up the whole tab billed by NCMC and the patient pays nothing—an irresistible deal for patients. What kind of insurance contract is that?"