Out-Of-Network Billing Fuels Provider-Payer Friction

Payers, legislators, and regulators are intensifying their efforts to stop out-of-network hospitals and physicians from charging whatever they want for medical services.

Like Joanne Woodward's character in the 1957 film "The Three Faces of Eve," the healthcare industry is in desperate need of a good psychotherapist.

In this country, healthcare has multiple personalities – payers, providers and pharmaceutical manufacturers to name just a few. Like a patient afflicted with the internal turmoil of dissociative identity disorder, these sectors have been locked in a struggle over the apportioning of spending for decades, breeding distrust and animosity.

One of the most contentious clashes between providers and payers is over billing for out-of-network medical services. This year, legislatures in at least seven states have considered creating laws to set firm ground rules for how much money physicians and hospitals can charge when they are not included in a payer's provider network. Charges above the in-network rate are called balance billing.

The sparks are flying furiously in New Jersey, where Hartford-based Aetna, Inc. has sued a half dozen out-of-network physicians in recent years, alleging gross over-charging for services. "New Jersey is our primary play," says Elena Butkus, head of state government affairs at Aetna. "They have the highest charges in the nation."

From Aetna's perspective, the commercial insurance carrier has an obligation to protect its beneficiaries from price gouging, particularly for out-of-network physicians who work at hospitals as emergency department doctors, anesthesiologists, pathologists, and radiologists, she says.

"They send the big bills. … The fundamental issue is greed and bad players in certain instances on the hospital-based physician side. Out-of-network physicians in those four specialties charge 300% to 400% of the Medicare rate."

Medicare as Gold Standard for Payment
Aetna is grossly overstating its case, according to Lawrence Downs, JD, who serves as CEO of the Medical Society of New Jersey. "If doctors don't sign an oppressive provider agreement, they're considered bad guys… They're labeled a bad actor or a crook by Aetna."

There is a fundamental economic reason behind out-of-network New Jersey physicians charging relatively high rates for their services, but it has nothing to do with greed, he says. "It's a very high-cost state to live in, whether you are buying groceries or healthcare."

Setting Medicare rates as the benchmark for medical service reimbursement is unfair to out-of-network hospitals and physicians, Downs says. "Payers act as if Medicare is the gold standard for payment. It's not. It's a government program that gets the best price for every procedure."

Commercial payers that use Medicare as a reimbursement benchmark are standing on firm ground, Butkus says. "We do believe Medicare is a good tool for two reasons," she says, noting that many commercial payers reimburse providers based on the Medicare fee schedule and Medicare rates are "comparable to actual costs."

On a national scale, Downs says commercial payers should bear their fair share of blame for balance billing as they rely more and more heavily on narrow networks as a cost-control mechanism. "A lot of payers complain about their higher out-of-network costs… They have actually created, with a lot of these narrow networks, more of an out-of-network problem."

Downs adds that patients with high-deductible health plans are at high risk for balance-billing costs. "A lot of this stuff is the 'Wild, Wild West' in terms of benefit design and network adequacy. From the healthcare consumer's perspective, understanding what you are buying in the healthcare marketplace is daunting. It's daunting for me, and I'm in the business. There needs to be much more transparency."

Consumer Protections
Butkus says the best solution to the out-of-network billing problem is nationwide adoption of key provisions found in an Illinois balance-billing law enacted in 2011. Those key provisions include arbitration for balance billing disputes and consumer protections for health plan beneficiaries who receive medical services at in-network hospitals and ambulatory surgery centers.

Specifically, the consumer protections in the Illinois law apply to out-of-network ED doctors, anesthesiologists, pathologists, radiologists and neonatologists who practice at in-network hospitals and ambulatory surgery centers. Those classes of physicians are barred from charging patients out-of-pocket costs that exceed in-network out-of-pocket costs.

A coalition of payers, business associations, and consumer groups is urging the National Association of Insurance Commissioners to adopt the provisions of the Illinois balance-billing law in the organization's "state model act" for network adequacy, Butkus says. "Payers, consumers and business groups have joined hands to help resolve billing disputes and take patients out of the middle." NAIC is expected to set new network adequacy guidelines this fall.

Katherine Hempstead, PhD, health insurance program director at the Princeton, NJ-based Robert Wood Johnson Foundation, says out-of-network physicians working in emergency departments are particularly problematic in balance-billing scenarios.

"There is a strong sense that patients should be held harmless in these situations, which would tend to leave the payers on the hook. Payers will want to incentivize hospitals to minimize the extent to which this happens, but of course, in many cases the hospital is a major beneficiary of the high charges, so their interests are not aligned with the payer. This is a situation in which the market power of both parties becomes extremely important; and in more rural areas, there can be the additional issue of specialist supply. These costs ultimately get baked into premiums and consumers pay them that way."

Although patients are poorly positioned to drive the debate over balance billing, consumers do have a measure of influence, she says.

"These out-of-network balance bills that end up in patients' mailboxes are basically the messy byproducts of the dysfunctional relationship between payers and providers, whose antipathy for each other outweighs their regard for their customers… There is much evidence that consumers are willing to make the tradeoff between provider availability and the cost of their health insurance."

Recommendations
Hempstead says, "Consumers are demanding that they be given better information about their options, and this is a more specific instance of that general issue. There is a movement to add information about network size in plan choice tools, because consumers want to better understand that tradeoff when shopping for insurance. With narrower networks, it sort of comes with the territory that the probability of unintentionally using an out-of-network provider will increase."

"There is no way to completely eliminate the unintentional use of out-of-network providers, especially as narrower networks become more prevalent" she says. "But what can happen through a variety of processes, including state regulation, are some common sense ground rules to protect consumers and eliminate surprises."

Hempstead lists several possibilities:

• Setting a maximum charge, perhaps expressed as multiples of Medicare;
• Requiring healthcare facilities to inform consumers when they are at risk of being treated by out-of-network providers;
• Protecting consumers from these bills in cases of emergencies;
• Allowing consumers to apply payments to their deductibles if [out-of-network services were provided] during a hospitalization and a substitution was not possible

Collective counseling to fix the dysfunctional relationship between providers and payers would help, too.