This is a familiar story: A patient with health insurance has an accident and seeks care at a hospital. She receives care in the ER and undergoes an operation. The health care team provides the necessary care, regardless of her health insurance policy. After discharge from the hospital, she receives an unexpected bill from the ER, surgeon and anesthesiologist. Her family wonders why she received separate bills from her providers, because she has health insurance that she thought covered emergency treatment.
The patient described above received an “out-of-network” bill. If a patient receives care outside of her insurance company’s network of providers, she may be responsible for paying the anesthesiologist’s Usual, Customary and Reasonable (UCR) rates. The insurance company may pay a part of the charge using its own definition of UCR rates, but the patient is ultimately responsible for the difference between what the anesthesiologist charges and the insurer pays. This process has been called “surprise billing” or “balance billing” by the media, but is that a fair characterization? Or would this problem more accurately be described as a “surprise gap in insurance coverage”? To answer that question, it is important to understand why this problem is occurring.
One reason for this problem’s prevalence is that insurance companies offer “narrow network” plans. These plans are popular with consumers because they have lower premiums, but the drawback is that the plans have fewer providers in the network. An insurance company keeps costs down by limiting the providers in the network and paying a lower contracted rate to its network providers. The physicians who choose to participate do so hoping to make up for a lower rate of reimbursement with a higher volume of patients. Physicians who do not participate would be classified as “out-of-network” providers.
Patients may not understand the implications of a narrow network when purchasing the plan. Whether they enroll in a plan via their employer or a health care exchange, it is often not clear which providers or facilities are in network. As discussed below, health insurers often publish flawed provider directories. Individuals also may not be sophisticated enough to understand the insurance company descriptions or anticipate future health care scenarios. Similar to the subprime mortgage craze, many consumers are ill-informed when making choices. Others understand the implications of a narrow network, but still choose a plan with a cheaper price tag, hoping that they will not need complicated health care services in the future.
When patients with a narrow network plan seek care, they may mistakenly believe that all of the care they receive will be covered. However, they may be surprised to learn that their insurance plan does not participate with certain providers like anesthesiologists, even though the hospital is a participating provider. This “surprise gap in insurance coverage” creates a financial burden for patients. Physician groups, legislators and consumer groups are working on solutions that limit patient liability, while ensuring that physicians are reimbursed fairly for their services.
States have attempted to address the problem via legislation, addressing the dispute between provider and insurer and limiting the patient’s financial liability. Some states like California have addressed the confusion by defining and requiring a certain level of network adequacy. Other laws, such as New York’s, cap provider out-of-network charges using an objective benchmark, such as the FairHealth database (see below for a discussion of benchmarks). Texas law includes a mediation process to adjudicate disputes. The federal government also may take steps to address the problem.
From an article detailing former President Barack Obama’s March 2016 proposed budget: “The administration proposes to require hospitals to take ‘reasonable steps’ to match patients with physicians who are in their health plan’s network, and require physicians who ‘regularly provide’ services in hospitals to accept in-network rates.”1
U.S. Sen. Bill Nelson (D-Fla.) has asked the Federal Trade Commission to investigate the practice, referring to surprise medical bills for ER visits as “unfair to patients.”2 With increased scrutiny at both the state and federal levels, we will continue to see laws and regulations affecting the delivery of out-of-network care in the months and years ahead.
Addressing Network Adequacy
There is increased pressure from legislators to regulate narrow networks and to ensure that purchasers understand their insurance coverage. The degree to which a plan may restrict the network of providers has come under scrutiny. For example, “After controversies over network adequacy led to several lawsuits against insurers, California health plans now face requirements enacted by the state legislature last year to ensure they offer adequate provider networks. Insurers will have to provide annual reports to the California Department of Managed Health Care about their provider networks, and the agency’s assessment of that data will be posted on its website.”3
In February 2015, the Centers for Medicare & Medicaid Services issued regulations that pertain to Medicare Advantage plans: “The agency said Advantage plans could be fined or sanctioned if they ‘fail to maintain complete and accurate directories’ or do not have an adequate network of providers accepting new patients.”3
Despite these efforts, problems with network adequacy continue. A recent New York Times article noted the following: “As consumers review their coverage and shop for 2017 insurance through the federal health law’s online marketplaces during the annual open enrollment period, many of the directories they are using are outdated and inaccurate. Some doctors in the directories are not accepting new patients and some are not participating in the network, say experts, brokers and consumers. Still other physicians in the directories, who are listed as ‘in-plan,’ charge patients thousands of dollars extra per year in ‘concierge fees’ to join their practices.”4
Clearly, more work must be done to ensure that payors are providing the right tools to allow consumers to make educated choices when selecting insurance plans.
Benchmarking and Mediation
Other states are linking reimbursement to rates determined by the independent third-party database FairHealth. For example, Horizon Blue Cross Blue Shield of New Jersey relies on it when addressing out-of-network billing disputes. FairHealth is a national, independent, nonprofit corporation with expertise in the health insurance industry’s methods for determining out-of-network reimbursement. The FairHealth fee schedule is based on actual, nondiscounted provider charges submitted by various health plans across the nation.
New York passed a law that has received good reviews by the provider community. Quoting from Modern Healthcare: “New York enacted a law targeting surprise billing from out-of-network claims. In that short time, the law has widely been hailed as a reasonable compromise that mitigates the problem of balance billing.”5
As part of the law, “Hospitals must disclose which health plans they accept and list standard charges for services. Perhaps most important, they must alert patients that physicians working at an in-network facility may not actually participate in the insurance network and can therefore bill patients directly.”5Disputed out-of-network charges between providers and insurers are referred to an independent arbitration process. When an agreement cannot be reached, a benchmark derived from the FairHealth database is used to resolve the dispute.
California recently passed a law that settles out-of-network billing disputes by using one of two benchmarks. Providers will be reimbursed the greater of either 125% of Medicare rates or the insurer’s average contracted rate for the same or similar services in the same geographic region. Medicare rates are significantly lower than commercial rates. Another challenge with this type of law is that insurers lack transparency, and providers must rely on the insurer to provide accurate information on contracted rates. Finally, benchmarking reimbursement to either a percentage of Medicare rates or network rates removes any incentive for the insurance company to negotiate fairly with providers. Not surprisingly, the California law is already being challenged in court.
Florida’s new law sets reimbursement for out-of-network claims at the lesser of:
- the provider’s charges;
- the UCR provider charges for similar services in the community where the services were provided; or
- the charge mutually agreed to by the insurer and the provider within 60 days of the submittal of the claim.
The key in Florida moving forward will be how UCR is defined.
Some states employ an arbitration process as part of the solution. Like many state laws, the devil is in the details. Who can initiate a dispute? Does the mediator consider one claim at a time or aggregate? Is the arbitration binding? Are decisions disclosed, and do they set a precedent?
Although arbitration or mediation provides some protection for patients, it does not by itself guarantee a fair resolution for patients and fair reimbursement for anesthesiologists. However, arbitration, along with appropriate benchmarking, can be part of a solution to the out-of-network problem.
As insurance companies continue to promulgate narrow network plans, patients encounter “surprise gaps in insurance coverage” and are stuck in the middle between anesthesiologists and insurers. Regulatory activity is proceeding at a rapid pace at both the state and federal level. Laws have been passed in California, Connecticut, Florida and New York. Georgia, Idaho, Nevada, New Jersey, Oklahoma, Oregon, Pennsylvania, Texas, Utah and Washington are actively discussing solutions. Other states have had preliminary discussions as well.
Patients must be educated and receive a full and accurate disclosure of providers who are in network at the time of insurance enrollment. In addition, laws should benchmark payments to an independent database, such as FairHealth, to both limit patient liability and ensure that physicians are paid fairly for their services. Please continue to follow developments in your state and at the federal level, and advocate on behalf of our patients and the physician community.
- Ahn S, Hoadley J, Corlette S. President Obama’s budget takes state-level debates over surprise out-of-network bills to national policymakers.Health Affairs Blog. http://healthaffairs.org/?blog/?2016/?03/?22/?president-obamas-budget-takes-state-level-debates-over-surprise-out-of- network-bills-to-national-policymakers/. March 22, 2016. Accessed January 4, 2017.
- Sanger-Katz M, Abelson R. Senator calls for inquiry into ‘surprise’ medical bills.New York Times.http://mobile.nytimes.com/?2016/?12/?03/?upshot/?senator-takes-up-issue-of-unexpected-medical-bills.html?_r=0&referer=. December 3, 2016. Accessed January 4, 2017.
- Herman B. Network squeeze: Controversies continue over narrow health plans.Modern Healthcare.modernhealthcare.com/?article/?20150328/?MAGAZINE/?303289988. March 28, 2015. Accessed January 4, 2017.
- Hancock J. Insurers’ flawed directories leave patients scrambling for in- network doctors.New York Times. nytimes.com/?2016/?12/?03/?us/?inaccurate-doctor-directories-insurance-enrollment.html?_r=0. December 3, 2016. Accessed January 4, 2017.
- Crain’s New York Business. New York law to curb surprise billing shows promising results.Modern Healthcare. modernhealthcare.com/?article/?20160407/?NEWS/?304079996. April 7, 2016. Accessed January 4, 2017.