Out of Network Provider Payment and Balance Billing under the Patient Protection and Affordable Care Act

Reposted from Healthcare Provider Payment.

One of the most common issues we encounter between providers and payors is how the provider should be paid for treating a patient who is covered by a health plan that doesn't have a contract with the provider. We've previously written about it here, in the context of insurers' controversial use of the Ingenix database to calculate usual and customary rates, and here, in the context of a report issued by the Senate Commerce Committee detailing the affect these underpayments have on consumers who are billed the remaining balance.

This article discusses the issue in the context of the Patient Protection and Affordable Care Act (PPACA), the health care reform legislation signed by President Obama in March of this year. One of the lesser known provisions of this legislation requires Health and Human Services (the "Department") to implement rules addressing the amount to be paid to out of network providers who provide emergency services. The Department proposed its interim final rules in the Federal Register on July 28, 2010. According to the interim rules, which took effect August 27, 2010, health plans must cover emergency services without requiring pre-authorization, and they must reimburse the provider the greater of (a) the median in-network rate, (b) the usual and customary rate, calculated using the plan's formula, or (c) the Medicare rate.

The Problem

This is an important development for healthcare providers, health plans, and patients. In the absence of Federal law on point, the parties were forced to look to state law to determine who should be responsible for reimbursing the provider under these circumstances and how much should be paid. Unfortunately, state laws addressing these circumstances vary greatly, if they exist at all.

Some states have no laws addressing the situation, in which case the health plan will pay nothing, leaving the provider and the patient to fight amongst themselves about how much should be paid. This creates problems for the provider, who must hope that payment is collectable from the individual patient. It also creates problems for the patient, who assumed his or her services would be covered, and who is now stuck with a bill that is usually much higher than the amount the insurer would have paid, and often more than the patient can afford, leading to poor credit and/or Bankruptcy.

Other states have laws addressing how much the health plan should pay the provider. For instance, in Florida the health plan is required to reimburse the provider the lesser of the provider's charges (which are often significantly higher than the amount paid by contracted health plans), the agreed upon rate (which almost never exists), or the usual and customary rate, pursuant to Fla. Stat. § 641.513(5). This does not afford the provider a complete remedy, because the state law in question may be preempted by ERISA with respect to health plans obtained by the patient through his or her employer, and because even if the law is not preempted in a given case, it does not provide a minimum reimbursement amount, leaving the health plan with the option to unilaterally calculate the usual and customary rate in the manner most consistent with its own interests and thereby underpay the provider. [Aside: there is a bevvy of litigation concerning the appropriate method for determining the usual and customary rate, in the context of Workers' Compensation, Personal Injury Protection, and in this scenario; we are in the process of compiling this authority and publishing it separately, but opinions are fashioned faster than we can comment on them. See Baptist Memorial Hospital-Desoto, Inc. v. Crain Automotive, Inc., No. 08-6094 (5th Cir. 2010), which was decided while this article was being drafted. The usual and customary rate calculation was at issue in that case the context of an ERISA-governed plan. The court held that a plan administrator abused his discretion in making a determination of the usual and customary rate without a sufficient factual basis, which should include more than just a comparison to other claims received by the plan.]

However, many states with laws similar to this one don't prohibit balance billing for out-of-network providers, meaning the patient is left to pay the difference after the plan pays according to the statute. See this chart for a list of the many different state laws.

This creates an unacceptable uncertainty of terms between healthcare providers, health plans, and payors. Providers and payors are required to implement state-specific policies with regard to balance billing and payment rates (which can be costly). And patients are required to be intimately familiar with their plan documents, to ensure in advance that all providers from whom they seek treatment are in network, or to obtain the provider's charges in advance of treatment (which is impossible).

The Proposed Solution

The interim final rules propose to eliminate some of the uncertainties discussed above by setting forth a minimum amount that must be paid to an out-of-network provider for emergency services- the Medicare rate, and by providing for additional payment when either the usual and customary rate or the median in-network rate exceeds the Medicare rate. According to the Department, these regulations will significantly increase the amount health plans will be required to pay when their members go to the emergency room at a non-contracted facility, which will reduce the amount the patient is responsible for. The regulations, which do not apply to grandfathered health plans under PPACA (as discussed in this CRS Report), have already taken effect.

Remaining Issues

The interim rules set a minimum payment amount (the Medicare rate), but they do not eliminate the uncertainty associated with the usual and customary rate. First, by the language of the rules, the health plan is still charged with sole discretion to calculate the usual and customary rate, which will upset providers, who have considered themselves victims of underpayments by health insurers (i.e. Ingenix) for quite some time. See this letter filed by the American Hospital Association in opposition to the interim rules, which also argues that by setting a rate, the Department has eliminated the health plan's incentive to contract with providers. Additionally, and most important to consumers, the interim rules do not prohibit balance billing, which will still leave patients unexpectedly footing a substantial bill (albeit a little less than what they would be paying otherwise); and there remains doubt as to whether PPACA's express allowance of balance billing preempts state laws to the contrary. If so, the interim rules represent a step in the wrong direction for patients residing in states like California.

If nothing else, the above shows that without additional guidance, providers, payors, and patients should expect to continue to litigate out-of-network claims on an individual basis, notwithstanding the interim rules. If you are a provider, health plan, or patient, with an opinion relevant to this issue, please feel free to comment below. If you would like to retain the services of an agency or attorney in connection with an issue you are currently facing, please feel free to contact Medical Accounts Systems or Jorge M. Abril, P.A.

Out-of-Network Healthcare Provider Payment News

Florida Senate Bill 1122 takes effect today. The law amends Florida Statutes section 627.638 to require health insurers to make payment directly to hospitals, physicians, and other providers of treatment when the provider is not a member of the insurer's network. Previously, despite the patient's assignment of healthcare benefits to the provider upon admission, some insurance companies relied on language in the member's handbook requiring payment to be made to the patient rather than the provider. Under the new law, the provider should expect to be reimbursed by the plan directly, irrespective of the terms of the patient's member handbook. The Florida Medical Association has more information on this legislation and its benefit at patientsoverprofits.com.

Also of note to healthcare providers, last week the Senate Commerce Committee issued a report for Chairman Rockefeller entitled Underpayments to Consumers by the Health Insurance Industry, detailing the pattern of inadequate payments by Managed Care Organizations for out-of-network treatment resulting from their improper method for calculating the usual and customary rate. We've blogged before about the insurers' use of Ingenix to unilaterally determine out of network provider reimbursement rates, and our law firm has been seeking reconsideration of underpayments on behalf of hospitals and physicians in State and Federal court for many years.

This report explains how underpayment for out-of-network care affects consumers. There is a definite benefit to patients in the ability to seek medical treatment from the provider of their choice, and according to the report insurance companies charge significant premiums for the patients' enjoyment of this benefit - roughly $1,700 per year for a Federal employee, for instance. But this benefit can only be enjoyed in full when the insurer reimburses the provider in accordance with the parties' intentions and with applicable law. According to statistics released by New York Attorney General Andrew Cuomo and cited by the Senate Committee report, health insurers' calculation of usual and customary rates results in payments equaling only 70% of the actual market rate, leaving the patient to pay the remainder, and thereby frustrating enjoyment of the benefit of choice paid for by the consumer. More on this issue as it relates to consumers can be read in this article at Health News Florida.

Attorney General Cuomo, the Senate Commerce Committee and the Florida Legislature are to be applauded by providers and patients alike for seeking to prevent future nonpayment or underpayment, but for the most part their legislative efforts do not address the issue of prior wrongs. Providers should be encouraged to seek independent analysis of the reimbursement rates received for out-of-network services and to seek appropriate and adequate compensation on all claims through available legal remedies.

Recovering the Usual and Customary Rate- What the Healthcare Provider Should Know

The settlements reached earlier this year between New York Attorney General Andrew Cuomo and a group comprised of the largest health insurers in the United States have prompted a series of lawsuits throughout the country against major health plans such as Wellpoint, AETNA, and Cigna. A summary of this litigation can be found on this website. Essentially, the lawsuits claim that companies utilizing the Ingenix database have inappropriately manipulated the level of reimbursement paid to providers for out of network medical care to the detriment of members and providers.

When a provider treats a patient needing emergency medical services who subscribes to a health plan that is not contracted with the provider, there is no set rate at which the provider should be paid. Many statutes provide that in this situation the provider is to be reimbursed at the "usual and customary rate." In Florida, for example, according to Florida Statutes section 641.513(5), the plan must reimburse the provider at the lesser of the provider's billed charges, the agreed upon rate, or the usual and customary rate. But few, if any, define what "usual and customary" means or how it should be calculated, and as a result, providers and plans often disagree as to the appropriate level of reimbursement.

The most recent lawsuits should demonstrate to providers of all sizes that they do have recourse when they are being underpaid by one or more Managed Care Organizations. The Healthcare Reimbursement and Latest News sections of our website have more information on how consulting an attorney can be of benefit.