Time & Attendance
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By Rebecca Vesely
May. 1, 2012
A lawsuit in California is pitting a large insurer against a network of surgical centers over patient referrals to out-of-network specialists.
The issue is front and center for many employers seeking to suppress health care costs. Some large companies are prodding employees to shop around to find quality providers that offer the lowest rates for nonemergency procedures.
In this case, Aetna alleges that Bay Area Surgical Management of Saratoga, California, which operates six outpatient surgical centers, is grossly overcharging for its procedures. Physicians are suspected of waiving co-payments and other fees for patients who receive treatment, then billing Aetna the difference, the lawsuit claims.
The practice has cost Aetna $23 million for about 1,900 procedures in the past two years, of which those costs should have totaled about $3 million, Aetna says in the lawsuit, filed in California Superior Court in Santa Clara County.
Typically, a patient who chooses to go to an out-of-network provider for care will be billed the balance of what the insurer won’t pay for that noncontracted service. This type of bill often comes as an unpleasant surprise to patients.
The practice of so-called “balance billing” for emergency services for members of health maintenance organizations, or HMOs, has been banned in California. Physician groups, including the American Medical Association, hold the position that balance billing is an important tool to make sure providers are paid a fair rate.
The costs of using out-of-network providers get passed onto employers in several ways, says Sandy Ageloff, health and group benefits leader at Towers Watson in Los Angeles.
“The first impact is that when employees go out of network, there is no discounting of charges,” Ageloff says. “There’s a direct and ongoing impact of out-of-network utilization.”
Second, if providers aren’t collecting the full amount owed, the need for that funding will have to come from somewhere else. This can raise the cost of health care for private payers, she says.
Employers are addressing the issue in part by looking at their benefit design and increasing deductibles and lowering out-of-pocket maximums so workers must pay a larger share for going out of network, Ageloff says. In California, where provider networks are broad and access to good care is widespread, employers don’t feel the need to pay for care that is out-of-network, she says.
In the Aetna lawsuit, balance billing is described as an incentive for patients to seek treatment with contracted—or “in-network”—providers.
In this case, however, the Bay Area Surgical Management centers waived the 20 percent to 30 percent of out-of-network costs normally charged to Aetna members for services and instead passed the fees onto Aetna. In one instance, Aetna got a $66,100 bill for the “correction of a bunion,” the lawsuit says.
Aetna alleges that the referring physicians have a financial stake in the surgery centers and, unbeknownst to patients, received payment for telling them to have their surgeries at these facilities. The centers also “cherry-picked” patients with the best insurance coverage, the suit claims.
“We really want to make this more transparent for members,” says Aetna attorney Laura Jackson. “When a physician has an ownership interest, they should be disclosing that to the patient.”
Jackson says that the practice is “not ethical and not legal in California.”
Daron Tooch, partner at Hooper, Lundy and Bookman, and attorney for the surgery centers, says the physicians are trying to help their patients get the best care.
“In California, it’s entirely legal,” Tooch says of physicians referring patients to centers where they have a financial stake. Aetna “really got it all wrong. These lawyers have no understanding of health care.”
The surgery centers are giving the patients a break by waiving the copayments and other fees, and what they charge Aetna is irrelevant, because Aetna ultimately decides what it will pay for out-of-network services, he says.
“It’s not like Aetna is out of pocket for more money,” Tooch says. “It’s paying a percentage of what it deems reasonable and customary.”
Tooch says Aetna is using the lawsuit to force the surgery centers into unprofitable contracts. “I think Aetna is trying to bully providers into accepting contracts with low rates,” he says.
Aetna’s Jackson says, “It’s just absolutely not true.”
Jackson says that most patients believe that physicians are referring them to the best provider, and one that is covered by their insurance, not one where physicians have a financial stake.
“From our perspective, it’s a violation of the corporate practice of medicine,” she says. “Our concern over patient harm is that physicians are financially gaining.”
The lawsuit alleges that in one case, a participating physician received a bonus check of $980,000 for referrals to the center.
Aetna has filed several similar lawsuits on the issue of balance billing for out-of-network services in other states, including New York. In the California case, Jackson says Aetna has filed complaints with the California Medical Board, the U.S. Department of Health and Human Services, the Office of the Inspector General, and the California attorney general. It has also contacted the California Department of Insurance to create legislation around the issue of waiving copayments and coinsurance for out-of-network services, Jackson says.
Tooch says his clients have not been contacted by any state or federal authorities over any pending investigation on the issue.
The next hearing on the California case is scheduled for July.
Rebecca Vesely is a freelance writer based in San Francisco. To comment, email firstname.lastname@example.org.
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