All around the country, states are addressing an issue  that some state legislators view as non-contracted (with health insurance companies) hospital-based physicians “defrauding consumers” by billing them “exorbitant fees” when the health insurers have already paid these physicians very generous “usual and customary” reimbursements - as defined by the insurers. This problem is often characterized as improper “balance-billing”. 

In the last session of the Texas Legislature there were numerous bills filed which attempted to address the problem of “balance billing” and “inadequate health plan provider networks”. None of these bills passed. Exactly what constitutes “balance-billing” and “inadequate health plan provider networks”? Why are Texans concerned about this issue, what solutions have been proposed in other states, and what solutions might prove effective, fair, and reasonable?    

Across the nation, health insurance companies attempt to contract with both physicians and hospitals. A key area addressed in such contracts is the specific reimbursement to be paid for all “covered services”. Those physicians who execute contracts with a  health insurance company  are then incorporated into the health plan’s “network of providers” and the composition and numbers of physicians on such “networks” is usually published in various educational (and promotional) brochures which are distributed to plan enrollees (patients). If the physician is “contracted” with the plan, he or she then agrees to accept the reimbursement contractually agreed upon by the two parties and the patient is only responsible for “deductibles” and “co-pays” but is not responsible for any “difference” between the physician’s total bill and the amount that the health plan reimburses the physician.

For a variety of reasons, a given health insurance company or health plan may choose to contract with some physicians in a given specialty but not all physicians in that specialty. Similarly, not all physicians who are offered a contract choose to accept that contract offer. When the health plan and the physician are unable to agree on a contract, then that physician is a “non-contracted provider”. 

Over the years, problems have developed for health plan enrollees (patients) when they seek/receive professional services from non-contracted physicians. In this situation, the health plan usually pays the non-contracted physician the same or a lesser amount than it would pay to its “contracted physicians”. Any difference between this amount and the amount of the physician’s total bill is thus the “balance” remaining on the physician’s bill - which becomes the patient’s responsibility. The bill, which is sent to the patient (for the amount that is not paid by the health plan), is then said to be a “balance bill” from the non-contracted physician.   

The result of receipt of a large “balance bill” from a non-contracted health care provider (hospital or physician) is often a complaint to the provider, “Why do you not participate in my health insurance plan?” or a similar complaint to the health plan, “Why are you not contracted with the hospital, emergency physician, anesthesiologist, surgeon, neonatologist, pathologist and/or radiologist who provided care to me (or my baby) during my recent hospitalization at ______ hospital?”   

In addition to the financial burden imposed on the patient by “balance-billing”, both the provider and the health plan are often faced with an extremely unhappy patient. This is a “lose-lose-lose” situation for providers, health plans, and patients.  

Why then have the principals involved in the “balance-billing” conundrum been unable to resolve this dilemma? One of the main reasons for the impasse between providers and health plans is the inability to obtain consensus on the root causes of the problem. Often, the parties blame each other. The health plan may contend that the provider (hospital or physician) has been extended a “reasonable and fair” contract offer containing health plan policies that are “industry-standard” and reimbursements that are “usual, customary, and reasonable” (UCR) - as determined solely by the health plan. The health plan then may inform the patient that the reason for the non-contracted status of the provider is that the provider is “being unreasonable” or that the provider “refuses to negotiate in good faith.” 

Conversely, that provider often responds that the problem is the fault of the health plan for having an “inadequate provider network” with “large gaps” in needed specialty services - which is largely the result of the health plan “failing to negotiate in good faith”. Additionally, reimbursements offered by the health plan are frequently considered “inadequate and unfair” and very far from “usual, customary and reasonable”. Indeed, it is the failure of a universally accepted definition of “usual, customary, and reasonable” reimbursement that is often the crux of the problem of “balance-billing”. 

How have other states addressed the “balance-billing” dilemma? The state of Florida enacted legislation several years ago with the intent of protecting patients from “balance billing”. The Florida statute prohibits “non-contracted providers” from sending a “balance-bill” to any HMO patient. Any “balance-bill” is to be sent to, and paid by, the HMO involved. This Florida statute provides (in regard to hospital emergency care) that Florida HMOs are required to pay non-contracted providers “the lesser of:  (a) the provider’s charges (b) the “usual and customary” provider charges for similar services in the community where services were provided (c) the charge mutually agreed to by the HMO and the provider - within 60 days of the submission of the claim.” 

In the years since adoption of the statute, a conflict has emerged between providers and HMOs over the definition of “usual and customary charges”. Florida HMOs have taken the position that “usual and customary provider charge” should be based upon “usual and customary HMO payment” while providers  argue that since the legislature adopted the language of “provider charges”, it was the “plain language” actually included in the statute that was intended by the legislature, rather than the “payments”. As a result of protracted conflict (and litigation) between the HMOs and health care providers, Florida adopted the methodology of providing for the resolution of “claims disputes” by an “independent dispute resolution organization, known as “Maximus”. Maximus resolves claims related to payment amounts only. Maximus has 60 days to resolve claims disputes and make recommendations to the “Florida Agency for Health Care Administration (AHCA)”. The costs of this dispute resolution system must be paid by the non-prevailing party. Once a case has been submitted to AHCA, it cannot be litigated. 

California has also been struggling with the “balance-billing” and “inadequate provider network” issue. In July 2006, Governor Arnold Schwarzenegger announced that he was issuing an “Executive Order” prohibiting “balance-billing” (for near instantaneous implementation) and that the Legislature would not be involved in the resolution of the issue. Within a week, Governor Schwarzenegger received a torrent of adverse reaction to such a proposed “Executive Order” and the implementation of the order was postponed to “sometime in 2007”.   

On a related note, California HMOs recently filed a court challenge to the ability of non-contracted emergency department physicians to “balance-bill” patients for fees not paid by health plans or (IPAs). This challenge was rejected by the Second Appellate District, California Court of Appeal in an opinion issued Feb. 17, 2006 in Prospect Medical Group vs. Northridge Medical Group. The court addressed the following issues: 

Whether a California law prohibits non-contracted emergency room physicians from balance billing individual patients for the balance of the physician’s fee not paid by a patient’s health plan or delegate? The court found that California law does not prohibit balance billing by non-contracted ER physicians because the law assumes the existence of a voluntarily negotiated contract. The IPA (Prospect Medical Group) sued the emergency physicians of the Northridge Medical Group on the theory that “balance-billing” was illegal because emergency physicians have an implied contract to treat patients for emergency care due to the physicians’ obligations under EMTALA. Judge Patti S. Kitching of the 2^nd District Court of Appeals, Third Division, disagreed with the IPA by finding that the California statute did not prohibit balance billing in the absence of a pre-existing contractual relationship because the statute only applies to written contracts (not implied contracts). Judge Kitching stated, “The term ‘contracting provider’ refers to physicians who have freely negotiated a contract with healthcare service plans.”

Whether ER physicians must accept the Medicare rate as full reimbursement from a health plan? The IPA asked the court for a judicial declaration imposing the Medicare rate as the “reasonable rate” for out-of-network ER physicians. The court denied the request, noting that the IPA provided no legal authority for this position. It also noted that California regulations include a six-part test to determine reimbursement for out-of-network physicians, which makes it clear that adopting Medicare as an across-the-board rate is inappropriate. 

The state of California has appealed Judge Kitchings’ rulings to the California Supreme Court, where the case is pending. 

In Texas during the last two sessions of the legislature, an attempt was made to prohibit balance billing of either the health plan or the patient by non-contracted providers. An initial proposal in 2005 supported by the health plans would have prohibited balance billing of patients by non-contracted physicians and required non-contracted physicians to accept whatever payment contracted physicians had agreed to accept. This proposal was later withdrawn and Sen. Robert Duncan of Lubbock submitted SB 1738. This legislation eliminated fines and subjection of violating physicians to discipline (including loss of medical licensure) and was focused on requiring hospitals to inform potential patients, before any services were delivered, that one or more groups of hospital-based physicians may not be contracted with the patient’s health plan and that the patient may be subject to a “balance bill” in consequence. This bill only related to “hospital-based” physicians and was also directed at requiring hospitals to increase “transparency” for patients by requiring the posting of hospital charges for common services in the hospital’s lobbies and waiting rooms, especially in the Emergency Dept. lobby. This bill died in the Texas House. 

Next Issue: Balance Billing – Part 2: Possible Solutions