When Negotiations With Carriers Force Anesthesiologists to Go Out of Network

Patients who go out of network can present serious collections problems for the physicians who do not participate in the network.   Managed care organizations (MCOs) often send the check to the patient in order to pressure physicians to sign participation agreements, leading to the necessity for practices to collect directly from the patients, something that is especially challenging for hospital-based anesthesiologists and other physicians who do not have ongoing relationships with their patients.

MCOs do not like patients going out of network either, and increasingly some payers are going to extreme lengths to discourage that behavior. 

The efforts of one such payer, Aetna Health of California, Inc., to limit the use of out of network services recently led to the filing of a lawsuit.  On July 3, 2012, the California Medical Association (CMA), three county medical societies, and a coalition of four surgery centers and 60 physicians and one unidentified patient brought an action alleging a systematic practice by Aetna of threatening patients with denial of promised coverage if they see physicians outside the Aetna network of providers, and threatening doctors with contract termination if they refer patients outside the network.

More particularly, the complaint filed in Los Angeles County Superior Court accuses Aetna of:

• Advertising and selling health insurance policies promising patients that they can see any physician of their choice, including out-of-network physicians, while retaliating against patients who attempt to use their out-of-network benefits;
• Making threatening phone calls and sending threatening letters to patients who attempt to go out of network;
• Refusing to authorize care at out-of-network providers;
• Grossly underpaying out-of-network providers, thus leaving the patients responsible for most of their healthcare costs; and
• Retaliating against contracted physicians by threatening to terminate, and in many cases actually terminating their contracts, if they refer patients to out-of-network providers.

On behalf of “Patient One,” the lawsuit asserts that Aetna harassed the individual into attempting to have services performed at an in-network provider, “but he was forced to endure a wait that compromised his health.”  Rather than risk further health setbacks, the patient obtained immediate care at an out-of-network facility.  Aetna refused to reimburse anything at all until the patient’s third appeal, when it paid approximately $9,000 of the total bill for $70,000.

The physician plaintiffs contend that Aetna sent them letters after they referred patients to out-of-network ambulatory surgical centers where they “received more individualized care,”  containing language such as the following:  “Continued out-of-network ambulatory surgery referrals could cause a rate adjustment or end your participation with Aetna—action required.”

Aetna’s conduct, the lawsuit charges, constitutes false advertising, unfair competition, and interference with the care provided by physicians to their patients, all of which violate California statutes.  Other jurisdictions are likely to have prohibitions on false advertising and unfair competition similar to California’s,  but few, if any, state statutes fit the allegations of interference with physicians’ professional judgment as perfectly as does Section 2056.1 of the California Business and Professions Code, which provides in part:

(c) The application and rendering by any person of a decision to terminate an employment or other contractual relationship with, or otherwise penalize, a physician and surgeon principally for advocating for medically appropriate health care consistent with that degree of learning and skill ordinarily possessed by reputable physicians practicing according to the applicable legal standard of care violates the public policy of this state.  No person shall terminate, retaliate against or otherwise penalize a physician and surgeon for that advocacy, nor shall any person prohibit, restrict, or in any way discourage a physician and surgeon from communicating to a patient information in furtherance of medically appropriate health care.

The “counts” of the complaint for breach of contract and for interference with a prospective economic advantage, on the other hand, are based on common law, not statutes.  Similar arguments can be raised in any state court across the country, at least as long as there is applicable language in the participation or coverage contracts. 

There is likely to be applicable language in any participation agreement entered into between a physician and Aetna or another MCO covered by the 2003 Multi-District Physician Settlement Agreement that resolved a nationwide class action lawsuit challenging various health plan practices such as downcoding bills.  The Physician Settlement Agreement required Aetna to include a “no gag clauses” provision in its physician contracts that prohibits the MCO from penalizing “a Participating Physician in any way for engaging in any free, open and unrestricted communication with a Member about any matters relevant to that particular member or for advocating for any service on behalf of a Member.”  Clearly, threatening a participating doctor with termination for talking with a patient about any "out-of-network care” would violate an agreement with a similar “no gag clause.”

The California providers’ lawsuit against Aetna, which seeks actual damages, punitive damages, injunctive and declaratory relief, did not arise in a vacuum.  In the last year, Aetna filed four legal actions alleging extreme overbilling by physicians in courts in New York, New Jersey, Texas and California.  Those cases are all still pending; in New Jersey, four of the physicians have counter-sued.  The Bay Area Surgical Management LLC litigation in San Franciso recently drew a commentary from François de Brantes,  Executive Director of the Health Care Incentives Improvement Institute, Inc., in an e-mailed newsletter dated August 10:

In California, the supposed mecca of ACOs, a creative entrepreneur, self-proclaimed a "Robin Hood of physicians", decided that the best way to negotiate with "greedy plans" was to not negotiate, and not contract. As such, they get paid out of network charges minus the plan member's co-pay. The result: they're getting paid—yes, the "greedy plans" are actually paying—200% to 400% more for a simple orthopedic procedure than any other contracted physician or facility. The physicians that are performing the procedures are getting a windfall, and they're attracting patients by waiving the co-pays.…

They've gotten away (and presumably are still getting away) with thievery because payers have failed to implement simple reference pricing for common procedures for all providers, in network or not. If plan members were notified clearly that any payment for these procedures would be limited to the published reference price for that procedure, then the crooks wouldn't be able to steal, at least not from the payer. Of course that would mean making changes to benefit designs and creating better incentives for both providers and plan members.

Mr. de Brantes doesn’t mince his words, but the fees charged by the defendant surgery center are shocking:  $148,600 for lower back surgery, $53,000 for a bunion repair.  There are several points to note in his newsletter item quoted above.  First, the legality of waiving the patient co-pays as an inducement to choose the defendant under the anti-kickback rules is in dispute, and it is not something that ABC would recommend to our clients. Second, the surgeons in this case were all investors in the surgery center chain and their double-dipping raised further kickback and self-referral questions.  Those factors will be important in the ultimate court decision, and they are certainly not present in most instances of physicians billing out-of-network patients more than the MCO would wish.

The numbers of disputes and legal actions over out-of-network services and charges are probably going to grow as MCOs, physicians and health care facilities face increased pressure from employers and from the government to cut costs. MCOs have already started forming smaller networks of lower-cost doctors and hospitals to offer consumers cheaper premiums—and fewer choices of providers.

According to the Los Angeles Times (July 4, 2012), "’These contract dispute tensions will intensify in the next few years as the new Affordable Care Act regulations force insurers to keep a tighter rein on their networks,’ said Shana Alex Lavarreda, director of health insurance studies at the UCLA Center for Health Policy Research. ‘Consumers could be affected by increased network disruptions.’"

For an anesthesia practice, deciding whether to participate with an MCO can be like navigating between Scylla and Charybdis—if the practice even enters the Straits of Messina at all; in some cases the market dominance of the MCO or the hospital may eliminate any choice in the matter.  Collecting payments from out-of-network patients is often challenging.  There are strategies for such collections, though, which we discussed in our May 21, 2012 Alert.    We will continue to explore the general subject in future Alerts and issues of the Communique.