Billing squeeze: Hospitals in middle as insurers and doctors battle over out-of-network charges

When Dr. Kelly Kyanko was giving birth to her second son a couple of years ago, there were signs her baby was facing a higher risk of complications after delivery. A pediatrician was called in, and everything turned out fine for mother and newborn baby.

But after she left the hospital, Kyanko faced a surprise $636 bill from the pediatrician that her insurer, UnitedHealthcare, did not cover. Before her delivery, she had checked to make sure the hospital and the OB-GYN were in her plan's network. She had no way of knowing, however, that the consulting pediatrician was out-of-network.

“I was in absolutely no condition to be refusing care or making sure someone was in-network at the time,” Kyanko said. “I have no idea how I would have prevented getting that balance bill.”

As more insurers shift to narrow provider networks to keep premiums down, hospitals increasingly find themselves caught in the middle as patients, insurers and physicians fight over who should pick up bills for services that patients unknowingly receive from out-of-network doctors. Some hospitals and insurers now take steps to address the volatile issue and remove the patient as much as possible from these disputes. But the problem is far from being resolved across the country.

Typically, the balance billing issue arises with contracted physicians. Many hospitals use physician outsourcing firms for anesthesiologists, emergency physicians, hospitalists, pathologists and radiologists. In addition, assistant surgeons are sometimes brought in to help with a procedure. In many instances, these doctors don't participate in all the same plan networks as the hospital does. Physician groups typically say they refuse to accept insurers' unreasonably low rates, while insurers argue the medical groups are demanding excessive prices.

The most stressful part for hospital officials, who often serve as mediators between insurers and out-of-network physicians, is getting physicians to come to the table. “The plans have been amenable to contracting with our hospital-based physicians,” said Rudy Braccili, executive director of revenue-cycle services at Boca Raton (Fla.) Regional Hospital. “Of course, it's a two-way street. The physicians have to be willing to accept the rates plans offer them. Sometimes that's a little bit more of a challenging conversation.”

A growing number of hospitals and insurers are setting up processes to resolve out-of-network bills before the problem escalates into a public relations disaster that could undermine support for narrow-network plans. But eliminating surprise bills altogether may require broader business changes by healthcare organizations and/or regulatory action by policymakers.

That's already happening. A number of states such as California, New York and Texas have approved or are considering rules that address unexpected out-of-network bills. New York has adopted the toughest measure. Since April, the state has required insurers and providers that disagree on out-of-network payment to go through an independent dispute-resolution process. Some experts view the law as a model for other states.

“States are starting to realize they have some ability to affect what patients are responsible for,” said Erin Trish, a health policy professor at the University of Southern California.

Kyanko, a primary-care physician at Bellevue Hospital Center in New York City and a researcher at the New York University School of Medicine, published a survey in June 2013 with colleagues that showed roughly 40% of people who went to out-of-network physicians did so involuntarily. A March 2015 study from Consumers Union found that surprise medical bills hit 30% of privately insured Americans, and a quarter of those patients said the bill came from a doctor they did not expect.

Surprise out-of-network bills—which don't count toward the Affordable Care Act's annual limit on individuals' and families' out-of-pocket costs—typically arise in two scenarios.

The first is when patients go to the emergency department at an in-network hospital. While the ACA requires health plans to pay out-of-network emergency providers at network rates, patients in many states still are exposed to balance billing.

UnitedHealthcare said this year that it would scale back how much it pays out-of-network emergency physicians who practice at in-network hospitals because it believes some physicians are seeking “excessively high reimbursement levels.” Critics said that will expose UnitedHealthcare members to potentially large out-of-pocket bills.

The second scenario is when out-of-network physicians provide surgical or other scheduled care at in-network facilities. Patients may do their homework to see whether their providers are in their plan network. But “a lot of patients don't understand that if the hospital takes the insurance, (each) doctor that comes to their bedside might not,” Kyanko said.

Representatives from EmCare, TeamHealth and IPC Healthcare, three of the largest physician outsourcing firms in the U.S., declined to comment for this article. TeamHealth is acquiring IPC for $1.6 billion.

Earlier this year, a spokesman for Dallas-based EmCare told Modern Healthcare that the company tries to have its physicians on the same insurance contracts as the hospitals where they work, but that acceptable deals can't always be reached with plans. He said the problem of patients facing out-of-network bills from EmCare physicians “comes up in some areas on occasion.” He added that “when (insurers) set arbitrary rates, they force physicians out of their network.”

The disputes boil down to who will be financially responsible for out-of-network charges. Will the patient's health plan cover all provider charges, or will physicians or other providers accept the plan's in-network rates? Or will the patient get stuck with the bill? Insurers and hospitals are handling the issue in several ways, and some are moving to hold patients harmless.

Independent Health, a not-for-profit insurer in Buffalo, N.Y., with 400,000 members, has staffers in its cost-containment division who are solely responsible for handling members' concerns about unexpected out-of-network bills, including negotiating the bills on their behalf with the providers, said Jill Syracuse, chief engagement officer. The goal is to settle on a payment based on reasonable and customary rates. But more important, the consumer is taken out of the fight.

“When a member has followed every rule, they should be held harmless from any consequences,” she said. “It's the right thing to do.”

Independent Health has received 100 appeals from members in the first seven months of 2015, and only a fraction of those have gone through New York's independent mediation process, Syracuse said. She attributes the resolution of these issues to her company's negotiation unit and the insurer's close relationships with local hospitals and doctors. “If you do it right the first time, you're going to receive fewer appeals, and you're going to receive fewer calls,” she said.

Despite such efforts by some hospitals and insurers, the surprise bill problem is likely to persist because hospitals and health systems have no plans to reduce their reliance on physician outsourcing anytime soon. But hospitals could require physicians, as a condition of practicing at their facilities, to join the same health plan networks in which they participate, some hospital officials say.

At Boca Raton Regional, Braccili said contracting anesthesiologists, emergency physicians, pathologists and radiologists “know they have to contract with the plans that we contract with.” The hospital has handled fewer complaints as a result.

Mark Carter, former chief financial officer of Jewish Hospital in Louisville, Ky., who now serves as CEO of Passport Health Plan in Louisville, said Jewish Hospital took the same approach. “We didn't want our anesthesiologists not accepting Humana when the hospital took Humana,” he said. “There's a lot of diplomacy involved in this.”

But many physician groups have not been won over. The fact that commercial insurers such as Aetna, Anthem and UnitedHealth Group have reported record revenue and profits has made it more difficult for doctors to accept rates they believe are unreasonably low.

“The real crux of the problem is that health insurers are refusing to pay fair market rates for the care provided,” Dr. Steven Stack, a Lexington, Ky., emergency physician who is president of the American Medical Association, said in a recent interview. “Then they turn and say to the physician who is billing (for out-of-network services), 'You're the bad guy.' ”

Stack also was critical of the New York approach—which was supported by the Medical Society of the State of New York—for requiring out-of-network physicians and insurers to work out payment through a mandatory dispute-resolution process. “Putting in a methodology to coerce physicians through yet another way to not receive sufficient payment doesn't help patients and certainly is not fair to physicians,” he said.

Sarah Davis, a law professor at the University of Wisconsin and associate director of the Center for Patient Partnerships,

said the underlying problem is that insurers and employers are imposing larger deductibles and coinsurance on consumers. At the same time, providers face pressure not to saddle patients with ruinous out-of-pocket costs. That's putting a big squeeze on providers, said Davis, whose organization counsels patients who face confusing or unexpected medical bills. “I think that's unrealistic,” she said. “That's setting providers up for failure.”

Braccili suggested that insurers should take responsibility for assessing and collecting out-of-network bills from patients. Having hospitals and doctors collect those fees is “a wacky business model,” he said.

He personally has seen the impact of high out-of-network bills. One of his friends recently went to a hospital for a heart attack, and the health plan processed his friend's claim as out-of-network, resulting in a $56,000 out-of-pocket tab. It has since been reduced to about half that amount, but that's little consolation to his friend. “He shouldn't have to suffer that way,” Braccili said. “It is fixable.”

Experts agree that hospitals, physicians and insurers will continue to face heat from the public until more is done to protect patients from unexpected bills.

Kyanko fought her $636 pediatrician bill without the help of the hospital, which she declined to identify. She made nine phone calls, spending three hours in total on the phone with UnitedHealthcare and the out-of-network pediatrician's office. She ultimately succeeded in getting her bill waived. The insurer and doctor worked it out between themselves.

“For a lot of people who are quite ill, they might not have the resources, the knowledge, the energy to be fighting every single bill like I had,” Kyanko said. What's needed, she added, is “removing the consumer from this negotiation.”