Many physicians and other healthcare practitioners ("practices") need to go "in-network" with managed care organizations because these network agreements drive patients into their office. These practitioners typically enter into managed care participation provider agreements with the health insurers for the privilege of becoming an "in-network" provider. The benefits of being in-network include the following:
- Patients are referred to the practice by virtue of their inclusion on PPO and HMO networks;
- Medical claim checks are issued more quickly;
- Medical claims checks are issued to the practice directly, not to patients; and
- Claim denials are reduced.
The major disadvantage of becoming an "in-network" provider is that the healthcare practitioner is forced to accept very low reimbursement rates for their medical services, and there is virtually no give and take on the contract terms. Providers essentially sign the contract as is, without any revisions. Consequently, the contract provisions are typically one-sided, favoring the health insurer.
As a result, more and more health care practitioners are deciding to go "out-of-network." This means the healthcare practitioner chooses to forego participation in health insurer PPO and HMO networks, and no managed care contracts are executed. The obvious benefit of being an out-of-network provider is that reimbursement rates typically are higher than that of in-network providers.
The disadvantages of being out-of-network are that the frequency of denied claims increases and the practice received no referrals from HMO and PPO networks. In addition, many health insurers refuse to accept assignment of benefits (AOB) between patients and the practice.
An AOB is a form through which a patient agrees to assign a claim benefit or payment to the practice, meaning that claim checks are sent to the practice and not to the insured member. When an insurer rejects an AOB, it results in claim checks being sent directly to the practice's patients. Many insurers policy forms contain a provision that all AOB are rejected. This essentially forces a provider to chase their patients for claim checks that rightfully belong to the practice. Many patients cash the claim checks, especially in a slow economy, and then outright refuse to return the funds to the practice. The practice is then faced with instituting debt collection actions, which could result in a public relations disaster. As a result, many practices simply decide to write off of the debt, which has a detrimental impact on revenue.
Many physician advocates have questioned whether the failure to recognize the validity of a patient AOB is really nothing more than an attempt by a health insurer to punish a practice for daring to go out-of-network ("you don't want to go in-network and accept our unreasonably low fee schedule? No problem, we'll just send your claim checks to the patients, and good luck collecting from your patients.") Health insurers counter that it is a simple contract issue, asserting that they cannot accept a patient AOB because they simply do not have privity of contract with the provider. The only privity of contract that exists is with their own members, hence the reason the AOB is rejected and checks are sent to members and not to the practice directly.
New York: Case in Point
In any event, by way of background, then-New York State Attorney General Andrew Cuomo, early in 2008, conducted an investigation into what he viewed as under-reimbursement of out-of-network claims by most insurers in New York. Mr. Cuomo investigated what he referred to as "industry-wide," typical, customary and reasonable underpayments that affected consumers in New York State and nationwide. At the conclusion of his investigation, Mr. Cuomo described out-of-network reimbursement by certain health insurers as a scheme to defraud consumers by manipulating reimbursement rates for out-of-pocket medical expenses.
Specifically, in a press release Mr. Cuomo stated that the "scheme by health insurers (is) to defraud consumers by manipulating reimbursement rates" by using a "defective and manipulated database (Ingenix)." He further stated that most major health insurance companies used this database with full knowledge that it is artificially and intentionally well below reasonable and customary reimbursement rates.
Moreover, Mr. Cuomo's investigation "found that by distorting the "reasonable and customary" rates, insurers were "able to keep their reimbursements artificially low and force patients to absorb a higher share of the costs." He stated that "getting insurance companies to keep their promises and cover medical costs can be hard enough as it is, but when insurers create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need."
At the conclusion of his investigation in January 2009, Mr. Cuomo published a document referred to as "Code Blue" (found at http://www.scribd.com/doc/16807960/Health-Care-Report-The-Consumer-Reimbursement-System-is-Code-Blue), which concluded that insurance payers in New York State and nationwide were under-reimbursing consumers and providers in out-of-network situations due to a flawed database, Ingenix, which was used to calculate such payments. He found an inherent conflict of interest involving the Ingenix database in that it was owned by an insurer, United Healthcare, and created by the insurance industry, which was motivated to under-reimburse claims.
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