“It’s time for health insurance companies to stop this business practice that shocks our patients with unexpectedly high bills for health care they thought they’d already paid for.”

— TMA President Josie R. Williams, MD

Over the past few months, the Texas Association of Health Plans (TAHP) has distributed flyers and held a tutorial for legislative staff on balance billing. The Texas Medical Association (TMA) reviewed TAHP’s materials and found its assertions neither accurate nor addressing the real reasons patients like you and your constituents incur additional costs for out-of-network medical services. TMA believes it is time to set the record straight. Here are the facts.

Just Like “Truth in Lending”— We Need “Truth in Spending”

First, there are several reasons a physician may bill a patient like you for an out-of-network medical service: • Your health plan benefits do not cover the medical

care,• A physician who did not have a contract with the

health plan provided your medical care,• You have not met your annual deductible amount

or paid your coinsurance portion, or• Most importantly, your health plan single-handedly

determines what it is willing to pay for your out-of-network care. In many cases, health plans arbitrarily use inaccurate data to establish their payment.

“When health plans don’t bother to put

together a comprehensive network of physicians,

they force patients to go out-of-network for the

care they need. And when the insurance companies

use their own secret formulas, they dump

higher costs onto patients who thought they were exercising their options under their insurance

policy to see the doctor of their choice.”

— TMA President Josie R. Williams, MD

Fig. 1

TAHP RHeToRIc No. 1: When you receive a bill for an out-of-network service, it is solely the physician’s fault.

TMA Response: NoT TRUe. It is the result of your health plan’s benefit design for out-of-network ser-vices and what your health plan decides to pay or “allow” for your medical service. A physician who is not contracted with the health plan is allowed to bill you for the difference between the amount of the charge filed on the claim and what the health plan decided to pay, less the patient’s copay or deductible.

Why TAHP Is WrongPatients are shortchanged when health plans lowball their payments for out-of-network services. They do this by using their “usual and customary” determination for payment, and/or manipulating the patients’ “maximum allowable.”

Patients choose to pay higher health insurance premiums for two reasons: (1) for the freedom and ability to choose a doctor not in their health plan’s network, and (2) so their out-of-network care is covered when they don’t have access to an in-network physician. Patients are penalized with higher and unexpected out-of-pocket costs when health plans fail to have contracted network physicians avail-able to provide the most basic health care services, such as an elective surgery, or unexpected emergency or hospital care.

Here’s how patients end up pay-ing greater out-of-pocket costs: Usually a patient’s health insurance coverage for out-of-network services is based on a 70/30 coinsurance benefit design. The patient assumes he or she will pay 30 percent of the amount billed for the medical service. For example, when a physi-cian files a $1,000 claim to the health plan for an out-of-network service, the patient assumes the health plan will pay $700 and the patient $300 (Fig. 1). However, this is not the case. Health plans pay their percent-age of the patient’s claim based on what they determine is the “maximum allowable amount” for that medical service.

One major Texas health plan de-fines the “allowable amount” in the

patient’s benefit handbook as “the “maximum amount determined by [PLAN] to be eligible for consideration of payment for a particular service, supply or procedure.” As a patient, does this definition help you understand how the plan deter-mines what it will pay for your out-of-network service? Does it help you know what your out-of-pocket cost would be? Hardly.

Because the insurer determines the dollar amount or value it will use to multiply the 70 percent, the insurer determines how much it will pay and pushes the remaining expense down to the patient.

If we look at the many and varied maximum allowable amounts for out-of-network services reported by the five health plans to the Senate Bill 1731 workgroup, we can see how the plan’s maximum allowable determinations affect patients.

For example, if we assume all five health plans cover 70 percent of the out-of-network allowable amount, you can see clearly why some pa-tients are balance billed more than others. The patient covered under Plan E expects to pay 30 percent of

Fig. 2

the charge, or $300. Instead, the patient will pay 63 percent of the charge, or $626, for an out-of-network charge of $1,000. This is because Plan E pays only $374 of the patient’s claim — that is, the health plan based its 70 percent on its self-deter-mined allowable amount. Plan E reported that its maximum allowable amount for out-of-network services, on average, is 53 percent of actual billed charges. No other health plan reported limiting its out-of-network maximum allowable to that degree (Fig. 2).

At the same time, if you are lucky and happen to be a patient covered under Plan B, you will pay only $343 for the same service because Plan B pays $657, based on its maximum allowable amount of 94 percent.

TAHP RHeToRIc No. 2: Physicians, especially facility-based specialists such as radiologists, anesthesiologists, pathologists, and emergency room physicians, are unwilling to contract with health plans. TAHP also states that facility-based physicians systematically avoid contracting with health plans, and this forces patients to receive care by an out-of-network physician.

TMA Response: NoT TRUe, and we can prove it.

Why TAHP Is WrongA statistically valid TMA survey conducted in 2008 asked physicians to tell us which health plans they contract with in their community. The survey showed the following information.

Physicians do contract with all large health plans in Texas. Physicians on aver-age have seven HMO contracts and 17 preferred provider benefit plan contracts.

Fig. 4

Facility-based physicians on average have seven HMO contracts and 11 preferred provider benefit plan contracts (Fig. 3).

Facility-based specialists (indirect-access physicians) contract equally as often as nonfacility-based physi-cians with most large health plans, except for Blue Cross and Blue Shield of Texas (BCBSTX) and Unicare (Fig. 4).

As stated in the 2009 Texas Department of Insurance (TDI) SB 1731 Health Plan Network Advisory Committee Report, 90 percent of the total facility-based physician claims/visits in Texas were delivered by in-network, facility-based physicians.

Fig. 3

TAHP RHeToRIc No. 3: Balance billing occurs because physicians use deceptive trade practices.

TMA Response: NoT TRUe.The law requires physicians to bill and collect coinsurance, deductibles, and copays from their patients. In addition, if the physician is not contract-ed, he or she may pursue the difference between what the health paid and the charge on the claim. This balance amount is influenced greatly by the health plans’ determination of the maximum allowed for the service and what it pays.

Why TAHP Is WrongThe health plans’ benefit designs and other tools they use lessen their risk and push more cost onto patients. For instance, it was found that health plans use a flawed database to determine their usual and customary or maximum allowable determinations. In January 2009, after a year-long investigation, the New York at-torney general (AG) found that “insurers unfairly saddle patients with too much of the cost of out-of-network care.”

The centerpiece of the investigation was Ingenix, Inc., a wholly-owned subsidiary of UnitedHealth Group. Ingenix compiles schedules that many large health insur-ance companies, including those here in Texas, purchase to determine “usual and customary” and/or “maximum allowable” rates for out-of-network care.

The New York AG found that the Ingenix databases understated the market rate for health care services by up to 28 percent across the state of New York. Nationally, this translated to at least hundreds of millions of dollars in losses for consumers over the past 10 years. The AG’s report described the industry calculations as “created in a well of conflicts” that produced information that was “unreliable, inadequate, and wrong.”

New York has issued 16 subpoenas to other health plans — including Aetna, CIGNA Corp., Humana, and WellPoint subsidiary Empire Blue and Cross Blue Shield — to determine how they calculate “usual and customary” or “maximum allowable” rates.

Here in Texas in 2008, TDI issued a Disciplinary Order against Blue Cross and Blue Shield of Texas. TDI alleged that “BCBSTX’s reimbursement rates are unrea-sonably low in light of representations made by the company in its advertising and its policies,” and that “the reimbursement rates are so low as to violate Texas insurance laws and regulations.” BCBSTX denied the allegations but nonetheless settled for $3.9 million and agreed to modify its method of determining the “allowable” for certain facilities such as ambulatory surgical centers.

And, in February 2009, TMA joined a pair of class-action lawsuits against CIGNA Corp. and Aetna. The two lawsuits contend that for more than a decade the two health insurance companies used the flawed Ingenix system to underpay physicians for out-of-network medical services and forced patients to pay an excessive portion of the costs.

“For years this database [Ingenix] was treated

as credible and authoritative, and

consumers were left to accept its rates without

question. This is like pulling back the curtain on the wizard of Oz. We have now shown that for years consumers were consistently lowballed to the tune of hundreds of millions of dollars.”

— New York Attorney General

Andrew M. Cuomo

TAHP RHeToRIc No. 4: So-called physician “exclusive contract arrangements” with hospitals to provide the 24-hour/seven-day-a-week coverage required by Medicare and law affect physician participation in health plan networks and increase the prevalence of balance billing.

TMA Response: NoT TRUe. On the contrary, it is the health plans’ “exclusive contracts” with national companies competing with local physicians that lessen the likelihood physicians will be in the health plan’s network.

Why TAHP Is WrongFacility-based physicians prefer to have contracts with health plans that allow them to provide both inpatient and outpatient services. For example, any pathologist, radiologist, or anesthesia group could provide both types of services if given such a contract offer. This preferred type of contract arrangement with local physi-cians would provide patients greater access to the full spectrum of services by in-network physicians and reduce their out-of-pocket costs. Unfortunately for patients, some major health plans will not contract with local physicians for out-patient services (e.g., at outpatient hospital locations, ambulatory surgical centers, or office-ordered labs). Instead, they look to national companies or groups to provide outpatient services.

At the same time, the health plan will offer local physicians a contract limited to only inpatient services and excluding the more lucrative outpatient services. The health plan’s refusal to offer competitive inpatient contract rates, combined with the absence of the contract for outpatient services, often influences whether the contract negotiation will be successful.

By the health plans’ own actions and use of exclusive contract arrangements with national companies, they:

• Increase the prevalence of balance billing,

• Contribute to the lack of facility-based physician participation, and

• Single-handedly increase the likelihood that patients will have greater out-of-pocket financial costs for facility-based physician services.

Insurers mislead and obfuscate in their policy

language. They promise to reimburse based on usual and customary rates —

a form of market rate — but then reimburse based on schedules compiled by one of

their own [Ingenix], the nation’s second largest health insurer, which

has an interest in depressing

reimbursement rates.

Our investigation found that the [Ingenix]

schedules themselves, created in a well of

conflicts, are unreliable, inadequate, and

wrong — usually at the expense of the

consumer.

— Finding from the New York Attorney

General ’s Healthcare Industry Taskforce

TAHP RHeToRIc No. 5: Physicians are overcharging for their services. You can see that easily by comparing the physician charge with what the federal government pays under the Medicare fee schedule.

TMA Response: Quite simply, TAHP’s physician-charge comparisons with Medicare are erroneous and off the mark.

Why TAHP Is WrongTAHP’s attempt to compare a primary care physician office-visit charge with a facil-ity-based physician procedure-based charge is like comparing apples with oranges. Because facility-based physicians do not provide office visits, these comparisons are disingenuous and misleading.

Fig. 5

TAHP RHeToRIc No. 6: TAHP alleges that “more than 820 complaints involving over-charging or overtreating by physicians have been filed with the Texas Medical Board (TMB) since June 2003. To date the agency has not disciplined a single physician for balance billing.”

TMA Response: ABSoLUTeLY NoT TRUe. The Texas Medical Board has told TAHP its interpretation is wrong, but the health plans continue to use it.

Why TAHP Is WrongAccording to Mari Robinson, executive director/director of enforcement of TMB, “The 820 figure is not the correct representation of the number of complaints for balance billing.” She has conveyed this to TAHP.

Ms. Robinson stated, “First and foremost, balance billing in and of itself is not a violation of statute, and therefore no disciplinary action will be taken simply for balance billing. Secondly, while the board does receive billing complaints, a review of actual disciplinary orders will find that billing violations are often addressed among other violations. A basic data search will report few, if any actions, categorized as billing violations.”

Despite Ms. Robinson’s clarification, TAHP has continued to misrepresent the facts about the complaints. In addition, TAHP included the erroneous information in its stakeholder brief in TDI’s recently released report to the legislature on health plan network adequacy.

The commercial market for physician services is not reflected in the Medicare schedules. The use of percentages to demonstrate unfair physician charges is invalid because the basis for comparison is not the same across specialties under Medicare. The TAHP Medicare percentage examples have no real connection to practice costs or the mar-ketplace environment. Fig. 5 clearly illustrates the Medicare fee schedule:

• Has not accounted for general inflation,

• Is set artificially low to meet federal budget needs, and

• Does not keep pace with operating costs.

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conclusionAll this information leads to a surprising discovery: There is much we still don’t understand about all the factors that influence your out-of-pocket costs. We still do not fully understand the impact of:

• Your health plan benefit design,

• The adequacy of the health plan’s network, or

• The amount the health plan arbitrarily decides to pay based on its determination of the maximum allowable for the out-of-network service on your out-of-pocket costs.

It would be premature for the legislature to look at “quick fixes” such as TAHP sug-gests, which allow hospitals to hire physicians, prohibit balance billing, or require you to file the claim to the health plan and have the health plan reimburse you.

Lastly, due to the great variations in what each plan pays out-of-network, it is evi-dent that how health plans determine a “maximum allowable” for out-of-network services is neither consistent, well understood, nor transparent to the patient.

TMA Recommendations1. We must have much more health insurance transparency. There must be a

better understanding of how preferred provider benefit plans are designed and administered.

2. For the protection of insured Texans, the legislature should require preferred provider benefit plans to disclose how they determine “maximum allowables” and how those determinations impact patients’ out-of-pocket costs.

3. Authorize the Texas Department of Insurance to review data mining companies like Ingenix that supply price information to insurers. As a consumer protection, give TDI authority to regulate how preferred provider benefit plans utilize the services of data mining companies, such as determining the “maximum allowable.”

4. Examine the integrity of each health plan’s network in local markets to determine where preferred provider benefit plans are not delivering the network promised to consumers.

5. Require placement of a standard insurance label on all preferred provider benefit plan offers and advertisements. This label would permit consumers to make side-by-side comparisons through a standardized layout containing important information, such as the percentage of expenses paid by the plan in-network, the percentage of expenses paid by the plan out-of-network, and annual out-of-pocket expenses.