Looking At The PPO Perspective from All Points of View
Employer’s Guide to Self-Insuring Health Benefits December 2011 | Vol. 19, No.3
By Adam V. Russo & Ron Peck
As avid readers of this article are aware, every month we write from the perspective of a self-funded plan, address how the health insurance industry should work, and what needs to be done to lower the cost of health care. Generally, we represent self-funded benefit plans and their third party claims administrators (“TPAs”). You may also know, specifically, that we have been spending a lot of our time dealing with conflicts that arise between these benefit plans and the health care service providers (“Providers”) that treat the plan participants. In this article, we want to look at these issues from the Providers’ perspective. You may be surprised by the differences in opinion regarding the value of preferred provider organizations (“PPOs”), and more shockingly, our common ground. A particular cause for conflict emerges from the inherent discrepancies between PPO network agreements and summary plan documents (“SPD”s). We are fond of saying that benefit plans and their TPAs often find themselves between a rock and a hard place. The rock is comprised of an SPD that caps the maximum amount payable at a Usual and Customary (“U&C”) amount or some other similar price-ceiling and the stop-loss carrier that provides excess loss protection based strictly upon those SPD based U&C limits.
The hard place is the PPO and in-network providers that force the Plan to sign a contract agreeing to pay whatever the Provider charges, minus a discount, within 30 days. The SPD and stop-loss carrier want the Plan and TPA to carefully examine each claim, line by line. The SPD and stop-loss carrier want the Plan and TPA to audit every bill, and apply stringent U&C pricing. The providers and PPO, however, enforce their contract independently of the SPD, and threaten a breach of contract action against anyone that dares to take more than 30 days to process claims, or commits the sin of performing a U&C audit.
These days, we know that many Plans, TPAs, and Stop-Loss Carriers are questioning the value of PPOs. Interestingly enough, so are Providers; (more on that in a bit). The widely shared notion among payers is that PPOs provide a small discount that pales in comparison to the excessive mark-ups Providers apply to the medical bills. Whether Providers are simply looking to increase profits, or rather, are justifiably attempting to keep their heads above water by shifting the losses they suffer when they treat Medicare and Medicaid patients for pennies on the dollar, the bottom line is that private benefit plans and insurance carriers think they are being ripped off.
These Plans, believing that Providers are defrauding them, then look to the PPO contracts that facilitate the alleged fraud. Indeed, these PPO contracts that prevent the Plan from examining the bill, and prevent the Plan from auditing the claims, certainly allow dubious charges to slip by… and perhaps even incentivize Providers to toss a few extra charges onto the invoice. If not intentional, certainly the knowledge that the bill will not be audited may result in a little less diligence on the part of providers when it comes to avoiding duplicate charges, unbundled claims, and other mistakes that result in overpayments on the part of the Plan.
Consider the following analogy… What would you do if, upon entering your local supermarket, you were offered a 20% discount on your entire purchase, but were not allowed to review your final bill? The deal would deny you the ability to ensure that none of your items were scanned twice, or that your coupons were applied incorrectly, or not at all. How many of you would accept the 20% discount if you were not allowed to audit this bill? We have posed this question to people across the Country and roughly half stated that they would accept this offer. These people who would take the deal rarely see mistakes on their receipt, and thus – based on their experiences – feel there is a low risk of being defrauded by the grocer. If they take the deal, however, do you think the cashier will be as careful when scanning the goods as they are today; (knowing that you are monitoring their charges)? When you eliminate the checks and balances, suddenly the chances of costly mistakes being made rises. This is the same dilemma we face in the self-funded industry when it comes to dealing with PPOs.
Recently, we were asked to assist in drafting a PPO White Paper for the Self-Insurance Institute of America, Inc. (SIIA). The white paper is called The PPO Value Proposition: A Roundtable Discussion for Plan Sponsors. The purpose of this paper was to open a dialogue in the self-insured industry about the PPO value proposition and what the future of PPO arrangement might hold. What we know for certain is that over the course of the past decade, the value of PPOs has come under increasing scrutiny.
PPOs were originally developed so that providers could offer services at discounted rates to benefit plans in exchange for steerage. PPOs were able to negotiate for real discounts, and provide true savings, at a time when in-network status was indeed exclusive. However, in the last decade, employee benefit plans have demanded larger network coverage, diluting in-network exclusivity. As a result, PPOs have been fighting a battle between expanding their networks to boost revenues and retaining negotiation power with the providers. They are losing the power to negotiate with providers across the Country. Arising from this struggle, consider the following provision that TPAs are being asked to force upon their client employee benefit plans:
Charge Audit Standards. Contracting group, payer, and third parties (including a reinsurer) on behalf of contracting group shall be prohibited from conducting audits of medical claims which involve any of the following:
• Application of reasonable and customary fee screens that would otherwise reduce the amount payable pursuant to the Fee Schedule.
• Audits which examine any items other than medical necessity, benefit plan compliance, eligibility or medical record supporting documentation.
If a TPA or plan signs a PPO contract with this provision, it is allowing the provider to bill whatever they want as long as it is medically necessary. The plan loses all control over plan expenditures, making it practically impossible to obey the PPO contract and the plan document simultaneously. Since most plan documents require the plan to audit claims to ensure no fraudulent practices or overbilling occurs, the plan cannot adhere to the terms of the plan document in concert with the PPO contract, cannot prudently manage plan funds and risks breaching its fiduciary duty as this PPO provision would ensure that the plan is violating its own contract terms.
Put simply, this is a recipe for disaster across the entire self-funded spectrum. The only winner in the scheme described above is the Provider because they have the ability to bill with impunity and without any oversight. Can anyone tell me of any other industry that would allow this practice?
This issue reached a boiling point recently. The case of The State of California ex rel. and Rockville Recovery Associates Ltd. v. MultiPlan Inc., et. al., Case No. 34-2010-00079432, involves a major healthcare services provider and preferred provider organization network, as well as a firm performing claims review services on behalf of a benefit plan and its TPA. The dispute has received quite a bit of attention already, and word of its potential impact on our industry is already spreading.
The assertions described by Attorney Gene S. Woo, Senior Staff Counsel for the California Department of Insurance in his Memorandum of Points and Authorities likely strike a chord with many Plans, and the TPAs that service them.
In summary, the memorandum describes fraudulent billing practices perpetrated by hospitals and other healthcare facilities, whereby these billing entities routinely submitted invoices for services that were not performed, were already paid for as part of other claims, or were simply inexcusably excessive. The memorandum identifies these practices as fraudulent, and the plaintiffs seek to pursue legal action against the billing parties.
In addition to these predatory billing practices, the memorandum goes on to accuse the applicable PPO network of aiding and abetting these fraudulent billing practices. Indeed, the network contract that bound the Plan in this matter, prohibited the Plan from auditing the claims in question, and precluded the payer from examining the claims for inappropriate, excluded, and/or excessive charges.
With this and other similar conflicts ongoing, we have stayed very busy. The message we keep receiving from our Plan and TPA clients has consistently been, “Attack, attack, attack!” The shared attitude is that the Providers want to defraud the Plan, and are using the PPO as a shield in that effort.
Imagine, then, how surprised we were to read the article entitled, “How to Obtain Increased Reimbursement on Your Out-of-Network Claims,” by Thomas J. Force, Esq., RACMonitor.com, June 13, 2011, (http://www.racmonitor.com/news/33-top-stories/591-how-to-obtain-increased-reimbursement-on-your-out-of-network-claims.html). Attorney Force is described as “the founder, president and chairman of the board of The Patriot Group, www.patriotcompli.com, a full service revenue recovery company that provides billing, collections, and follow-up services as well as assistance with managed care appeals, managed care contracting, credentialing and compliance. Mr. Force is nationally recognized as an expert in revenue collection techniques, managed care contracting and appeal strategies.” He self-describes himself in this article as an attorney representing Providers. His perspective, and the Provider perspective that he supports, open a window we rarely get to look through. Perhaps, as we try to examine the Provider versus Plan conflict, we ought to consider the Provider’s perspective.
According to Attorney Force’s article, “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.”
Looking at these so-called “benefits” it is easy to see how and why Providers are becoming just as disenchanted with PPOs as the Plans. The first “benefit” refers to what is called “steerage.” Steerage is the practice by which plan administrators direct, and incentivize, plan participants to utilize in-network Providers, rather than visit out-of-network providers. If there were four facilities in town, one or two of them would be chosen for in-network status. As a result, that meant patients (aka customers) that would have visited the “chosen” Provider’s competition are now incentivized to utilize the in-network Provider instead. Thus, when there were only a select few in-network providers, and in-network status was thereby exclusive, steerage was valuable.
Today, however, plan administrators and plan participants have demanded that almost every Provider be included in their network. Health plans and PPOs advertise the size of their network, and the vastness of their in-network roster. The side effect of this network expansion, however, was the disintegration of “exclusivity” that once was part of in-network status, and the loss of value of steerage. In other words, if everyone is in-network, and thus patients are no more incentivized to use one facility over another, the value of in-network status is destroyed. As in-network status and steerage lost its value, so too did the PPO and Plan lose bargaining power. The Plan that once was able to negotiate for deep discounts on fair market prices in exchange for steerage, now has nothing of value to bargain with. Providers receiving in-network status gain nothing from that status or steerage, as the networks expand. What incentive, then, do they have to offer real discounts?
Another “benefit” described in the article is speedy payment. This, then, speaks to the “prompt pay” and “30 day deadline” provisions we see in PPO contracts. Although the SPD and stop-loss carrier may argue that the Plan ought to spend time auditing claims, and reviewing charges line-by-line, that process would result in the elimination of one of the few benefits remaining to in-network status: fast payment. Thus, while a thorough, lengthy review process may make sense to a Plan, TPA, and stop-loss carrier, that lengthy process comes at the cost of one of the few benefits of in-network status… and one of the reasons why a Provider is willing to offer any discount at all.
The same can be said of the next benefit, which is a reduction of denials. Perhaps the only reason denials of in-network claims are rare is because the Plan is contractually prohibited from reviewing the claims and identifying reasons to deny, but regardless, this new industry shift to deny first and ask questions later will erode yet another of the few remaining reasons to offer a discount, regardless of how small said discount may be.
The final benefit, I believe, is the most valuable benefit remaining to Providers. This benefit is available to Providers regardless of whether they are in or out of network. When Attorney Force refers to “Medical claims checks are issued to the practice directly, not to patients,” he is describing assignment of benefits (“AOB”) from the patient to the Provider. AOB is not tied to in-network status, however, as a patient may assign their benefits to any Provider; enabling that Provider to bill the Plan directly.
A contract consists of three basic things: an Offer, Acceptance, and an exchange of Consideration. Consideration is an interesting topic. Rarely do people clash over an offer, or acceptance of that offer. More often than not, controversies and conflicts arising from a failed contract arise due to the issue of consideration. Failure to provide goods or services “per the contract,” and failure to pay for goods and services, is a failure to provide consideration. Failure to deliver what was promised is failure to deliver adequate consideration per the terms of the agreement, and is by far the most common issue giving rise to a “breach of contract.”
Consideration literally is: “What I am giving to you, and what you are giving to me.”
When a provider enters into a network agreement with a Plan, what consideration does that provider receive; what benefit does that provider enjoy? Surely, if there were no PPO networks, patients would still visit healthcare providers and those providers would still receive compensation for their work. Why, then, does a provider enter into a network agreement? What consideration, above and beyond monetary compensation for services, which the provider would receive with or without the network agreement, makes entering into a PPO arrangement worthwhile?
Presently, a patient who is insured may take a provider’s bill which they incur (as a result of their having accepted a provider’s offer, and having received services and treatment from that provider), and said participant may submit it to their insurance carrier or benefit plan. Said insurance carrier or benefit plan will then issue payment to the insured, limited by the terms of the benefit plan or policy. Rarely does this happen.
More often, a patient will assign to the provider their right to submit a bill and seek payment from their insurance carrier or benefit plan. The provider then seeks payment from the insurance carrier or benefit plan instead of billing the participant, and having the patient seek payment from the payer. This is AOB.
In either case, the participant is only entitled to the benefits set forth by the terms of their Plan or Policy. Insurance carriers and benefit plans are not required to pay more than the eligible amount, regardless of who submits the excessive bill. If a patient accepts services from a provider who charges excessively, the patient – and not the insurance carrier or benefit plan – should be responsible for the charges in excess of the eligible benefit amount.
As the network is presently constituted, however, two providers charging different amounts for the same service are both paid their full charge amount by a single insurance carrier or benefit plan (minus a discount). There is no incentive, on the part of the provider, to charge reasonable fees or develop innovative, cost saving procedures or adopt new efficiencies, as the insurance carriers and benefit plans fail to place a cap on eligible expenses.
As the system is currently constituted, a provider will provide treatment to a patient, and that patient will – in exchange for said services – assign their right to file a claim with the insurance carrier or benefit plan, to the provider. We have already identified this process as an “assignment of benefits”. The insurance carrier or benefit plan will then forward payment directly to the provider. If the benefit plan administrator or insurance carrier determines that the amount charged exceeds the amount available, they will (sometimes) pay to the provider less than the billed amount.
Sometimes, the provider will accept said payment and consider the matter closed in full. More often, however, the provider will deposit the payment, and pursue the patient for the remainder. This is called “balance billing.”
Balance billing is a prime example of “having your cake and eating it too.” The provider enjoys all of the benefits of billing the insurance carrier or benefit plan (deep pockets, timely payment), but also rests assured that – should the insurance carrier pay less than the billed amount – the provider can balance bill the patient as well. This, of course, only happens if and when a Plan pays less than the PPO agreement negotiated rate and only because PPO agreements usually limit the ability of a Provider to balance bill if the PPO rate is paid. Not so, however, if the Plan pays an amount that differs from the PPO rate.
If you were a healthcare services provider, and you could treat one of two patients, both of whom have no insurance, and have the same personal assets, you would be indifferent as to whom you treat. If, however, one of the patients is insured, you would no doubt prefer to treat the insured individual. This scenario plays out in provider’s offices from coast to coast. Why is the insured patient a more attractive option? Both patients have agreed to the same charge amount, yet, every provider will agree that billing an insurance carrier is preferable to billing the patient.
Insured patients are preferred because insurance carriers have deep pockets, and prompt payment is almost guaranteed. While the insurance carrier has substantial financial resources, the patient may not have the financial means to satisfy his debt. While the insurance carrier hires individuals who are trained to read, process, and pay provider bills, the patient will no doubt be confused by the bill. While the insurance carrier is required by network agreement and law to pay promptly, the patient is not so restrained and even enjoys statutory protections against certain collection activities.
Billing an insurance carrier has value above and beyond the money received. If health insurance were managed the same way as other insurance, a patient would be billed by their provider. The insured would then submit the bill to their insurance. The health plan or health insurance carrier would then issue a payment to the insured equal to the available benefits, in accordance with the terms of the benefit plan or policy. The insured would then be responsible for resolving their outstanding medical bill. This system would enrage providers, who must then pursue each patient and seek payment from said patients (who may, once the insurance money is in hand, decide they have more pressing needs than paying for services already rendered).
When a patient offers their right to obtain benefits from their insurance, that assignment of benefits is in and of itself consideration in full, exchanged for services and treatment. An assignment of benefits is thus not a form of access to consideration, and rather, is the consideration itself. One might ask why a medical service provider would ever choose to accept an assignment of benefits in lieu of the right to bill a patient for 100%.
There are many reasons why assignment is still an attractive option, and have already been discussed. First, there is the certainty of payment. Next, there is promptness of payment. If the provider bills the patient, the provider must pursue said patient for payment. This entails debt collection activities, unearned interest on unpaid bills, costs of pursuit, and extreme administrative costs inherent in the billing of many individual billable parties. Compare that to a scenario where the number of billable parties is reduced to a much smaller group of insurance carriers. These carriers are much more likely to pay than individual patients (eliminating debt collection costs). These insurers will pay promptly as well, meaning the funds will find their way into the provider’s account quickly and efficiently. Finally, the carrier’s pockets are no doubt deeper than the patient’s, should a dispute arise or a substantial amount be due.
There are those who feel that billing the insurer directly, via an assignment of benefits, and then balance billing the patient for the difference are no different than billing the patient for the full amount. This is because the patient will submit the bill to the insurer, just as the provider does in the assignment of benefits scenario, receive whatever the insurance carrier deems is the fair market value for the services, and the patient will then be responsible for the difference. Regardless of who bills the insurance, and who the insurance sends the check to, the insurance pays what it pays, and the patient owes the balance.
The difference, however, boils down to reliability and ignorance.
Reliability: Providers know that many patients will take their insurance payment, and use it elsewhere – failing to pay their medical bills. Unlike patients, however, insurance carriers have deeper pockets and are more reliable. No insurance carrier will use the money to buy a new pickup truck! Providers don’t want to chase patients for payment. The purpose of balance billing is to get patients to call their human resources departments and health plans to push them to settle the claim by paying more since it doesn’t come out of the patients’ pockets. That is until it’s time for premium renewal!
Ignorance: If patients actually see the bill, they will compare prices, seeking to obtain medical services for the amount their insurance will pay them (or less) so that the patient will not be out of pocket any costs. Looking at automobile insurance as an example, an insured will accept payment of the fair market value for damages suffered to their car in an accident. That insured is then incentivized to find the least expensive mechanic to fix the damage, so that the insured will not have to pay anything additional out of pocket, and if the mechanic is frugal enough, the insured may even be able to pocket some excess benefits. Mechanics, in turn, see the way the wind is blowing – the insured has skin in the game, and is shopping around for the best price – and in turn develops new, more efficient ways to do business, so that prices can stay competitive in that market.
Given the choice of an AOB or pursuing the patient, as payment in full for services rendered, most providers will no doubt select the former over the latter.
So, now that we have established how valuable AOB is to a provider, let us ask why a benefit plan can’t use that advantage to negotiate with a provider for better rates, rather than rely on a PPO.
Attorney Force, speaking for providers, wrote that a “disadvantage of becoming an in-network provider is that the healthcare practitioner is forced to accept very low reimbursement rates…” What? From the payer side, it seems as if providers are inflating rates many times beyond the fair market value, and then offering a pitifully small discount. Can it actually be true that providers believe the inflated rate they charge is fair before the discount is applied? Attorney Force goes on to say that, “the contract provisions are typically one-sided, favoring the health insurer.” Really? We say the same thing about them, which makes us think that maybe… just maybe… something is being lost in the process.
If the Provider thinks the Plan is getting the better deal, and the same can be said visa-versa… why are these parties entering into the agreement in the first place? Why aren’t their grievances being aired? The reason is because the Plan and the Provider are prohibited from communicating with each other by the PPO.
The sad fact remains that premiums for employer-sponsored insurance, which had been rising at a modest pace, is on the fast track again. Overall, the increase dwarfed the rise in wages and general inflation. The single largest reason for the increased cost of health insurance is the rising cost of health care. Rising health care costs were the primary motivating factor in the passing of health care reform in the first place, but so far it has not reduced the cost of care; in fact, it has helped increase it. Nothing currently happening in the PPO world will change any of this and that’s the sad truth.
It seems that Providers understand this issue, as Attorney Force wrote, “more and more healthcare practitioners are deciding to go out-of-network.” “The obvious benefit,” he goes on to say, “of being an out-of-network provider is that reimbursement rates typically are higher than that of in-network providers.” If Providers prefer to control their charges as out of network providers, why should benefit plans not apply the same mentality and control their rates of coverage by paying in accordance with their plan documents, and treating all claims as out of network? If a provider is out of network, and they really do value AOB, they may be willing to negotiate with the Plan for AOB, rather than see the Plan pay the Plan Participant (Patient) directly. Once the money is in the hands of the patient, it is as good as gone… and the Provider knows it. So, if the Provider wants to get out of the PPO and have more control over their charges, and the Plan can negotiate for a better deal using exclusive steerage and AOB as bargaining chips, what is keeping them from just making it happen?
That’s a good question… a tough one to answer… and one you might want to discuss with your local healthcare service providers.
Comments