In and of itself, out-of-network billing is a perfectly legitimate practice. While there are no laws against billing services you've provided to insurance companies with whom you don't have a contract, here are five reasons to think twice about the practice.

Insurers penalize patients
For patients, out-of-network means out-of-pocket. Most insurance plans try to make seeking out-of-network care as unattractive as possible for their enrollees. Your facility might benefit from out-of-network cases by billing for higher amounts than typically found in contracted fee schedules, but your patients pay the price.

Insurers almost always make patients responsible for much higher out-of-pocket expenses when they go out of the network. If a patient has his surgery at an in-network facility, there may be no deductible, and the insurance company pays 90 percent of the facility fee - up to $1,500 - with the patient responsible for the remaining 10 percent. If the patient goes out-of-network, that same plan may hit the patient with a $500 deductible and pay only 60 percent of the facility fee, with the other 40 percent on the patient's shoulders.

It's hard to routinely wave the out-of-network penalties
Some facilities sidestep insurers by routinely waiving patients' co-insurance and out-of-network penalties. You might put your facility at risk if you do so. Some state and federal laws prohibit facilities from routinely waiving them. The co-payment is a tool that insurers use to control costs, a part of the contractual agreement between insurer and enrollee. Insurers also are more likely to scrutinize your billing claims and supporting documentation if you waive co-payments - so you'd better have your ducks in a row if you want to get paid.

In addition, some states have very specific statutes that make it virtually illegal to waive any out-of-network penalty. Some address this in their anti-kickback statutes and consider routine waiving of out-of-network penalties an illegal inducement to use your facility. Other states have vaguely worded laws that leave the interpretation up to the discretion of their state insurance commissions and other regulatory agencies. They might view waivers as non-standard pricing because, in essence, you charge patients different fees depending on what health insurance plan they have.

Is waiving of out-of-network penalties ever permissible? Yes, under these specific circumstances: The insurance company has no presence in your community, your facility only treats occasional out-of-area patients or you're in the midst of negotiating a contract with an insurer.

Waivers can be considered insurance fraud in some states
Each state has its own laws addressing insurance fraud. Fraudulent practices include submitting a claim to an insurance company for reimbursement when that claim includes false or misleading information. It might be considered fraud when a non-participating provider submits a claim for full payment of services without advising the insurance carrier of its intent to adjust off the patient's co-insurance and penalties. Knowledge that you plan to write off the difference and not collect your full fee is what makes this fraud - you should have submitted the claim for only the amount you expect to be reimbursed.

Here's an example. Suppose you submit a claim for $2,400. Billed out-of-network, the insurer only covers $1,140 (60 percent of the charges, less a $500 deductible) and the patient now owes $1,260 (40 percent plus the $500 deductible). This is potentially fraudulent billing, because you submitted a $2,400 claim for which your expected reimbursement was only $1,380.

How do you avoid this? Contact the payer by certified mail, stating you plan to waive out-of-network penalties and request a response acknowledging your intent to waive these penalties. Clearly mark your claims "patient's out-of-network penalty waived." Even when following this plan, be aware insurance companies may still discourage your facility from treating their patients out-of-network.

Medicare frowns on it
Don't routinely waive nor advertise that you waive Medicare co-payments; CMS considers this an inducement for Medicare patients to use your facility. You can waive certain co-payments on a case-by-case basis, but only if the patient has financial hardship and meets your facility's charity guidelines or if you can prove you've made every reasonable attempt to collect and have been unsuccessful.

Out-of-network billing is getting a bad reputation
There's getting to be a certain guilt by association with perceptions of out-of-network billing because some associate the practice with highly publicized examples of shady or downright illegal billing practices - blatant penalty-fee-waiver inducements to build volume, greatly inflated billing claims for providing out-of-network surgical care and, most flagrant of all, rent-a-patient schemes (see "Inside the Rent-a-patient Scam," August, page 82).

Every now and then
As you can see, treating patients covered by health plans you're not a provider for is fraught with pitfalls. While your facility won't suffer any harm if you accept the occasional out-of-network case and follow the rules, you clearly don't want to rely heavily on these cases.