Several recent legal actions involving payors and providers are shaking up the out-of-network model of reimbursement. Ambulatory surgery centers may end up benefiting from these seismic shifts, but they'll have to stay on their toes. Here's a rundown of the issue.

Root of the issue
Some ASCs are locked out of participation and simply have no choice but to treat patients on an out-of-network basis, such as physician-owned facilities in markets heavily penetrated by managed care organizations or in competition with local hospitals that have sewn up exclusive contracts with insurers. Other ASCs, however, rely on out-of-network reimbursement voluntarily, having found that they fare better economically outside the restrictions of managed care organizations.

These centers need to keep their eyes open, as managed care payors have tended to aggressively target ASCs that engage in out-of-network billing with such tactics as:

• attempting to remove physician-owners from insurance panels for referring to out-of-network facilities;
• accusing ASCs of committing fraud in charging different usual, customary and reasonable charges (UCR) for out-of-network patients and patients paying out of pocket;
• arguing that ASCs interfere with their networks by enticing patients away with waived co-pays; and
• rendering out-of-network practices untenable by unilaterally setting certain procedure payment rates so low, they don't even cover the cost of implants.

Their tactics in action
Two recent lawsuits illustrate the ways in which managed care payors attack surgery centers that bill out of network.

In Garcia v. Health Net of New Jersey, Inc., an ASC and its surgeon-owners sued a managed care plan, charging that it had improperly denied renewal of the surgeons' individual provider contracts. While the surgeons had been in-network, their center had not. Patients were required to sign legal acknowledgements of their obligation to pay their insurance plans' deductibles and co-insurances, which the center didn't bill for or collect.

As you may recall, Health Net countered that the center and its owners had committed insurance fraud by submitting claims that violated New Jersey's anti-referral statute (the Codey Law) and by neglecting to reduce charges despite routinely waiving out-of-network patients' co-insurances. It also alleged tortious interference with its subscriber contracts, arguing that the center attracted patients by promising to waive co-insurances. (The court dismissed Health Net's charges, though the company has appealed. Oral arguments are expected this fall.)

In a class action lawsuit against Blue Cross Blue Shield of Georgia, Inc., physician-owned ASCs assert that the insurer has slashed its out-of-network reimbursements by about 80%, to less than 20% of UCR rates, leaving surgery centers unable to provide services, exposing patients to overwhelming bills and effectively blocking patients from taking advantage of the bargained-for out-of-network benefits of their preferred-provider and point-of-service plans.

These charges appear difficult to refute. Patients pay higher premiums for PPO and POS plans with the expectation that they offer greater choice to see non-contracting providers. If an insurer renders that choice impractical through unreasonably low reimbursement rates, without notifying its customers, the contract has arguably been breached and the customer deceived, which violates the federal Employee Retirement Income Security Act as well as Georgia statutes prohibiting deceptive trade practices.

Leveling the playing field
After investigating allegations that insurers underpaid consumers and providers for out-of-network care, the office of New York Attorney General Andrew Cuomo confirmed them in a January 2009 report. Insurers misled consumers, Mr. Cuomo said, by promising to pay a percentage of UCR but instead using schedules compiled by Ingenix (a subsidiary of insurer UnitedHealth) that understated market rates.

The attorney general recommended the development of an independent database of UCR rates accessible to providers, payors and the public. Upon the report's release, UnitedHealth entered into a $50 million settlement agreement with the state to fund such a database and to close Ingenix. Several other insurers have since agreed to similar settlements.

The American Medical Association used this momentum to strike its own settlement with UnitedHealth on behalf of its member physicians, through which the insurer put up $350 million to reimburse patients and physicians who were short-changed by Ingenix or out-of-network policies. The AMA and several state medical associations have also filed suits against other insurers.

On the table
Given these developments, what course of action should ASCs take? First, you'll want to re-evaluate your stance on out-of-network reimbursement and whether it's to your economic benefit to adopt its strategies. We'll likely see an increase in the amount of out-of-network participation by ASCs nationwide as providers realize that, since payors are under greater scrutiny about their practices, the risks associated with the practice have decreased.

Reliance on such reimbursement tools as Ingenix must certainly be reconsidered. We recommend asking your state ASC associations about alternative means for determining the appropriate UCR for your cases. ASCs should also look to their state and national organizations for information on eligibility for receiving funds from any of the various settlements being reached or the possibility of participating with other ASCs in future class action lawsuits against payors.

Despite the legal developments described above, be aware that billing for out-of-network claims can still contain risks. For example, payors will still be rightfully concerned when you charge them a UCR that's not the rate charged to all of its patients, regardless of whether the patient has insurance. Also, payors and patients have the right to be fully informed when dealing with an ASC on an out-of-network basis. Will any co-payment required by the payors' plan be collected, for example? (We advise that it should.) Will payments from the plan be sent directly to the ASC (as we advise), or will they be sent to the patient for remittance to the ASC?

If you follow such out-of-network best practices, you and your physician-owners may find yourselves viewing the out-of-network model with an entirely new perspective.