More and more ASCs are canceling contracts with health plans, only to perform surgery on the plan's members and bill as out of network. Historically, ASCs functioned as out-of-network only if they couldn't obtain contracts with payers. Not surprisingly, these arrangements are coming under increased scrutiny.

Potentially more profitable
When an ASC that has a contract with a preferred provider organization (PPO) provides services to that payer's members, the ASC has contractually agreed to receive a percentage (usually 80 percent to 90 percent) of a negotiated rate from the payer. The rate is typically much less than the ASC's normally billed charges. The ASC bills the patient directly for the deductible and for the in-network co-pay (usually 10 percent to 20 percent of the reduced rate).

Going out of network may be more lucrative. If a health-plan member goes to an out-of-network ASC, the payer has typically agreed in its contract with the member that the payer will pay a lower percentage than the in-network number, and the member is responsible for the remaining percentage. Typically, the breakdown is 70 percent payer, 30 percent member. However, this lower percentage paid by the payer is applied to the ASC's billed charge. Since the ASC is out-of-network, the payer doesn't have an agreement with the ASC, so there's no negotiated reduced rate.

Thus, the out-of-network ASC can bill the payer for more money. And although the ASC receives a smaller percentage than that received by in-network providers, it's a smaller percentage of a much higher amount. The result: reimbursement from the payer that's significantly more than what the ASC would have received from both the payer and the member if it were in-network.

Dollars and cents
Here's how out-of-network billing results in higher reimbursements to the ASC.

• Say a payer covers 90 percent of in-network charges and 70 percent out-of-network.
• An ASC could contract with the payer for reimbursement of $1,500 for the facility fee for a procedure. However, the ASC might bill $6,000 for that same procedure if a contractually reduced rate with the payer doesn't exist.
• Therefore, the ASC's out-of-network reimbursement from the payer would be $4,200 (70 percent of $6,000), almost three times more than the $1,500 it would receive from both the payer and patient if the ASC were a contracted provider.

While this differential in the billed charges may seem exaggerated, it's often even larger with many ASCs. So going out-of-network would appear to be a huge financial victory for the ASC, but it leaves the patient responsible for a larger percentage of a higher billed charge - $1,800 (30 percent of $6,000), instead of $150 (10 percent of $1,500). Some ASCs avoid this substantial incremental cost to the patient by waiving the co-pay or deductible or by not aggressively pursuing patients for payment.

A lesson on the laws
What many out-of-network ASCs don't realize when explicitly (or implicitly) waiving or not aggressively pursuing co-pays or deductibles is that myriad federal and state laws are potentially implicated. The Office of Inspector General (OIG) of the Department of Health and Human Services made it clear in a 1991 special fraud alert that routinely waiving Medicare co-payments and deductibles (in the absence of documented patient financial hardship) could violate the federal Anti-Kickback Statute. In addition, several states' laws could consider such waivers violations of state anti-kickback laws.

Even in the absence of specific prohibition, many states could consider waivers to constitute false claims, deceptive billing, insurance fraud or statutory fraud, unless the ASC clearly discloses the waiver to the payers. If properly disclosed, a payer could deduct the amount of the waived co-pay from the billed amount, and the payer's percentage would be applied to the resulting reduced amount. However, in the absence of disclosure, a payer could claim it's been defrauded.

Also, the regulatory stakes of the out-of-network strategy have gone up. The OIG revealed that it is concerned about providers' inflating charges and not making real efforts to collect the patient's portion of the charge. An OIG representative suggested that the agency would likely be increasing efforts to discourage this activity.

To avoid these and other legal risks, many ASCs take the position they aren't actually waiving the co-pay or deductible. ASCs often believe they can demonstrate through billing statements that they're pursuing the claim. However, payers or the government could take the position that an implicit waiver exists - and that what matters isn't the number of billing statements sent, but rather the percentage of billed co-payments actually collected and the type of post-billing collection efforts (including reporting to credit agencies) implemented.

Payers not waiting to act
Rather than waiting for potential regulatory enforcement to curtail out-of-network arrangements, insurers in some states are taking action to enforce state false-claims laws against providers who routinely waive co-pays and deductibles and who fail to disclose the waiver to the payers. Payers may also begin to change their member plans to cap the dollar amount (in terms of actual dollars or a percentage of the Medicare fee schedule) paid when members go out-of-network, leaving the member responsible for any difference between the cap and the amount billed by the ASC. It's unclear how the payers' members will respond if the payers change the health plans in this manner.

Clearly, going out-of-network may provide an opportunity for ASCs to boost short-term revenues. However, payers are working to diminish the economic benefits of doing so. Any ASCs that decide to pursue an out-of-network strategy are well advised to obtain appropriate legal guidance to navigate the myriad applicable laws.