OUT-OF-NETWORK Douglas Won, MD, speaks to a patient at his facility in Dallas, Texas. Dr. Won is an out-of-network provider.

With tales of $80,000 knee arthroscopies and $40,000 gallbladder removals, out-of-network billing has a less-than-stellar reputation. But some say it represents an opportunity for many surgery centers and hospitals to improve profitability. "You can generate higher — and frequently much higher — payments by being out-of-network," says John Bartos, CEO of Collect Rx, a company that maximizes reimbursements on out-of-network bills.

Volume-discount relationship
Network providers have agreed to accept the negotiated health-plan price as payment in full. Mr. Bartos says that being in-network works as a "volume-discount relationship," where insurance companies refer patients to providers in exchange for a contract with low reimbursements. For smaller centers and individual providers, companies usually hold the power over these contracts, he says.

"One of the issues that we came across was that insurance companies were getting way too big and powerful," says Douglas Won, MD, founder and director of Minimally Invasive SpineCARE and Star Medical Center in Dallas, Texas. The Star Medical Center is completely out-of-network; SpineCARE has both in- and out-of-network providers. "They give you a contract and you either take it or you don't. The cost of doing business keeps on rising, but the reimbursements are getting lower."

Here's a very basic example of how being out-of-network can increase reimbursements. A patient coming in for a knee procedure has insurance that pays for 90% of in-network costs, and 70% of out-of-network costs. You're in-network with that insurer and have a contract to charge a $2,000 fee for the procedure, but your pricing for the surgery without a contract is $6,000. If you're in-network with that patient's insurance, you'll receive a reimbursement of $1,800 (90% of $2,000), whereas if you're out-of-network you'd get $4,200 (70% of $6,000).

Some think these increased reimbursements come at the cost of losing patients. Not always true, says Mr. Bartos. "It's important to remember that ASCs get their patients from physician referrals and not insurance companies," he says. Dr. Won says that he did see a few fewer patients, but that his finances improved when he went out-of-network.

Most of the time the patient is on the hook for remaining charges. In the example above, the patient would owe the remaining $1,800 if out-of-network, but in-network he may have only had to pay $200. These charges could be even higher if he hadn't met his deductible yet.

There are different ways to combat this. You can charge patients as if they're in-network, although usually state laws require you to inform payors that you plan to do so. Or you can not actively pursue co-pays or deductibles and tell patients you'll collect what you can from their insurance, says Mark Manigan, JD, of Brach Eichler in Roseland, N.J. That, though, can land a facility in legal trouble, as some say it misrepresents a procedure's real cost. Mr. Manigan says out-of-network facilities should create a "consistent and compassionate" policy for collecting patient payments that doesn't involve "routinely waiving co-pays or deductibles."

Share of controversy
Out-of-network billing has drawn its share of controversy. In New Jersey, for example, reports surfaced of physicians whose practices were in-network allegedly "cherry-picking" patients to refer to the out-of-network ASCs that they partially owned. For physicians in this situation, Mr. Manigan says it's important to be "transparent" and open about the relationship with patients to avoid conflicts of interest.

Mr. Manigan says there are also a select few who have charged excessive fees that have drawn attention to out-of-network billing. These high fees routinely show up in news reports — like the $59,000 ultrasound charge and the $56,000 bedside consultation. He says that New Jersey and several other states have created laws to protect patients from huge bills when they visit an ER or hospital that's in-network, but end up being seen by an out-of-network provider. However, Mr. Manigan notes, while there have been some failed legislative efforts in New Jersey to limit out-of-network charges for ASCs, insurance companies can protect themselves by capping the amount of out-of-network coverage.

"Every once in a while you read that some ASC submitted an outrageous charge," says Mr. Manigan. "However, in most jurisdictions, the insurance carriers are free to design the benefits however they want to design them. The carriers can protect themselves."

Mr. Manigan says insurers are trying to restrain the out-of-network business by capping reimbursements and discouraging patients with higher co-pays and deductibles.

What to do next
If you're thinking of going out-of-network, here are a few things you can do to make the transition easier:

• Determine prices. Look at your local market's average fees, which can be done on databases such as Fair Health, and set your prices in the mid-to-higher end to maximize profitability, says Mr. Bartos. Be sure, he says, that prices are justifiable. Also, tell patients that it's possible that an in-network surgeon could perform their procedure, but that the anesthesiologist or radiologist could be out-of-network.
• Billing: in-house or third party? Whoever does your billing needs to have the expertise and resources, says Mr. Bartos. If using a third party, the company should work on a contingency basis, so the more money you earn, the more they earn. Dr. Won, who uses Collect Rx, says he found that using an outside company has saved money and time.
• Start slow. Pick a payor that only has a few patients who come to your center, terminate the contract and see how you do, suggests Mr. Bartos. Dr. Won says to be sure that when you terminate the contract it's "well-documented" and to "notify everyone that needs to be notified."
• Find what works. Look at the local payor and employer mix, comparable reimbursement levels for common procedures and the relative market share of your center compared to others, says Mr. Bartos. This can be done in-house or by an outside consultant, but it will help you determine which payors are worth contracting with and which ones aren't.
• Talk to a lawyer. While being out-of-network can be lucrative, there are legal risks, especially when it comes to how you handle patient payments, physician-ownership of the ASC and your fees, says Mr. Manigan. Laws vary among states, so talk to an attorney before adding out-of-network billing.