Lawsuit highlights one risk associated with reference-based pricing models: balance billing…..
New Virginia Case May Set Precedent for Future Referenced-Based Pricing Lawsuits
Author – Liz Mann
Email – Liz.Mann@integrogroup.com
Self-insured health plans implement referenced-based pricing structures to reduce plan costs and encourage plan participants to use more cost-efficient providers. Referenced-based pricing uses a fixed cost amount that the health plan pays for particular healthcare services and procedures. This encourages providers to offer services that typically vary substantially at more competitive rates. Reference-based pricing health plans also incentivize plan participants to shop for providers that offer procedures at or below the health plan’s reference price, so that the plan participant pays no out-of-pocket costs. A residual effect of reference-based pricing may be increased pricing competition in the healthcare marketplace. Accordingly, the reference-based pricing health plans achieve cost reductions to self-insured plan sponsors, while plan participants realize minimal or no disruption to their overall healthcare service and procedure quality.
The Virginia Supreme Court case, Glenn Michael Dennis v. PHC-Martinsville, Inc. t/a Memorial Hospital of Martinsville & Henry County, may set a precedent that changes how and whether self-insured plan sponsors implement and use this innovative cost reducing health plan model. The lawsuit highlights one risk associated with reference-based pricing models: balance billing. Balance billing comprises the practice of a healthcare service provider accepting payment from the insurance plan provider and then billing the patient/plan participant at full price for the unpaid balance. Balance billing is permissible because the provider and insurer do not have a negotiated contract that guarantees a preset discount off of the hospital charge master. Hospitals rarely practice balance billing when referenced-based pricing does not cover the total procedural cost for two reasons. First, charging a patient for services after receiving some payment can become a public relations debacle. Second, the parties – the provider, the self-insured’s third-party administrator (“TPA”), and the patient – typically resolve billing issues via negotiations. Although rare this does not mean that balance billing cannot and does not occur.
In the previously mentioned case, an $84,000 balance bill occurred because Glenn Dennis (“Dennis”) underwent a cardiac catheterization procedure at Sovah Health Martinsville (“SHM”). Dennis signed a “Consent for Services and Financial Responsibility” that stated, “in consideration of the services to rendered to him, he was obligated to promptly pay the hospital in accordance with the charges listed in the hospital’s charge description master.” Dennis received a bill from SMH for the charge master’s service price of $111,115. Dennis, along with his employer’s, Carter Bank & Trust (“Carter B&T”), self-insured plan, paid $27,254 to SMH. Carter B&T’s TPA then attempted to negotiate with SMH to accept the payout as a payment in full. SMH declined and balance billed Dennis for the remaining $83,861.
Attorneys for Carter B&T filed for a declaratory judgement stating that, because 25 percent of the charge master rate is accepted as full payment from uninsured patients, the hospital should not pursue any additional payment from Dennis. Carter B&T and Dennis also argued that he did not assent to the contract because he signed the Consent while sitting on a hospital bed preparing to undergo a life-saving procedure. SMH reasoned that the balance billing is valid because they have no negotiated contract for reduced rates with Carter B&T’s self-insured plan. Plus, SMH argued that when Dennis signed the Consent, he contracted to be liable for the full charge master price. The Virginia Supreme court opinion held that Dennis was an insured patient, and reversed the lower court’s opinion that the contract lacked assent, and sent the case back to the lower court to decide if any of Dennis’ affirmative defenses could relieve him of the $83,861 charge.
Although nightmare balance billing scenarios like in Dennis v. SMH case are rare, they do occur and may be preventable. Considering some best practices and steps may allow self-insured employers to avoid balanced billing fiascos like the case above. Best practices and steps to consider that may avoid balance billing problems include:
Being very careful to set a reference price that would be accepted by a reasonable number of quality providers in the geographic region;
Working with TPAs to conduct a network disruption analysis to determine whether a significant number of plan participants have historically used providers who would charge significantly more than the planned reference price;
Ensuring that the reference price remains one that is accepted by an adequate number of quality providers in the area by working with their TPAs or other consultants to continually monitor the market conditions in the geographic area;
Fostering greater provider choice while protecting the plan from the excess costs associated with participants who chose more expensive providers;
Communicating changes in the reference price and updating the list of providers willing to accept the reference price;
Treating providers that accept the reference price as the only network providers for only those services where participants have enough time to make an informed choice of provider. For example, reference-based pricing should not be implemented for emergency services.
Clearly communicating to participants how the reference-based pricing design works and what charges are included in each reference price;
Offering an easily accessible exceptions process when access to a provider that accepts the reference price is unavailable, or would compromise the quality of services for a particular individual; and
Emphasizing to participants the importance of determining whether the provider would accept the reference price before they receive the procedure, so as to avoid unexpected out-of-pocket costs.
Health plan administrators may decide to implement best practices like the ones mentioned above to help avoid balance billing issues that may occur with reference-based healthcare plans. Plan participants who receive balance bills should contact their health plan administrators immediately and consider seeking legal counsel.