Payors have begun to take internal steps to avoid the “phantom charges” they claim are being billed by out-of-network providers……………...
The Out-of-Network Battle Heats Up
Vol. 11 No. 1
Emma Mata, Seyfarth Shaw LLP, Houston, TX and, Jonathan Ishee, Vorys, Sater, Seymour and Pease, LLP, Houston, TX
Background
The provision of healthcare services by providers who are not participating in a health benefit plan’s network continues to expand as providers are either unable to become participating providers in a payor’s network or purposefully adopt an out-of-network strategy due to actual or perceived low reimbursement rates. This move to provide healthcare services outside of a payor’s network and the resulting waiver of the patient’s portion of financial responsibility associated with receiving out-of-network services by the provider has heightened payment disputes between payors and providers. This article examines recent legal action related to this dispute between providers and commercial payors.1
The underlying issue in cases such as the ones discussed below center around coinsurance payments or the percentage of charges for the “covered expenses” that an insured person is required to pay under the plan. The payors’ position is that patients should not be enticed to seek treatment from out-of-network providers with a promise that their coinsurance will be waived or reduced, also known as a “discount program.” The providers’ position is that offering discounts to the patients is not an unlawful practice and that nothing in the patients’ insurance plans allows the payors to pay less than the amount billed by the out-of-network provider. These providers insist that such discount programs are appropriate and that payors should pay the full amounts charged. In response, payors have begun to take internal steps to avoid the “phantom charges” they claim are being billed by out-of-network providers.
North Cypress Medical Center v. CIGNA
North Cypress Medical Center Operating Company, Ltd, et. al. v. CIGNA Healthcare, et al. illustrates this point. North Cypress Medical Center (“NCMC”), an out-of-network provider, implemented a “prompt pay discount program” whereby qualified patients who paid for and maintained out-of-network benefits in their health plans and agreed to promptly pay were only required to pay a discounted amount of coinsurance.2 NCMC would then bill CIGNA the full amount of the service provided and would receive payment in full.3
CIGNA’s response to NCMC’s prompt pay discount program was to implement a “fee forgiving protocol,” which paid providers based upon what the provider actually billed the patient as opposed to the charges billed to CIGNA.4 Under the fee forgiving protocol, CIGNA would not pay for out-of-network services in which a patient’s portion of financial responsibility had been waived or reduced. CIGNA asserted that the “fee forgiving policy” is allowed by the plain language of the plans, which states that no payment will be made for charges which the insured is not obligated to pay or for which the insured is not billed.5 Thus, CIGNA based the amount that was paid to the provider on the amount that was charged to the patient by the provider. For example, if a patient had a 60/40 plan where the patient is responsible for a coinsurance payment of 40 percent of the charges for out-of-network services and CIGNA responsible for the other 60 percent and the patient was only charged $100 (as coinsurance) by the provider, CIGNA would pay $150 to the provider (or 60 percent of $250).6
NCMC filed a lawsuit against CIGNA to recoup in excess of $40 million.7 NCMC alleged that it was not paid as a result of CIGNA’s fee-forgiving policy.8 Like other similar cases, NCMC’s allegations included federal law claims under the Employee Retirement Income Security Act (“ERISA”) and state law claims for breaches of the Texas Insurance Code.9 In response, CIGNA filed counterclaims for fraud, negligent misrepresentation, and unjust enrichment in an attempt to recover fees that had been previously paid to NCMC.10
The federal district court dismissed both NCMC claims and CIGNA’s counterclaims11 and both parties have pending appeals in the United States Court of Appeals for the Fifth Circuit.12
The district court made two significant rulings:
(1) NCMC did not have standing to bring its ERISA claims because the claims were brought as assignee of the patients and since NCMC has excused the patients from paying the amounts charged to CIGNA, the patients did not have an “injury in fact” or a threat for actual or imminent injury and NCMC did not have standing for the underlying suit;13 and
(2) CIGNA’s interpretation of the plan language was correct and therefore CIGNA was entitled to pay the providers amounts based upon what the patients were paying (the “fee forgiving policy”).14
Similar cases have filed in other jurisdictions reached the same conclusion.15 In these cases, civil causes of action commonly raised by payors include: fraud, unjust enrichment, money had and received16 and healthcare fraud.17 For example, in Kennedy v. Connecticut18 the Seventh Circuit upheld the non-payment of claims to an out-of-network provider who routinely waived the patient’s out-of-network responsibility. Cases such as NCMC continue this line of thinking as well as signal a more aggressive stance of payors involving out-of-network arrangements.
Conclusion
As the healthcare reimbursement landscape changes due to the shrinking of traditional fee-for-service reimbursement rates or the inability (or unwillingness) of providers to participate in a payor’s network, these types of disputes will only continue to grow. Due to the lack of case law and administrative rulings on this subject, since the majority of these cases are settled out of court, only time will tell if payors or providers will prevail.
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