Physicians: Out-of-Network Service—A License To Steal?

It is not often that one is moved to sympathy for medical insurance companies, but a story in Bloomberg Businessweek by Peter Waldman illustrates how physicians have found a way to charge them exorbitant fees and get away with it. 

Most medical policies have strict rules about requiring members to deal with in-service physicians who charge fees defined by an agreement with the insurer. However, patients do not always become patients while in the service area, so the insurers must have some way of compensating doctors who are not subject to the defined fee schedule. This is referred to as out-of-network service. Doctors who are out-of-network can charge anything they wish to charge and the insurance company has the choice of paying it, or negotiating with the doctor, or going to court. It seems that some policies have generous terms for dealing with non-network expenses incurred by members. These insurers have become a target for doctors looking to make a financial killing.

We have encountered this before in More Healthcare Fraud: Insurers vs. Doctors. In that article we noted that Aetna was suing a cardiologist who was reimbursed $220 for a cardio evaluation for an incoming patient as a participant in the insurance plan. The same doctor left the plan and, according to Aetna, charged the insurer $56,980 for the same 25 minute service as an out-of-network provider.

This is serious business because this practice is becoming more common and the insurance company will just pass on these costs in the form of higher premiums.

The Businessweek article describes an outfit called Bay Area Surgical Management that has industrialized this process and has been raining money on the doctors who collaborate with them.
"Founded by [Bobby] Sarnevesht and his mother, Julia Hashemieh, Bay Area Surgical Management has marshaled decades of doctor rage against insurance carriers—and envy of neighboring tech tycoons—into a profitable business. Hashemieh, the boss of the operation, likens herself to Robin Hood, pursuing justice in a medical community seething with discontent. She takes from rich insurers, keeps 15 to 25 percent of the profits, and gives the rest to surgeons—whom she calls ‘the poor slaves’ of managed care. Her seven Silicon Valley surgery centers, plus an eighth in Doral, Fla., collect about $100 million a year in revenue, according to Sarnevesht."

The way the scheme works is a surgical center is formed and doctors are offered the opportunity to invest and become part-owners. As part-owners, it is expected that they will funnel patients to this surgical center which then charges out-of-network fees that can be many times the in-network fees. The revenue is then shared between Bay Area Surgical and the participating doctors. What does this mean in practice?
"By rejecting the discounted contracts that participating in-network providers sign with insurers, the surgery centers bill insurance companies at their own out-of-network rates, which are 5 to 25 times as much as those in-network facilities charge. They pay profits to some 60 surgeon-partners at rates of return that often exceed 200 percent a year. The doctors who buy into the centers get the return on their investments plus a fee for performing surgeries. Patients pay little—the chain sometimes waives or reduces their co-pays—and high-quality care keeps the chain’s reputation rock-solid."

The insurers seem to be willing to pay—at least up to a point.
"While insurance companies don’t pay all of the centers’ bills in full, they pay enough so that Hashemieh’s facilities typically collect four to seven times what participating providers receive for the same services, according to data cited by Cigna, and Aetna."

Aetna and others have had enough and are pursuing legal action.
"Fed up, Aetna sued Hashemieh and partners in February, claiming they gouge on rates, pay surgeons excessive compensation for referrals, and defraud health plans—that they threaten the possibility of affordable health care."

The physician collaborators are also being attacked on ethical grounds.
"Aetna’s separate complaint with the Medical Board of California could shut the centers down and jeopardize the surgeons’ licenses."

Do Aetna and others have a case? Waldman provides this background:
"The setup appeared to violate state and federal laws against physician kickbacks and self-referrals, which are designed to ensure that doctors don’t make medical decisions based on money."

Doctors are clearly directing patients to facilities in order to maximize their own income. Guilty as charged—right? Unfortunately, the law also complicates the issue.
"The law bars doctors from accepting any compensation, including free or discounted office space, in exchange for providing patient referrals. But these statutes do allow physicians to send their own patients to surgery centers they invest in, provided the doctors pay "fair market value" for their shares and only receive dividends in proportion to their ownership and "commensurate" to the value of the center’s services."

This will clearly be decided in favor of whoever has the cleverest lawyers. If it ever went to a jury to decide, one can feel comfortable that the citizenry would be outraged by this price gouging, and by the blatant self-interest of the doctors.

Of course, none of this would occur if we had a sane medical care system in this country. It seems we need to move to national plans so this out-of-network requirement need not be incorporated in an insurance plan. And we also need a national set of fees for services rendered. Hmmm. It turns out we have such a system. It is called Medicare. Why don’t we just put everyone in it and use the trillion dollars we currently waste every year on excessive services, excessive fees and excessive profits to pay off our national debt? So simple—why must it be so difficult?