Issues with Providers Working Out of Network

Strategic Enhancements in your Urgent Care CenterWhen it comes to using the out of network model, most ASCs are able to realize a certain sense of autonomy that in-network facilities don’t, according to Jason Ruchaber, managing director with VMG Health says  Although the benefits of working out of network are apparent, there are also some major risks involved that providers need to keep a sharp eye on.  The Ambulatory M&A Advisor discusses some of the risks that out of network providers may face and how these risks can impact future deals should they decide to sell the business.

According to Ruchaber, the primary benefit to working out of network is autonomy, providing freedom not just from the payors, but a lot of it is in terms of the devices the ASC uses, the patients they serve, and the physicians they associate with.

However, although Ruchaber discusses the main freedoms of operating out of network, John Barry and Gary Herschman, partners of Epstein Becker Green say that there are some current risks that providers face when operating out of network and providing patients with waivers for their insurance co-pays and more.

Ruchaber says aside from legal situations, one of the risks involved has to do with the fact that an out of network center typically loses out on access to certain pools of patients.

“This is largely the result of commercial payors placing pressure on referring physicians and the patient’s desire to minimize their out of pocket costs by remaining in-network.  This may be exacerbated with the surging trend towards transparency in pricing, and as patients become more and more aware of and responsible for the costs of their healthcare, patients may be less willing to seek care that could cost them more out of pocket.  Despite this potential risk, that same transparency could serve to present opportunities for out of network centers” Ruchaber says.

Ruchaber says that under the current payment model, patients are largely indifferent and uniformed about the true costs of their medical care.  They pay a fixed co-pay for a procedure, which may be waived or partially offset in the case of an out of network center, and they don’t really care about the costs beyond that.

“Moreover, there’s really not a lot of understanding from the patient perspective about what they’re getting from an out of network center versus an in network center. With increasing price transparency and greater patient responsibility for cost, patients are going to start asking why prices vary from one center to the next. I think that if out of network centers can differentiate themselves in terms of the overall patient experience and the quality of care, there’s going to be a market for that,” he says.

Barry says that providers, and particularly those such as hospitals with outpatient surgery centers and also independent ASCs, have consistently come to him in recent years looking for guidance regarding the obligation to bill and collect patient responsibilities for out-of-network claims – whether it be patient co-pays, deductibles or co-insurance.

“If providers desire to waive or forgive these patient responsibilities, this becomes of particular concern as we have seen more and more insurers actually pursue providers as a result of these waivers, under various different types of claims, including claims for fraud,” Barry says.

Herschman says the insurance company’s theory is that even though the provider doesn’t have a contract with the payor, they believe that in light of their contract with the beneficiary, it is required for the beneficiary to pay it, and because the provider knows that there is the contract where the beneficiary is required to pay as their contract is intended.

“Let’s say a provider’s full charge is $10,000 for a particular procedure; a payor pays the agreed upon rate in the patient’s plan, and the patient pays the co-pay.  If the patient goes out-of-network, things change: the payor marks down the charge to what it claims is “usual, customary and reasonable” (UCR) and then pays a percentage of the UCR as set forth in the plan, with the patient being responsible for a much larger percentage of the charge.  For example, a provider may only cover 60% of a service provided out-of-network (as opposed to 80% for in-network services), and the beneficiary will be responsible for the other 40%.  However, if a provider has a policy of not pursuing the 40% from the beneficiary, the alleged theory is that submitting this claim for $10,000 to the insurer is false, because $10,000 is not really the true amount that the provider is seeking for the service (its really $6,000),” Herschman says.

Barry says the waiver of patient financial responsibilities can involve both state and federal laws.  Most states have specific laws on insurance fraud which prohibit anyone from submitting a claim to an insurer that is false or misleading.

“Also on the state law side, claims for tortious interference can be brought.  Even though for out-of-network claims the provider doesn’t have a contract with the insurer, there is a contract between the insurer and the beneficiary (or usually with the beneficiary’s employer). Such agreement incentivizes a beneficiary to be treated by an in-network provider by way of making a beneficiary responsible for more of the charge when a patient goes to an out-of-network provider;when the provider doesn’t enforce the patient co-payment amounts or deductibles for out-of-network services, the alleged theory is that the provider is negating or interfering with the financial incentives that are built into the contract between the insurer and the individual.  The provider can be alleged to be improperly interfering with that agreement, even though the provider is not actually a party to that agreement,” Barry says.

Barry says an insurer usually has an agreement with an employer or the individual themselves to provide coverage.  Those agreements are structured in such a way where they provider financial incentives for the patients to go to in-network providers.  They want people to go to in-network physicians that have an agreement with an insurer for a lowered amount covered.

Herschman says that as far as most of the co-payment policies he has put together for ASCs and other providers, his recommendation to be in a comfortable (lower risk) zone is to not routinely waive co-payments for out-of-network services.

“The only exception is if you do routinely waive co-pays, set forth in your policy that this should be disclosed to insurers.  For example, when you first start billing the insurer, you can disclose in a letter your policy of routinely waiving co-pays, or you can disclose it on every claim you submit,” Herschman says.

“The other thing that they could do, is they could have a financial leave policy where they adopt the policy that people fill out a form and provide information of their inability to pay co-pays and they wont even bill it in the first place.  You can’t just have everyone fill one out and say they are all approved.  You need to have a policy; it’s on a case-by-case basis, not across the board.”

However, if the provider doesn’t routinely waive co-pays,they still need to have a policy in place stating this, and there are two essential components to this compliance policy.

“Number one is that you do submit bills for out-of-network co-pays and you document that you have made two or three attempts to collect over a 90 day period.  As long as you have a clear policy, and you document that you have made reasonable (and “bona fide”) attempts to collect,a provider doesn’t haveto resort to utilizing a collections agency or bringing a legal action against a person – you can just write it off. But, you cannot tell patients in advance to ignore the bills and that the amounts will be written off – this would not be “bona fide”,” Herschman says.

The second key aspect of the policy is a financial need-based review,pursuant to which patients can fill out a form and provide information of their financial inability to pay co-pays, which the provider can assess and then make a hardship determination as to whether to waive co-pays.

“This must be a legitimate policy – you can’t just have all patients fill out a form and say they are all approved.  You need to have a policy; it must be done on a case-by-case basis, not across the board, and decisions must be based on “real” financial need,” he says.

Barry adds that in all of the recent law suits that have been brought by insurers against providers, all of them deal with across the board waivers.

“There is nothing out there to say that providers can’t take into a patient’s individual, financial needs on a case-by-case basis.  They would need to integrate a financial needs policy in conjunction with their regular, traditional policy of collecting all patient amounts due,” Barry says.

Barry adds that there are really three different parts to the issue.  There is the idea that providers seem to be more aware if the claim involves a Federal and State payor like Medicare and Medicaid.  That involves specific sets of laws such as the anti-kickback statute, the Stark law, etc.  Sometimes they think in the out-of-network context, that that doesn’t involve any claims submitted to a Federal or State payor and their risk is lessened.

“Where these claims don’t involve those issues, there is still great potential liability for providers.  Providers also think that although they are submitting a claim to a commercial or private payor, if they do not have a contract with them, they are not bound by their rules,” Barry says.

“It is true that if a provider is in-network, pursuant to a provider’s contract with an insurer, they are bound to go after patient responsibility for services.  If  a provider were to waive patient co-payments for in-network services, the insurer could have a claim against the provider as a breach of contract claim.”

If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or

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