Editor’s Note: Litigators and in-house counsel for both payers and providers in the reimbursement arena should be aware of recently enacted legislation regulating “surprise” medical billing. In this article, we discuss some of those laws as well as the impact of similar legislation in New York and California from 2015 and 2016. (For more information, please see our previous articles on AB 72 and similar laws on surprise medical bill legislation here and here.)
What Is Surprise Billing—and Why Is the Issue Important?
For healthcare litigators, provider reimbursement disputes can be a significant part of the litigation mix. These cases involve both complex regulation and centuries-old common law, and they require the practitioner to maintain a deep and current understanding not only of the industry but also of ever-changing legislative developments.
With high out-of-network medical bills becoming a topic of nationwide debate in recent years, state and federal legislators have stepped in to alleviate some of the sticker-shock of the cost of hospital visits. The “surprise bill” scenario arises like this: A patient goes to an in-network hospital but receives treatment from a physician who is out of network (not contracted) with the patient’s health plan. The patient then receives a bill that may be only partially covered by the health plan. The patient is, as the name suggests, “surprised” to receive this bill because he or she may not have realized that a hospital that is contracted with his or her health plan may employ doctors who are not contracted.
The consensus seems to be that the patient should be protected from these types of surprises, especially if the patient is diligent in attempting to use in-network services to avoid excessive costs. Some provider groups,1 however, have opposed anti-surprise billing laws because they see them as misguided attempts to shift blame for rising medical costs to physicians. The opposition from providers generally focuses on payment “benchmarks” like those enacted in California and proposed in federal legislation. According to some provider groups, these benchmarks unfairly cap the amount of reimbursement and limit provider leverage in negotiating network contracts.
Nonetheless, in 2019, several bills aimed at curbing surprise billing were introduced at the federal level. The legislation stalled, largely because of opposition from physician lobby groups. Lawmakers have signaled that efforts will be renewed in 2020.
But two states—New York and California—had implemented their own versions of the anti-surprise billing law in 2015 and 2016, respectively. We are now beginning to see the impact of this legislation. Healthcare litigators in these jurisdictions should be familiar with the three aspects of surprise billing legislation:
1. Scope of the law: What does it cover?
2. Provider reimbursement: If the doctor cannot bill the patient, who pays and how much?
3. Procedural requirements.
California Surprise Billing Protection (Health and Safety Code Section 1371.9; Insurance Code Section 10112.8)
1. Scope
California’s surprise billing protection, commonly known as AB 72, applies to nonemergency care performed at an in-network facility by an out-of- network provider. In this scenario, the patient is liable only for the in-network cost-sharing amount of the doctor’s services and cannot be balance billed for the amount not covered by insurance. In addition, if the physician does bill the patient anything other than the in-network cost-sharing amount without obtaining written consent, and the patient pays, the law requires that the doctor refund the money with interest. (Notably, the law does not apply to emergency treatment. This makes sense given that emergency room physicians in California are prohibited from balance billing patients, which eliminates the potential of a “surprise” bill.)
2. Reimbursement Scheme
In the above scenario, and unless otherwise agreed to by the health plan and physician, AB 72 caps payment of the physician’s bill to the greater of 125% of Medicare or the average in-network contracted rate for services rendered.2
In addition, if the out-of-network provider obtains consent from the patient to use the patient’s out-of-network benefits, the plan is liable only for the amount set forth in the patient’s health plan, not the full charge.
The law also sets up an arbitration-style independent dispute resolution program (IDRP) that allows a physician or health plan to dispute whether payment of a specified rate was appropriate. While the IDRP is considered binding on both parties, the act expressly permits subsequent court action if any party is dissatisfied with the result.
Since the law was passed in California, the IDRP has been infrequently used. Only 69 total applications were submitted since 2017, with the majority ruled ineligible for various reasons. This is likely because the IDRP is available only after the provider has exhausted the plan’s internal appeal process and, because of the reimbursement caps, is unlikely to result in a lucrative payment. The IDRP may consider the so-called Gould3 factors to determine the appropriate reimbursement.
3. Procedural Requirements
AB 72’s provisions apply automatically and no action by the patient is needed. If the physician wishes to balance bill the patient, he or she must obtain written consent that includes an estimate of the total cost to the patient at least 24 hours before treatment.
New York Surprise Billing Protection (Financial Services Law, Section 601 Et Seq.)
1. Scope
New York’s “surprise bill” protection is similar to California’s in that it protects patients who seek care at a contracted facility but where a noncontracted physician renders services. Like California, New York surprise bill legislation applies to nonemergency services only. New York, however, provides similar protections for patients who are billed for emergency treatment, including a prohibition on balance billing and an independent dispute resolution process. The law also applies if no contracted physicians are available at the contracted facility, even if the patient is aware of the physician’s status and is therefore not “surprised.”
2. Reimbursement Scheme
Unlike California, New York’s reimbursement policy does not specify a payment amount or otherwise cap reimbursement. Instead, the health plan has the right to pay what it considers to be a reasonable amount. If the provider is not satisfied, she or he must proceed to have the matter reviewed by the Independent Dispute Resolution Entity (IDRE). The result of the IDRE review is binding and admissible in court.
The IDRE employs a balancing test that includes several factors, including the usual and customary cost of the service. The act defines “usual and customary cost” as the 80th percentile of charges for services performed by similar providers in the same geographic area, as calculated by Fair Health (a nonprofit claims database). Recently released data show that under this system the IDRE awards physicians 88% of their charges on average. Even when the health plan “wins,” the average award is at the 69th percentile of physician charges.
Official reports show that the number of medical bills in New York’s dispute resolution system went from 115 in 2015 to more than 1,000 in 2018. These reports also suggest that the IDRE contributed to an increase in healthcare costs for New Yorkers.
3. Procedural Requirements
To be protected from balance billing, the patient must assign benefits to the provider in writing. If the patient does so, the physician cannot bill the patient above the patient’s in-network financial responsibility. In that case, both physicians and health plans can take advantage of the IDRE process.
Impact on Litigation
In California, a litigator representing a health plan in a reimbursement dispute must now consider whether the case falls within surprise billing criteria. While AB 72 is meant to apply to true “surprise” billing scenarios, the language of the statute is not restricted in this way. In fact, the statute does not address the patient’s knowledge at the time of treatment. The text of the statute applies to any situation where an out-of-network provider provides treatment at an in-network facility, regardless of whether the patient knows the provider is out of network.
This means that, in addition to the usual considerations, litigators should inquire whether the procedure was performed at an in-network facility. If so, the next step is to find out whether the provider obtained written consent from the patient to use the patient’s out-of-network benefits. In California, if the provider did not obtain written consent, the health plan must pay the greater of 125% of Medicare or the average in-network contracted rate.
If the case is not yet filed, litigators should consider applying for IDRP. If the case has already progressed to litigation, a dispositive motion should be considered on two grounds. First, the provider may have failed to exhaust administrative remedies because, under AB 72 criteria, the IDRP is mandatory before filing suit. Health plans also may request to stay the case pending the resolution of the IDRP. Second, after evaluating the allegations of the complaint, consider a dispositive motion on the ground that the health plan cannot be ordered to pay any more than the payment specified in AB 72.
What if the physician obtained written consent that is compliant with the requirements of the act? In that case, the physician can balance bill the patient, and the health plan must pay the amount set forth in the patient’s evidence of coverage. A dispositive motion may be considered on the ground that the plan already paid the amount set forth in the evidence of coverage, and the physician is not entitled to additional payment. The IDRP is not available if the patient gave written consent to be treated by the noncontracted physician.
Regardless of whether the physician obtained written consent, the health plan’s payment is limited under the law. In fact, no matter what metric is ultimately used—125% of Medicare, the average contracted rate or the amount set forth in the evidence of coverage—the resulting payment will likely be lower than standard full-billed charges in California.
If the physician did not obtain written consent, litigators should inquire whether the physician appropriately billed the patient. If the physician collected anything more than the patient’s in-network cost-sharing amount, he or she must issue a refund with interest.
Lastly, make sure the health plan issued the correct payment, whether it is 125% of Medicare or the average contracted rate. Beware of the scenario where the plan made a payment but later learned that the physician obtained consent to use the patient’s out-of-network benefits. In this case, an adjustment to the original payment will likely have to be made.
Litigation Update—California
Courts have yet to decide whether a physician who performed services falling within the ambit of AB 72 can recover from a health plan more than specified in the statute. So far there has been limited litigation activity surrounding AB 72.
In 2018, the Association of American Physicians and Surgeons challenged AB 72, asserting various constitutional violations, including due process, equal protection and takings, in the Eastern District of California.4 In that case, Judge England granted the Department of Managed Healthcare’s motion to dismiss.
Litigation Update—New York
In New York, an emergency medical group made a creative attempt to take advantage of the surprise billing law.5 In that case, plaintiffs argued that Aetna Life Insurance Company failed to reimburse plaintiffs properly for emergency services on the theory that Aetna impliedly agreed to pay the reasonable value of emergency services under New York law. According to plaintiffs, Aetna failed to pay reasonable value, defined by New York’s anti-surprise billing law as the 80th percentile of charges as determined by Fair Health.
The plaintiffs brought claims for breaches of implied contract and declaratory relief seeking an order that Aetna must pay at the rate specified in the surprise billing law. The court disagreed and granted Aetna’s motion to dismiss. The court reasoned that the plaintiffs’ case depends on Aetna’s failure to pay a rate specified in a statute for which there is no private right of action. So the court held that, because the plaintiffs could not untether their case from New York’s surprise billing law, they could not state a claim against Aetna.
1 Physician-affiliated groups that have spoken out against enacted and proposed legislation include the California Medical Association and the American Hospital Association, among others.
2 Studies by Milliman and the Medicare Payment Assessment Commission have shown that commercial health plans, on average, pay to out-of-network providers just over 125% of Medicare.
3 The Gould factors are codified in Title 28 of the California Code of Regulations, Section 1300.71(a)(3)(B).
4 Ass’n of Am. Physicians & Surgeons, Inc. v. Rouillard, 392 F. Supp. 3d 1151 (E.D. Cal. 2019).
5 Buffalo Emergency Associates, LLP v. Aetna Health, Inc., 2017 WL 5668420 (N.Y. Sup. 2018).