Opinion: The ugly surprise of out-of-network doctors and ‘balance billing’

The New York Times’ Elisabeth Rosenthal offered an important lesson in healthcare economics over the weekend that’s a must-read for anyone about to undergo a major medical procedure.

Rosenthal’s piece explored how charges from out-of-network providers can magically show up on a hospital bill. She focused on one particularly nasty practice, called “drive-by doctoring,” in which physicians call in colleagues not in a patient’s network to consult or assist on a procedure. The out-of-network provider charges the retail rate -- in some cases, hundreds of times what the government would pay them for the same work, and invariably far more than what the patient’s insurer will cover. The provider then tries to collect the remainder directly from the patient, a process known as “balance billing.”

Sadly, patients have little protection against this sort of maneuvering -- at least at this point. The Affordable Care Act places an annual limit on out-of-pocket costs, but that cap doesn’t apply to out-of-network services. Here’s what I wrote about the gap in the cap in April:

“Once you reach it, your insurer will cover 100% of the cost only of the essential health benefits covered by the plan, and out-of-network services are exempt (except for emergency treatments). That’s a troubling thought, considering how many insurers are reducing the number of doctors and hospitals in their plans. These ‘narrow networks’ increase the chances that a doctor, therapist or clinic you’d like to use won’t be subject to the annual cap.

“More ominously, being treated at an in-network hospital is no guarantee that the specialists who see you there will be in your plan’s network as well. If there’s no emergency involved, you could be stuck paying the difference between the contracted amount and the specialist’s charges, even if you’ve hit the out-of-pocket limit. And the difference can be staggering: In one extreme example cited by the insurance industry, an out-of-network California pathologist charged $8,100 for a tissue exam for which Medicare reimburses $128.”

It’s bad enough that consumers who bought policies through the state’s new insurance marketplace, Covered California, have gotten erroneous or incomplete information about which doctors are in network. Even those who confirm before surgery that their physicians and hospitals are in network can wind up being billed by out-of-network providers they had no idea would be involved in their care.

Unfortunately, given how loath doctors and hospitals are to tell you in advance what they’ll charge, being forewarned about out-of-network charges may not lead to being forearmed. Rosenthal’s piece also warned that some physicians groups are using the out-of-network loophole to circumvent the billing limits they agree to when they sign contracts with insurers. It works this way: a patient chooses Dr. A to do the procedure at least in part because Dr. A is in network. But then Dr. A summons a partner who is out-of-network to assist on the procedure and bill at the considerably higher retail rate. The two later split the fees.

Rodger Butler, a spokesman for the California Department of Managed Health Care, said his office encourages people who are subject to “balance billing” to seek an explanation from the provider responsible, then ask their insurance plan for help. “If they are not satisfied with their plan’s decision, they can contact the DMHC Help Center for assistance,” Butler said, adding that the department has received about 70 complaints about balance billing so far in 2014.

The DMHC regulates the Blue Cross and Blue Shield plans, as well as other companies’ HMOs. The state Department of Insurance, which regulates non-prepaid health plans, has collected about 140 complaints related to out-of-network benefits, spokeswoman Madison Voss said in an email. The volume of complaints was much higher last year, when the Department of Insurance collected nearly 600.

At the heart of the problem is the incentive that the current system gives to providers to do as many procedures as they can and charge as much as possible for each one. The solution lies in changing that incentive.

One approach taken by CalPERS, a retirement fund for public employees that also covers retiree health benefits, is to pay a flat amount for certain common but expensive surgeries (in this instance, knee and hip replacements). The limit on coverage drove CalPERS enrollees to the most efficient providers. Another is to shift toward “bundled” payments, in which insurers pay a single, predetermined fee for a procedure that all providers involved agree to share. The shift has been difficult to implement, though, despite strong interest within the industry.

With pressure building on insurers and providers to bring the ever-escalating cost of healthcare under control, it seems inevitable that the out-of-network loophole will be closed someday. Until it is, though, consumers need to work with their doctors and insurers up front to protect themselves against ugly surprises in the form of out-of-network providers and balance billing.

Follow Healey’s intermittent Twitter feed: @jcahealey