Whether they plan to or not, a growing number of physicians no longer have contracts with some of the nation's largest health insurance carriers. Either they choose to be "out of network," dropping contracts with all insurers or with those that pay too little, or they're dropped by the insurers when the carriers narrow their provider networks.
Out-of-network physicians are usually reimbursed at a lower rate if they treat patients in the plan. However, they can make up for this loss -- and then some -- by balance billing those patients, something in-network physicians can't do.
In fact, it's the opportunity to get a more reasonable reimbursement than they could ever receive in network that drives many physicians to drop insurer contracts. But it's a controversial tactic, because the .
When , a general surgeon in Southlake, Texas, went out of network more than 10 years ago, he "suddenly became the medical equivalent of the Scarlet Letter," he recalls. Many referring physicians dropped him, but he was able to patch up relations with a lot of them, he said, because he is not charging exorbitant rates and his practice is patient-friendly.
Growing Interest in the Approach
Sewell reports that although many of his colleagues are becoming more interested in the approach, most are reluctant to follow through. Meanwhile, whether they like it or not, other physicians are being pushed into out-of-network status by market trends.
Not only are insurers narrowing their networks, but the new healthcare exchanges seem to be accelerating the trend. In December, , at least in terms of hospital participation.
"With the growth of narrow networks, we will likely see an uptick in out-of-network utilization," predicts Robin Gelburd, president of , a New York-based nonprofit that creates benchmarks to help insurers set rates for out-of-network reimbursement.
Many exchange plans that are not dropping doctors are cutting reimbursements -- which, in turn, prompts physicians to drop out. In a September , 14.4% of practices said they were not participating and 40.2% said they were still deciding. Of those not participating, 59% cited low reimbursements.
And in a 2012 survey of more than 13,000 physicians conducted by Merritt Hawkins, nearly 7% said they'd switch to a , and about 36% felt a single-payer system would provide a positive solution to cost and access challenges.
Although doctors who drop an insurer may not intend to balance bill patients in that plan, they may not have a choice if they want to continue treating those patients. The insurer's smaller out-of-network reimbursement is often too low to cover costs.
Challenges in Converting the Practice
Dr. Sewell sees going out of network as the specialist's version of a primary physician opening a concierge practice. As a surgeon, he cannot charge a monthly fee and have a long-term relationship with a patient, as concierge physicians do, but he can charge patients extra if they value his care.
There are things Dr. Sewell wishes he had done differently, though, such as dropping all his plans at once, which slashed his volume initially. However, he was able to build his patient base back up again by emphasizing customer service and building a reputation for noninvasive surgery, a popular niche with patients. "I'm not making a lot of money, but out-of-network status lets me stay viable," he said.
To make this arrangement work, he has to educate new patients on the financial implications of out-of-network care. For example, they may have separate deductibles for out-of-network and in-network services. "Before the patient incurs any expense, we sit down and talk about what this means," he said.
In most cases, he also asks patients for at least part of the payment up front, but he does charge less for some hardship cases.
Out-of-network physicians also have to carefully pick their patients. Dr. Sewell said most HMOs and a few lower-cost PPOs provide no out-of-network coverage at all. Most PPOs pay for out-of-network services, but they recognize only a fraction of his full bill. Then they pay a lower percentage of that amount than they would for in-network service. For instance, he said, the insurer may recognize only 40% of his total bill as the "usual, customary, and reasonable" (UCR) charge and agree to pay 60% of that.
The UCR is supposed to reflect the average payment for a service, but several years ago lawsuits and investigations found that some insurers were undercutting the UCR. As part of a settlement, United Healthcare, Aetna, Cigna, and other insurers agreed to base their UCRs on benchmarks provided by FAIR Health.
Meanwhile, some insurers in the small and individual markets have been moving away from UCRs and now pay a percentage of Medicare rates for a given service. Gelburd at FAIR Health said this amount can be lower than their old UCR rate.
Another problem with out-of-network status is that the insurer may send the payment to the patient rather than the doctor, said in Philadelphia. The member's insurance contract may have an anti-assignment clause, which directs that payments go to the member. When the patient gets the check, "it's mighty tempting to use that money for something else," Rooks said.
Dr. Sewell says insurers always send the check to him, but Rooks said that's because Texas is among a handful of states -- along with Alabama, Alaska, Connecticut, and Georgia -- that mandate assignment of benefits to the provider.
Legal and Ethical Issues
Most out-of-network physicians balance bill at reasonable rates, but "a few bad apples" charge exorbitant rates, Gelburd said. In January 2013, America's Health Insurance Plans, the trade group for the industry, released examples of physicians .
Gelburd is urging organized medicine to come up with standards, but no one can agree on what exactly constitutes an exorbitant fee. The states that physicians should not collect an "excessive fee," which is one that, "after a review of the facts, a person knowledgeable as to current charges made by physicians would be left with a definite and firm conviction that the fee is in excess of a reasonable fee." In addition, a higher fee may reflect "the difficulty and/or uniqueness of the services" and "the experience, reputation, and ability of the physician."
There are , according to the Kaiser Family Foundation. For instance, California bans . The Illinois law in in-network hospitals. Maryland , according to the Maryland Health Care Commission. Connecticut appears to be the only state that bars balance billing of both HMO and PPO patients, but the law is not well enforced, according to law firm of .
Gelburd thinks there will be mounting pressure against physicians who balance bill excessively. "Society is asking for greater transparency on out-of-network rates," she said. "As a physician, you should be able to defend your fee schedule and articulate the basis for your cost structure. That is a healthy conversation to have."