Paying for patients: How some providers are distorting health coverage

If you have a PPO plan, you can see out-of-network providers, but it's going to cost you more. Non-contracted providers have not agreed to accept negotiated rates and can therefore charge what they want. To control health care costs, PPOs have a higher insured cost-sharing requirement for out-of-network services. The reduced benefits for out-of-network services is a structural feature of PPOs that gives insureds skin in the game and makes them more responsible consumers of health care services by sensitizing them to the costs of health care. Kennedy v. Connecticut Gen. Life Ins. Co., 924 F.2d 698, 699 (7th Cir. 1991) ("Co-payments sensitize [insureds] to the costs of health care, leading them not only to use less but also to seek out providers with lower fees."); OIG Fraud Alert ("[s]tudies have shown that if patients are required to pay even a small portion of their care, they will ... select items or services because they are medically needed, rather than simply because they are free."). But what if out-of-network providers sought to throw a wrench into the PPO structure by giving patients financial incentives to treat with them, making it more financially advantageous for the PPO member to go out of the insurer's network? A number of out-of-network substance abuse treatment facilities did just that in recent years. This article discusses those efforts and how insurers have fought back.

Let's start at the beginning, with the passage of the Patient Protection and Affordable Care Act. Among other changes, the ACA did away with medical underwriting, requiring carriers to offer coverage to applicants regardless of health status. The new rules, requiring carriers to accept all-comers, gave rise to opportunism. Certain out-of-network substance abuse treatment providers worked with recruiters to find addicts without insurance, and paid the recruiters a fee for each patient they found. While the details varied by provider, the recruiter or clinic would then find private insurance that offered high reimbursement and procure policies for the patients.

Of course, insurance requires the payment of premiums, and many of the patients were homeless or would not have otherwise been able to afford higher-priced commercial policies (but instead would have been eligible for Medicaid, which would have paid much less to the providers in reimbursement). So recruiters or facilities paid the insurance premiums for the patients and any other costs needed to get them in the door, including airfare and housing. In addition, they waived the patient cost-sharing obligations set forth in the policies. The combined effect of paying the insured's premiums and waiving their cost share effectively made it free for the patients to proceed out of network. And given the ACA rules prohibiting medical underwriting, the insurers were unable to refuse coverage based on the pre-existing substance abuse issues. After securing coverage, some of these providers then billed grossly inflated amounts for services. And what about the patients? Some patients cycled through various substance abuse treatment centers, and when treatment ended and premium payments were no longer made on the patient's behalf, their insurance lapsed, leaving the patients without insurance.

Now, to be clear, many out-of-network substance abuse clinics did not engage in these behaviors, others engaged in some of them, and some varied their practices by patient. But the effect of these various incentives was to massively increase the out-of-network claims experience by some insurers, driving up health care costs. Of course, health care costs impact the cost of insurance to consumers.

How have insurers fought back? California's Unfair Competition Law can be invoked when there is unfair, unlawful or fraudulent activity. Courts have articulated the UCL unfairness standard in different ways. One court explained that conduct is unfair if it violates public policy that is tethered to a violation of constitutional, statutory or regulatory provisions. Scripps Clinic v. Superior Court, 108 Cal. App. 4th 917, 940 (2003). Another court defined a business practice as unfair under the UCL if it offends an established public policy or is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. People v. Duz-Mor Diagnostic Lab., Inc., 68 Cal. App. 4th 654, 658 (1998). Insurers have argued that public policy prohibits the purchase and sale of patients because it encourages overutilization of services, raises costs to insurers and the public, and compromises health care decisions by introducing factors other than the patient's best interests, such as the provider's financial investment in the patient.

Insurers have argued that these practices violate the UCL's unlawful prong as well. For example, Insurance Code Section 750(a) prohibits the offer or receipt of any consideration as compensation for the referral or procurement of patients in connection with an insurance claim. People v. Hering, 20 Cal. 4th 440, 442-43 (1999). And Health and Safety Code Section 445 prohibits for-profit referrals to health-related facilities for medical care or treatment of any ailment. In the context of the Medicare program, the Office of Inspector General has observed that a provider's payment of a beneficiary's premiums or waiver of coinsurance raises the costs to the Medicare program and implicates federal anti-kickback statutes and the prohibition on giving inducements to beneficiaries. OIG, Special Fraud Alert: Routine Waiver of Copayments and Deductibles Under Medicare Part B (May 1991) (waiving cost-sharing obligations unlawfully induces patients to use items or services simply because they are free and raises costs for Medicare program); OIG Adv. Op. 01-15 (Sept. 2001), ("as a general matter, the payment by a provider of a beneficiary's copayments and insurance premiums, whether primary or supplemental, implicates both the [federal] anti-kickback statute and the prohibition against inducements to beneficiaries.").

Insurers have also argued that if a provider routinely waives the patient's cost-sharing amounts, it misrepresents its actual charges to the insurer by including amounts it never intends to collect. OIG Fraud Alert, 59 FR 65372-01, 1994 WL 702552 (1994) (waiver of patient cost share results in the misstatement of the provider's billed charges). Nutrishare, Inc. v. Connecticut Gen. Life Ins. Co., 2:13-CV-02378-JAM-AC, 2014 WL 1028351, at *1 (E.D. Cal. Mar. 14, 2014); Almont Ambulatory Surgery Ctr., LLC v. UnitedHealth Grp., Inc., 121 F. Supp. 3d 950, 972 (C.D. Cal. 2015). The terms of an insurer's policy might also prohibit a financially interested provider from paying the insured's premium, and may obligate the insured to pay her cost share. Insurers have also argued that the provision of financial inducements to insureds to treat out of network interferes with the contract between the insurer and its insured by corrupting the policy's cost-control mechanisms and incentives to stay in-network, making performance vastly more expensive for the insurer.

These are vexing issues, and no doubt the California courts will speak further on them in coming years. 