MDs weigh HMO settlements

By Christopher Guadagnino, Ph.D.

Physicians around the country, seeking relief from what they say are egregious and abusive reimbursement practices by health insurance companies, have in recent years resorted to litigation in an attempt to assert some influence in their dealings with those insurers.

A number of lawsuits alleging that companies exploit their powerful market positions to engage in fraud, extortion and racketeering were consolidated into one federal case applying to the nation’s 600,000 physicians and certified as a class action in 2002, while others are being pursued in state courts.

Waging class action lawsuits against large and powerful managed care companies was once viewed by some in the medical community as a costly and futile way to redress the high-handed power tactics of these companies.

Now, in an apparent vindication of the class action lawsuit strategy, three insurance companies have come forth with settlement proposals promising more favorable reimbursement practices and significant changes in their reimbursement policies and procedures, which physicians had tried to get them to implement, without success, through contract negotiations and through legislative channels. The lawsuit approach appears to have brought reform, as well as redress.

Both Independence Blue Cross (IBC) and Aetna Inc. have proposed extensive changes in their coding and reimbursement practices – chiefly to cease bundling and downcoding practices, to disclose their fee schedules and reimbursement coding protocols, and to adopt new reimbursement appeal mechanisms for physicians. Aetna has also agreed to reimburse physicians retroactively, on a pro rated basis, for wrongfully denied claims and to invest in an electronic communication infrastructure to expedite physician billing and reimbursement activities, as well as to offer a clinically sound definition of medical necessity long fought for by the physician community.

Cigna HealthCare, in an initial settlement proposal that is currently under revision and scheduled for an early September release, had agreed to disclose its fee schedule and coding protocols, as well as provide retroactive reimbursement for wrongfully denied claims on an individual physician basis.

In all three cases, the insurers offer the proposed changes in return for complete immunity from lawsuits over their business practices up to the date of the settlement – essentially a clean liability slate going forward. The settlement proposals also give insurers the right to invalidate the deal if a certain percentage of providers elect to opt out. That issue is currently holding up IBC’s settlement proposal and could delay it for several months.

On the one hand, the settlement proposals appear to signal a new environment in which health insurance companies are demonstrating their willingness to cooperate with providers, with both parties agreeing to put their differences behind them in return for a fairer business relationship. But critics view the proposals as a tacit acknowledgement that insurance companies are on the hook for a lot more money than the value of these settlements, and they see the settlement offers as a tactical decision by health plans to try to get as broad-based an immunity from liability as they can.

Lawsuit Goals

Litigation by physicians against health insurers represents an attempt to change the companies’ policies and procedures, and thereby secure injunctive relief from those practices. “These physicians, we have observed, have reached the point of frustration where their other efforts have failed and they’re trying to get the courts to make the necessary changes,” says American Medical Association President Donald J. Palmisano, M.D., J.D.

The AMA, while not a party to the consolidated federal lawsuit against health insurers, is a lead plaintiff in one of the underlying lawsuits and has provided technical support on CPT coding and other payment issues to plaintiff attorneys and medical associations. Among the tools the AMA has offered is its model provider contract, which explains what provisions are onerous to physicians and how they should be drafted to benefit patient care, says Palmisano.

The litigation approach to health plan contractual reform is not without controversy. “Class action lawsuits are a poor mechanism for developing health care policy,” believes Barry H. Boise, Esq., a partner with the Health Care and Health Effects Group of Pepper Hamilton LLP in Philadelphia. “Courts don’t have the expertise that a legislative or administrative body would have in shaping the appropriate way to manage these relationships,” he argues.

While the class action lawsuit approach is being used to get health insurers to honor provisions outlined in a model contract, “The AMA considers that to be a last resort,” says Palmisano, noting that litigation and legislative intervention could be prevented if more competition existed in the marketplace. To that end, the AMA advocates more fundamental reform such as defined contribution health plans utilizing vouchers and tax credits, whereby patients can choose their health plans much more freely. Palmisano believes the American health care system is going to evolve in that direction as patients become less and less tolerant of health care practices that interfere with their relationships with physicians.

In the meantime, the AMA first recommends reasonable negotiation between physicians and health plans, then petitioning government, then litigation if all else fails. To that end, the AMA has founded a Litigation Center as an unincorporated association between the AMA and state medical societies, organized to coordinate litigation and concentrate legal resources in filing lawsuits or amicus curiae briefs in cases of general interest to physicians, and to share resources in response to emerging legal issues. Since the beginning of 2000, the Litigation Center has become involved with 62 cases representing the interests of physicians and patients, including challenging health plan payment practices and attempts to escape accountability for medical necessity determinations.

Inasmuch as lawsuits against health plans expose the companies’ business practices and succeed in labeling them as denying necessary care and exerting coercive domination over the physician-patient relationship, the public pressure they produce may make it increasingly difficult for the companies to routinely downcode and bundle physicians’ reimbursement claims and to keep physicians in the dark regarding their coding rules and fee schedules, according to public remarks by various plaintiffs in the consolidated federal case, In re Managed Care Litigation.

In re Managed Care is an umbrella anti-racketeering lawsuit consolidating litigation by physicians and more than 20 medical societies against several of the nation’s largest managed care companies – including Aetna, Cigna, Anthem, Coventry, Foundation, Humana, PacifiCare, Prudential, United and Wellpoint – into one multi-district lawsuit under the jurisdiction of U.S. District Judge Federico Moreno in Florida. The lawsuit maintains that the managed care companies “engage in systemic attempts to cheat doctors, control medical decisions through non-payment, and manipulate the amount and kind of necessary care provided,” according to public remarks by Alabama attorney Archie Lamb, Esq., the lead co-counsel for physicians.

“For the first time, the nation will see exactly what these companies have been doing to doctors and their patients – and it’s not been the management of care,” according to Rocky Wilcox, general counsel for the Texas Medical Association, which is party to the lawsuit.

“We have tried for years to resolve our concerns with the plans through endless discussions, on a case-by-case basis. Subsequently, we sought resolution through state legislation and active enforcement of those laws and even petitioned the United States Congress. We have arrived at this federal courthouse in Florida – after futile and lengthy attempts to fix a mounting problem – as a last resort,” according to David Cook, general counsel for the Medical Association of Georgia.

“Injunctive relief is our goal. This has nothing to do with money,” according to Paul Weber, deputy executive director of the Medical Society of New Jersey, which is party to In re Managed Care. The 19 state medical societies and two county medical societies that are plaintiffs to the case “have used their collective power to force these changes,” he says.

Those who have negotiated the settlements so far have emphasized the prospective aspects with the purpose that, if they can fix the system going forward, physicians would be willing to accept whatever losses they’ve sustained so far, according to Philip H. Lebowitz, Esq., a partner in the Health Law Department of Duane Morris LLP in Philadelphia, and representative to the AMA, which filed an amicus brief in the IBC case. IBC’s settlement proposal, he notes, offers no payments for past claims denials or reductions, while Aetna’s offers a small payment per physician, and Cigna’s initial proposal offered a case-by-case past claims recoupment mechanism that requires submission of documentation for each claim.

IBC Settlement

The lawsuit approach to resolving payor-provider disputes “shows that it is possible to solve the most egregious problems that physicians have suffered from in their dealings with insurance companies, particularly that the whole payment process has been a black box,” says Jerome M. Marcus, Esq., a lead counsel to the three physicians and the Pennsylvania Orthopaedic Society (POS), who brought a lawsuit against IBC’s bundling and reimbursement coding practices in the Court of Common Pleas for Philadelphia County. The lawsuit was later expanded to cover all providers submitting claims for reimbursement to IBC and its affiliates for covered services, estimated by IBC to include some 34,000 physicians, chiropractors, therapists and other providers in Pennsylvania, New Jersey, New York and Delaware.

On June 19, IBC, the POS and three local physicians announced a proposed settlement of their class action lawsuit. A fairness hearing had been scheduled for Aug. 21 to obtain final court approval of the settlement.

IBC denied the allegations of the class action litigation, and said it agreed to the settlement in order to avoid lengthy, complex and time-consuming litigation.

Physicians agreeing to the terms of the settlement would be barred from suing IBC for “any and all claims” for the company’s actions up to June 11, 2003, while the settlement has carveouts for pending reimbursement claims, according to Marcus. The settlement does not bar anyone from suing IBC in the future for actions which IBC commits on June 11, 2003 or after, he adds.

In return, IBC agreed to do the following:

• Disclose to providers IBC’s standard fee schedules, and changes in fee schedules, that are applicable to the provider’s specialty.

• Disclose policies or procedures that impact the payment or reimbursement that a provider receives for services rendered.

• Establish a formal resolution process for provider payment disputes.

• Replace IBC’s “independent procedure” designation with separate procedure designations of the Current Procedural Terminology (CPT) manual. IBC listed over 280 separate codes it would now recognize as procedures that are commonly carried out as an integral component of a total service or procedure, and would recognize the Modifier -59 as a separate procedure code reported in addition to other procedures.

• Process claims in accordance with established standards in various areas.

The latter item is intended to redress problems with reimbursement reduction from code bundling. Specifically, IBC agreed to recognize CPT standards for reimbursing: radiological guidance during a procedure, Add-on codes (additional procedures by same physician above and beyond primary procedure), Modifier -51 codes (multiple procedures in same operative session or same day), Modifier -25 codes (same day procedures that are significant and separately identifiable E&M codes), and Modifier -59 codes (distinct procedural services performed during a different session, on a different site or organ system, or by a separate incision).

IBC agreed to use standards from the Medicare Physician Fee Schedule for Modifier -50 codes (bilateral procedure during single operative session), Modifier -62 codes (co-surgery by two surgeons), Modifier -66 codes (team surgery, generally organ transplants), Modifier -80, 81 and 82 codes (assistant surgery), and Modifier -RT and LT codes (bilateral procedures).

According to the settlement, the estimated financial impact of these changes would be approximately $40 million in additional claims payments to providers over the next two years. The changes in payment processing and dispute resolution will be continued for two years from the date of final judicial approval, with a phase in over that time period, while IBC is not required to continue to provide disclosure after two years, “to the extent the Court finds that doing so would be inconsistent with IBC’s business requirements or any controlling authority or requirement, including administrative, governmental or judicial authorities or requirements,” according to the settlement.

The settlement proposal was not embraced by all physicians. An estimated one-third, or some 10,000 to 12,000, of providers included in IBC’s settlement class, had elected to opt out of the deal by the Aug. 1 opt out deadline, prompting IBC to ask the court to invalidate some of the opt-outs and open up the election cycle again by extending the opt out decision date, according to IBC spokesperson Butch Ward. Under the terms of the settlement, IBC has the right to invalidate the agreement if more than six percent of providers opt out, although IBC has not decided if it would chose to do so, Ward notes. The opt out dispute could delay finalization of the settlement for a month or more, says Ward, while further appeals, if filed, would delay the deal further still.

Employed physicians in both the Thomas Jefferson University and the University of Pennsylvania health systems have opted out.

According to Michael Dandorph, Penn’s vice president of managed care, the driving issue prompting Penn to opt out was the broadness of language in the settlement’s release provision, which left doubts as to the status of pending accounts receivable claims and claims on appeal by Penn’s 1,200 physicians, which at any given time can amount to a large amount of money. Those doubts couldn’t be satisfied before the Aug. 1 opt out deadline, he adds.

Although Penn’s physician leadership welcomed the kinds of policy changes outlined in the settlement proposal, their other concerns mirrored those expressed by the Pennsylvania Medical Society (PMS), chiefly, that provisions in the agreement were vaguely drafted and specifics were yet to be worked out, such as timetables for implementation of various provisions over the two years of the agreement, says Dandorph.

Similar concerns were expressed by Jefferson Medical College on behalf of its 450-physician faculty practice.

Among the PMS’s objections to the settlement agreement were that:

• There is no guarantee in the settlement agreement that the $40 million IBC has agreed to set aside for future payments to physicians over the next two years will be met.

• Coding changes in the agreement suggests monetary distribution will not be equal among specialties.

• The release is not limited to contract claims involving bundling and downcoding, but would cover a range of claims, from lack of timely payment through antitrust actions, and would lead to the dismissal of pending actions against IBC for a broader range of concerns such as the RICO class action suit against the Blues nationwide and the New Jersey AmeriHealth actions.

• The settlement may lower the bar for future settlements and may adversely affect terms that can be negotiated in other cases against other health plans.

• The dispute resolution process is internal and does not cover such issues as medical necessity.

The Medical Society of New Jersey (MSNJ) objected to the IBC settlement, which extends to IBC’s AmeriHealth affiliates in New Jersey, saying that it offers far less extensive relief to physicians than other settlement agreements, namely Aetna’s and Cigna’s, that are emerging from litigation efforts in In re Managed Care, and the society believed that endorsing the IBC agreement would make its litigation with other managed care companies more difficult by lowering the bar, according to MSNJ President Mark Olesnicky, M.D.

Physicians considering opting out before the Aug. 1 deadline were also unclear about when IBC’s new payment policies would be phased in over the two-year interval of the settlement and, after the two years are up, how easily IBC would be able to change its practices by petitioning the court with “legitimate business reasons,” as stated in the settlement, according to Boise.

Boise also believes that the settlement includes billing practice changes IBC would inevitably have made, given the uniform electronic claim submission requirements under HIPAA as of Oct. 16, 2003. “IBC is getting a very broad release and is making changes they were going to make, or have already started to make, in large part anyway,” Boise says, noting that Pa.’s medical malpractice crisis has heightened legislators’ sensitivity to physician exodus and the need to look at ways to increase revenue to physicians to compensate for increasing overhead costs.

Other weaknesses of the settlement, Boise maintains, are that it does not change improper reimbursement practices based on medical necessity denials.

Bosie allows that the settlement may bring modest benefits at little or no cost to many physicians. Whereas large groups of physicians with numerous past claim disputes may find significant monetary value in not relinquishing potential claims against IBC, Boise notes, many individual physicians would not be likely to bring a lawsuit against IBC, whether contingency fee-based or otherwise, given the disruption the documentation burden would bring to the practice and the awkwardness of facing the company responsible for much of the practice’s revenue, come contract renewal time.

The settlement represents the best results plaintiffs could have gotten, and its benefit to physicians is far from modest, according to POS’ Marcus, who says that its disclosure provisions remove huge barriers to physician business decisions. When submitting claims to IBC, physicians had previously faced a black box payment process, which made it difficult to bill knowledgeably or treat properly without knowing for sure how much treatments were costing them to provide, says Marcus. The settlement covers some 10,000 codes, meaning that surgeons and physicians with office-based practices can now make rational business decisions in their practice, treatment and billing patterns, he adds.

IBC’s undisclosed payment algorithms had also made it difficult for physicians to enforce policy by bringing breach of contract lawsuits against IBC, which require plaintiffs to demonstrate that specific contractual promises were broken. With payment procedures now available, says Marcus, physicians have more power to fight policies that may be harmful to their practices.

If after two years IBC tried to end the disclosure practices agreed to in the settlement, plaintiff attorneys would be quick to file motions to enforce the terms agreement beyond that interval, says Marcus.

Until the settlement, IBC did not have a defined procedure for claim dispute resolution, and its standard contract does not specify issues like deadlines on documentation requirements, as the new dispute mechanism will, Marcus notes. The dispute resolution mechanism will be internal to IBC, but will not be binding, and physicians can still take IBC to court for claims on or after June 11, says Marcus.

While plaintiffs in the IBC lawsuit did not try to have a definition of medical necessity added to the settlement, Marcus notes that Pa.’s Act 68 provides an external review for patients to dispute coverage denials based on medical necessity.

The $40 million estimated value in coding changes over two years was derived from actuarial calculations based on existing usage, says Marcus, while the parties have since negotiated a phase-in schedule for those changes that raises the figure to over $50 million, according to Ward.

It is lawsuits such as this one, and the attention that has accompanied it, that is forcing health insurers to change the way they do business, Marcus argues. Any class action lawsuit functions in precisely that way: the defendant wants peace and an end to the litigation, he says.

Marcus dismisses the view that companies would make these changes anyway, noting that HIPAA’s uniform claim submission requirements do not require disclosure or changes in bundling practices. IBC has a “political battalion” to deal with repercussions from the malpractice crisis, and an anti-bundling bill in the Pa. legislature appeared to have a slim chance of passage, says Marcus. Based on extensive litigation with IBC, Marcus declares: “I know they weren’t going to do this unless we forced them to.”

Aetna Settlement

Aetna was the first health insurance company named in In re Managed Care to propose a settlement with all of the nation’s physicians, which appears to have been very well-received by the medical community. The settlement had an opt out date of Aug. 29 and an final approval hearing scheduled for mid-October.

Aetna’s settlement proposal applies to any physician who had submitted claims to Aetna for reimbursement of covered services, and would give the company a clean liability slate for the company’s actions up to May 30, 2003, while offering precisely defined exceptions for pending reimbursement claims, and not barring anyone from suing Aetna for actions on, or after that date.

Aetna is permitted to terminate the agreement if more than 25,000 class member physicians choose to opt out, or if opt-outs comprise an aggregate of at least five percent of Aetna’s total dollar payments to physicians in 2002.

Aetna’s proposal offers a considerably wider scope of relief provisions for physicians than does the IBC proposal, including payments for wrongfully denied claims in the past. Among the things Aetna has agreed to do for four years, after which Aetna is no longer bound to the agreement, are the following.

• Make $100 million in payments to physicians divided among three categories of physicians: those who have received an aggregate payment from Aetna of less than $5,000 during the years 2000, 2001 and 2002 – who will receive a base amount; those who have received between $5,000 and $50,000 during those three years – who will receive twice the base amount; and those who have received more than $50,000 – who will receive three time the base amount.

• Discontinue automatic downcoding of E&M codes and agree on a nationally recognized and physician-approved set of rules governing claims coding and grouping procedures, while jointly developing with physicians a claims editing software package that incorporates those procedures.

• Use a definition of medical necessity which is spelled out in the settlement and that applies medical community-approved standards, and disclose the percentage of covered services that Aetna denies on the grounds of medical necessity.

• Eliminate all-products clauses from Aetna contracts, while retaining the right to offer higher fee-for-service rates or other incentives to physicians who remain contracted with all of Aetna’s products.

• Commit to payment within 15 days of clean claims submitted electronically and within 30 days if submitted on paper forms, while putting into place date-stamping mechanisms for claims receipts and offering interest payments on late reimbursements.

• Invest in systems to increase electronic connectivity and direct, Web-enabled access to Aetna systems to verify reimbursement information and track claims. Each physician would have individualized Web access to Aetna’s fee schedule, including all the codes applicable to his or her practice.

• Establish a National Advisory Committee of practicing physicians to provide advice to Aetna on issues of concern to physicians.

• Establish an independent appeals process for physician billing disputes.

• Devote $20 million in initial funding to a newly-formed foundation to support initiatives in areas such as eliminating racial and ethnic disparities in health care, improving end-of-life care, reducing and preventing childhood obesity and addressing the problem of the uninsured. Physicians will have the option of directing their individual shares of the $100 million retroactive payments – which are likely to average no more than $200 per physician – to the foundation.

• Make a pharmacy discount card program available for physicians to offer their patients.

Aside from the $100 million in retroactive payments to physicians, Aetna estimates the value to physicians of its business practice improvements over the course of the agreement to be $300 million.

Aetna’s proposed coding changes include recognizing separate reimbursement CPT codes with Modifiers -51, -25, and -59; CPT Add-on codes; CPT codes that include supervision and interpretation; one CPT indented code per service; CPT codes in a series that differentiate among simple, intermediate and complex procedures. Aetna will use CMS standards to define the length of global periods for surgical procedures (which involve one reimbursement for a defined episode of care interval), and will update its claims editing software at least once a year to recognize new or reclassified CPT codes and HCPCS Level II codes promulgated by CMS.

Aetna says all of those coding changes are already consistent with its current practices, according to company spokesperson David Carter.

Aetna believes that it has a common interest with physicians in prompt and efficient claim payment, which reduces administrative burdens on both sides and leaves physicians more time to spend with patients, says Carter. “We didn’t think that the lawsuits had merit, but we thought that, from a business perspective, the smart thing was to begin a new era of cooperation with physicians, and to do it in a way that removed the distraction and the costliness of litigation,” Carter adds.

While the agreement expires after four years, Palmisano says physicians hope for the best beyond that. Aetna’s spin sounds hopeful as well. Says Carter, “The agreement is for four years, but it’s our hope that the era of cooperation extends beyond that. The goal here is not for something to end. The goal here is that we’ve put into place changes that all parties agree are meaningful and moving in the right direction, and we continue on that path.”

The AMA expects the Aetna settlement to raise the bar for the entire health insurance industry on fair and open business practices, according to Palmisano, who said the agreement represents a fundamental shift in how Aetna will conduct business with patients and physicians now and in the future. “It stops some abuses that are well-documented, and our goal is to have everyone use the model managed care contract and move forward with a new paradigm,” says Palmisano, who notes that the Aetna agreement adopted AMA policy on medical necessity as well as other features of AMA’s model managed care contract.

Aetna’s settlement proposal is being endorsed by over 20 medical societies, including MSNJ, whose President Olesnicky says that the settlement will improve the quality of care he can provide to patients by making the practice of medicine more uniform and practical, streamlining hassles and leaving more time to spend concentrating on clinical matters.

MSNJ regards Aetna’s agreement as much stronger than IBC’s, and had planned to testify at the Aug 21 fairness hearing that the IBC agreement was a substandard deal for physicians, says MSNJ deputy executive director Weber. Aetna’s inclusion of a widely-accepted definition of medical necessity, and giving physicians access to an external appeals process for claim payment disputes, are key points of superiority, he says. Other components Weber notes are present in the Aetna agreement and absent from the IBC agreement are those addressing clean claims payment, an internal medical necessity review mechanism that is peer-matched to the physician, extensive enhancement of electronic claims handling infrastructure and tracking of covered service eligibility for individual patients, agreement to cease automatic downcoding of all E&M codes, elimination of all-products clause, and a court-appointed overseer to enforce the agreement.

That IBC’s settlement proposal is much more limited in scope than Aetna’s is understandable, given that the agreement came about on behalf of orthopedic surgeons, says Lebowitz. The relief provisions appear to address the concerns of surgeons more than those of other physicians, who were belatedly added to the definition of the class, he notes. As well, IBC’s comparatively limited settlement provisions represent the product of an entity that still represents substantial market power in its provider area, even in the face of litigation, Lebowitz adds.

Despite Aetna’s extensive array of relief provisions, some physicians are opting out of its settlement agreement, particularly those in larger practices and specialties in which a substantial number of claims have been bundled, says Lebowitz.

Cigna Settlement

Cigna HealthCare, on Nov. 25, 2002, proposed a settlement to a lawsuit accusing Cigna of bundling, downcoding and arbitrarily denying claims, which was originally filed in a state court in Illinois, but had later been consolidated with the In re Managed Care litigation in Florida. Plaintiffs’ attorneys in the Florida case accused Cigna of trying to end-run In re Managed Care and obtained an injunction from U.S. Judge Moreno against the settlement. The litigants are in mediation with Cigna and a revised settlement agreement is expected to be proposed in September, which would apply to physicians nationwide who treated Cigna’s subscribers

MSNJ, a party to In re Managed Care, believes the final version of the Cigna settlement will be similar to Aetna’s, and may be even better for physicians, according to Weber.

In the original settlement proposal, Cigna would have been released from all liability claims up to the final approval of the settlement, in return for agreeing to a number of relief provisions for at least three years, which plaintiffs’ attorneys said could cost Cigna at least $200 million, including the following.

• Pay wrongfully denied claims based on downcoding and bundling dating back to Jan. 1, 1996 for a defined list of billing codes, as well as compensate for tardy payment and wrongful denials based on medical necessity, to physicians who submit documentation to substantiate each disputed claim. A third-party reviewer would rule whether those claims should have been paid.

• Stop requiring physicians to submit copies of patient medical records in order to be paid for multiple office visits on the same day as a separately billed surgery or other procedure.

• Eliminate the “well-woman” code, for example code 90769, which reimbursed lower than other related codes.

• Create a Web site for physicians that includes regularly updated disclosures of fee schedules, claim coding and processing protocols, clean claim definition, and medical necessity definition and guidelines. Also agree to describe any bundling edit that causes denials or reductions in payment for a CPT code or HCPCS Level II code more than 500 times per year.

• Recognize new or reclassified CPT codes each year.

• Pay interest on clean claims that are not paid within 30 days, even in states without prompt-payment laws.

• Offer an external appeal process for denials based on medical necessity.

• Create a public interest fund of at least $2 million to be distributed among health care clinics and organizations dedicated to delivering or providing access to health care services and supplies to individuals.