As many physicians have concluded, out-of-network insurance benefits pay better than the prevailing in-network rates. Some practices have opted out, terminating their participation status with major insurance carriers. The practices that have remained in-network, sitting on the sidelines watching this unfold, are realizing that they may be placed at a disadvantage for remaining a network participant.
The benefits of participation may be eroding. Participation does not reward providers with reimbursement rates that reflect the physician’s level of service and clinical skills. To the contrary, out-of network reimbursement seems to provide physicians with compensation that is more commensurate with the value they provide. A physician’s participating provider status does not guarantee prompt payment or streamlined claims submissions. The legislatures of many states have promulgated prompt payment statutes that benefit all providers, regardless of participation status. Many physician specialties are a referral-driven business. While some patients use the insurance company’s provider directory to select a physician, many patients base their decision to receive treatment at a particular physician specialty based on the recommendation of their primary care physician. Orthopedic surgeons, dermatologists and neurologists are but a few of the physician specialties that receive their patients by the referral of another physician. Other patients use the yellow pages to select a physician. Participation status, by itself, generally does not drive the patient’s choice of physician specialty. So, why participate?
The Benefits Participation do not Accrue to the Provider
A provider’s participation with an insurance carrier contractually locks in the insurer’s cost for medical services. The participating provider contract specifies a fee schedule which places limits on the physician’s reimbursement for services rendered. From the insurer’s perspective, a provider’s participation is a great mechanism for controlling costs and predicting expenses. The insurer has economies of scale, and is able to use its market presence to ratchet down reimbursement rates. The patient also benefits from a provider’s participation, through the depressed contractual reimbursement allowances. Additionally, the patient can also estimate treatment costs through the existence of a fixed fee schedule. Physicians generally have little to no leverage in negotiating with insurance carriers over fees. (Exceptions to this generalization sometimes exist depending on the size of the physician group or the type and availability of the particular type of physician specialty.) Consequently, from a reimbursement perspective, the benefits of a physician’s participating provider status belong to the insurance carrier and patient.
In contrast, the physician may benefit by electing to pursue a non-participating provider status. Many insurance carriers reimburse out-of-network providers on a usual, customary and reasonable (“UCR”) basis. A usual, customary and reasonable basis almost always exceeds the in-network reimbursement structure. The caveat to this non-participation strategy is that patients utilizing a non-participating provider face higher deductibles, copayments and co-insurances. The insurance carrier, too, is also exposed to higher service costs. To combat this, the insurance carrier typically designs out-of-network benefits with a higher out-of-pocket patient cost structure as a disincentive for its members to stray outside of its established participating provider network. Insurers also may include an “anti-assignment” provision in their contract with the members. Anti-assignment clauses invalidate a patient’s assignment of benefits without the consent of the insurance carrier. With an anti-assignment clause, the insurance carrier sends the policy benefit payments to the plan subscriber, not to the physician. Unfortunately, when payments are sent to the patient, the physician sometimes has a difficult time recouping them. Courts generally enforce these clauses against the out-of-network medical provider, rationalizing that these clauses “are valuable tools in persuading health [care] providers to keep their costs down.”
The Hurdles Facing Non-Participating Providers
The non-participating physician must grapple with the reality that services at his/her practice will cost the patient more than service at a participating provider. Assuming that all office visits are equal, the reality becomes that the patient must spend more money to receive treatment at the non-participating physician. For most consumers, there is little decision making necessary when faced with an option to purchase a product “A” at store #1 for $60, or the option to purchase the same product “A” at store #2 for $100. To thwart the insurer’s financial disincentives for the patient’s use of a non-participating provider, the private practice could provide inducements to patient. It would appear that providers have a duty to inform the patient whether the clinic is participating or non-participating. Less clear is whether the provider has any ethical duty to inform the patient that out-of-network services will result in greater out-of-pocket expense to the patient.
Exceptional service and value are inducements that the physician may offer to substantiate the higher cost to the patient. Value is extremely relative in today’s medical marketplace. As copayments and deductibles have risen in recent years, so too have the patient’s expectations. Higher out of pocket costs have generally led consumers to demand more. Value may be demonstrated in many ways, ranging from board certifications, acclaim, and bedside manner. The non-participating provider should be able to substantiate the difference in price to the value-conscious patient. The adage, “you get what you pay for” should be apparent. Exceptional service can be exhibited in a number of ways, and is not limited to clinical excellence. Hours of operation and the clinic’s appearance are just a couple of the ways in which a practice may differentiate itself to warrant the out-of-network cost differential.
A more controversial strategy to induce patients to use a non-participating provider is a “level the playing field” approach. This “leveling of the playing field” approach equalizes the patient’s cost of using an out-of-network provider (non-participating) with that of an in-network provider (participating). From the patient’s perspective, the cost of receiving care at an in-network practice is no different than receiving care at an out-of-network practice. This is accomplished through the out-of-network practice’s honoring of the patient’s in-network benefits with respect to the patient’s out-of-pocket costs. However, the practice will still charge the insurance carrier the usual, customary and reasonable amounts. To illustrate, if the patient has a $500 deductible for an in-network provider and a $1500 deductible for an out-of-network provider, the non-participating provider charges the patient the amount of the in-network deductible ($500) and waives the balance of the out-of-network deductible. [Note: the author is not advocating this strategy, but is commenting on a strategy that is employed by some providers.]
Some Potential Legal Risks of a Non-Participation Strategy
Some states have made it illegal to waive patient’s deductibles and copayments for commercial health insurance plans. In addition, the physician using such a strategy may face potential statutory risks to his/her ability to practice medicine. Federal legislation may also be applicable. Even if there are no state statutes that make the waiver of copayments and deductibles illegal, the physician may be subject to civil claims made by the insurance carrier if copayments and deductible are routinely waived to induce patients. Prior to pursuing an out-of-network strategy which involves the waiver of copayments and deductibles, the private practice should consult with an attorney. An attorney will be able to provide guidance to inform the practice of any statutes or case law in the jurisdiction. Case law will determine if there has been any precedent set by prior lawsuits dealing with the same or similar subject matter. That is, if an insurance company has prevailed against a provider in the practice’s jurisdiction for engaging in such practices, there may be some likelihood that another suit could be met with similar results. Of course, each case is fact and circumstance specific, which drives the outcome. It is unlikely that an insurance carrier would prevail in a suit for breach of contract. As a non-participating provider, there is no contract to breach. However, fraud and contractual interference are other civil claims which could be raised. Consider these cases:
In New Jersey, an ambulatory surgery center terminated its participation with Horizon Blue Cross. Thereafter, the surgery center continued to provide services to Horizon subscribers, but on an out-of-network basis. Forms within the clinic stated “This facility will accept usual and customary payment as full assignment. We will honor your members in-network deductible and waive the co-insurance.” Subsequently, Horizon sued the provider for fraudulent submission of claims forms in violation of the New Jersey Insurance Fraud Prevention Act. The insurer also sued for negligent misrepresentation and tortious interference with the insurer’s in-network provider contracts. For procedural reasons, the case was sent back to state court, and the disposition of the case is unknown at the time of this article. Nevertheless, the provider was exposed to legal expenses in defending the suit.
In another New Jersey case, Aetna filed a complaint against a chiropractor alleging insurance fraud, negligent misrepresentation, and tortious interference with Aetna’s subscriber contracts. Aetna alleged that the chiropractor waived the patients’ co-insurance and failed to disclose that waiver to Aetna. Specifically, Aetna pointed to the 1500 claim form, which contains the fields “amount paid” (Box 29) and “balance due” (Box 30). Because the chiropractor left these fields blank, Aetna alleged that the chiropractor made false claims and misrepresentations. Aetna claimed that they relied on the chiropractor’s misrepresentations and paid additional money to which the chiropractor was not entitled. In their complaint, Aetna sought damages because the chiropractor circumvented the health plan’s out-of-network provisions. “[These] provisions were designed to deter patients from using non-participating providers and from receiving unnecessary or excessive treatment, and [the chiropractor’s] waiver of these payments caused patients to over-utilize his services.” The chiropractor attempted to have Aetna’s claim dismissed. Aetna prevailed and was able to proceed against the chiropractor on the claim of tortious interference with a business relationship.
There are legal and ethical considerations in play when a physician practice engages in an out-of-network strategy. Among the ethical considerations is the responsibility to inform the patient that the clinic is out-of-network/non-participating. Perhaps more complicated, is whether the provider has a duty to inform the patient that the services are less expensive for the patient using an in-network provider. Every state has its own statutes and insurance regulations. The state in which the physician practices may have a statute that prohibits copayment and deductible waivers. Case law may also establish precedent in your jurisdiction regarding this practice. The provider should consult an attorney for a full examination of the legal ramifications of engaging in such a strategy.
Franklin J. Rooks Jr., PT, MBA, Esq. is a physical therapist and practicing attorney in Philadelphia, Pennsylvania. Frank was a founding partner of PRO Physical Therapy, which was sold in 2006. This article is not legal advice and is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. Frank can be reached at firstname.lastname@example.org
 See NJ Stat §17B:30-55. “A payer found in violation of those sections shall be liable for a civil penalty of not more than $10,000 for each day that the payer is in violation if reasonable notice in writing is given of the intent to levy the penalty and, at the discretion of the commissioner, the payer has 30 days, or such additional time as the commissioner shall determine to be reasonable, to remedy the condition which gave rise to the violation and fails to do so within the time allowed.” See also 40 PA Stat. § 991.2166PA Stat “(a) A licensed insurer or a managed care plan shall pay a clean claim submitted by a health care provider within forty-five (45) days of receipt of the clean claim. (b) If a licensed insurer or a managed care plan fails to remit the payment as provided under subsection (a), interest at ten per centum (10%) per annum shall be added to the amount owed on the clean claim. Interest shall be calculated beginning the day after the required payment date and ending on the date the claim is paid. The licensed insurer or managed care plan shall not be required to pay any interest calculated to be less than two ($2) dollars.”
 See NJ Stat. § 17:48E-10. “[A] participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract or contracts issued by a health service corporation in return for which the health service corporation agrees to make payment directly to the participating provider.”
 See Somerset Orthopedic Associates v. Horizon Blue Cross and Blue Shield of New Jersey, 785 A.2d 457, 461 (NJ Sup. Ct. 2001)
 See GA Stat § 43-1-19.1. “(a) For the purposes of applicable provisions of Code Section 43-1-19, it shall be considered a deceptive or misleading practice for any person duly licensed and authorized to provide any type of health care services to advertise, as an inducement to attract patients, the waiver of a deductible or copayment required to be made to such person under the patient’s health insurance policy or plan.” See also CO Stat. § 18-13-119. “Business practices that have the effect of eliminating the need for actual payment by the recipient of health care of required copayments and deductibles in health benefit plans interfere with contractual obligations entered into between the insured and the insurer relating to such payments….if the effect is to eliminate the need for payment by the patient of any required deductible or copayment applicable in the patient’s health benefit plan, a person who provides health care commits abuse of health insurance….[a]buse of health insurance is a class 1 petty offense.”
 See Ohio Revised Code § 4731.22. “The board. . . shall, to the extent permitted by law, limit, revoke, or suspend an individual’s certificate to practice . . . for one or more of the following reasons: (28)(a). Waiving the payment of all or any part of a deductible or copayment that a patient, pursuant to a health insurance or health care policy, contract, or plan that covers the individual’s services, otherwise would be required to pay if the waiver is used as an enticement to a patient or group of patients to receive health care services from that individual”
 Cf. P.L. 104-191. The Health Insurance Portability and Accountability Act (HIPAA) prohibits providers from intentionally submitting false statements to a healthcare benefit program. Cf. 18 U.S.C. § 1347. “Whoever knowingly and willfully executes, or attempts to execute, a scheme or artifice— (1) to defraud any health care benefit program; or (2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, in connection with the delivery of or payment for health care benefits, items, or services, shall be fined under this title or imprisoned not more than 10 years. . .”
 See Horizon Blue Cross and Blue Shield of New Jersey v. East Brunswick Surgery Center, 623 F.Supp.2d 568 (D. NJ. 2009).
 See N.J. Stat. 17:33A-7. New Jersey’s Insurance Fraud Prevention Act enables “[a]ny insurance company damaged as the result of a violation of any provision of this act” to file a claim “in any court of competent jurisdiction to recover compensatory damages.” The insurance company can recover triple damages against the offending provider “[i]f the court determines that the defendant has engaged in a pattern of violating this act. . .”Id.
 In general, the claim of “tortious interference with a business relationship” is proved by the plaintiff’s establishment that of the following criteria: (1) the patient had a contractual relationship with the insurance company; (2) the provider purposefully interfered with that contractual relationship; (3) the provider had no privilege or justification for interfering; and (4) the insurance company suffered harm/damage from the provider’s conduct/interference.
 See Aetna v. Carabasi Chiropractic Center Inc., 2006 WL 66460 at *1 (N.J. Super. Ct.)
 See Id.., at *4.