California moves to stop balance billing by emergency physicians

A pending state Supreme Court case will determine if a state law banning the practice by in-network doctors applies to out-of-network physicians.

By Amy Lynn Sorrel — Posted Aug. 28, 2006

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California Gov. Arnold Schwarzenegger's executive order to prohibit emergency physicians from billing patients for costs not covered by health plans has drawn the ire of many doctors. They say the move puts them at the mercy of insurers that regularly underpay for out-of-network emergency care.

The governor's mandate in late July directed the state Dept. of Managed Health Care to create regulations to ban balance billing by emergency doctors who are not contracted with a patient's managed care plan. Under the rules, doctors no longer would be able to bill patients for the difference between the cost of the service and the insurer's reimbursement. The state also will review the criteria that health plans use to value services and develop an independent dispute resolution process "to provide extra tools to help ensure fair and fast payment -- but leave the unwitting consumer out of it," Schwarzenegger said.

Doctors got a slight reprieve after the California Medical Assn. pressed state officials to halt an emergency regulation filed by the DMHC Aug. 10 that would have put the ban into effect almost immediately. Instead, the changes to state insurance rules likely will take hold within the next year, agency officials said.

"When consumers make the correct decision to purchase health insurance, they must not face the possibility that they will not be fully protected," said DMHC Director Cindy Ehnes.

But some doctors say the problem is that insurers do not have enough on-call specialists in their networks to provide emergency care. As a result, patients often get their care from out-of-network emergency physicians who then bear a disproportionate share of the cost of services when health plans routinely underpay or reject their claims.

"By eliminating the ability of individual doctors to fairly bill for emergency care, the governor would [make] it impossible for physicians to be paid fairly by for-profit health insurance companies," said Jack Lewin, MD, CMA's CEO. The CMA wants to work on alternatives to solve reimbursement disagreements, he said, but solutions should not include prohibiting doctors from being able to charge for treatment they legitimately give to patients.

The obligation of emergency departments to treat patients regardless of their ability to pay is one that has put them under significant strain, and limiting balance billing will threaten access to care if doctors cannot afford to practice, said Frederick C. Blum, MD, president of the American College of Emergency Physicians.

Insured patients "ultimately have some responsibility for their plan acting responsibly," Dr. Blum said.

Health plans, meanwhile, praised the governor's order, saying it will help keep health care affordable for patients. "The concern we have is that the charges that the [out-of-network] ER physicians are seeking from consumers are three to five times what health plans are paying," said Chris Ohman, president and CEO of the California Assn. of Health Plans. The managed care system is built on contractual relationships that allow both doctors and insurers to have certainty and efficiency in payments, which should be encouraged, he said.

Any payment disputes "should be resolved by plans and providers, and consumers should not be in the middle," Ohman said.

The California Assn. of Physician Groups, which represents physician groups practicing in the managed care model, also welcomed the state plan to help determine reasonable fees to be paid to noncontracted doctors when compared with amounts accepted by other contracted specialists.

Supreme Court to weigh in

The California DMHC maintains that balance billing is an illegal practice under insurance regulations implementing the state's 1975 Knox-Keene Act. An interpretation of the statute is the subject of a lawsuit currently pending before the state Supreme Court. The law prohibits a "contracting provider" from collecting from patients "any sums owed by the plan."

In that case, Prospect Medical Group, an independent physician association that also handles health care contracts for patients, sued the physicians of Northridge Emergency Medical Group. The doctors did not have a contract with Prospect but had provided emergency care to its patients. When Prospect paid the doctors less than the amount reflected on the invoices, the physicians billed Prospect's patients for the difference. Prospect sued the doctors, claiming that the practice was illegal because the doctors had an implied contract to treat patients for emergency care, as required by federal law, and Prospect was obligated to pay for those services.

The DMHC says the scope of the law includes an "implied" contract with emergency physicians who are not a part of the health plan, said Deputy Director Kevin H. Donohue.

But in February, the 2nd District Court of Appeal, Third Division, disagreed, finding that the statute did not prohibit balance billing in the absence of a preexisting contractual relationship because it applied only to written contracts. "The term 'contracting provider' refers to physicians who have freely negotiated a contract with health care service plans," Judge Patti S. Kitching wrote. The decision was appealed in May. Oral arguments have not been scheduled.

The CMA filed a friend-of-the-court brief supporting the appeals court's interpretation of the statute. "It underscores the rights of doctors to bill patients for services rendered when health plans are not paying them fairly," the CMA's Dr. Lewin said.

The California Assn. of Health Plans' Ohman said the group will file a brief supporting the DMHC's position.

The agency's Donohue said a ruling by the high court would not affect the new regulations because they were promulgated under a different part of the Knox-Keene statute. "There would have to be a separate challenge to address it," he said. The agency has not yet determined if it will file a friend-of-the-court brief in the Prospect case, Donohue added.

Dr. Lewin said that if the DMHC proceeds with its regulations to ban balance billing, "we will have no choice but to go ahead with some kind of legal action."

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Case at a glance

Prospect Medical Group v. Northridge Emergency Medical Group

Venue: California Supreme Court
At issue: Whether a state law that bans emergency physicians who have contracted with managed care plans from balance billing patients applies to out-of-network doctors.
Potential impact: Physicians say they should be able to bill patients for services they are required by federal law to provide when health plans routinely underpay claims to noncontracted emergency physicians. Health networks say the prohibition on balance billing was intended to keep health care affordable for patients and to keep them out of payment disputes.

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