United to fine physicians if patients go to "wrong" lab

Health plan executives say the policy is a reminder to help patients stay in-network. Doctors fear it sets a disturbing precedent.

By Bob Cook — Posted March 5, 2007

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If UnitedHealth Group members get blood drawn at an out-of-network lab, then United says it could draw some blood from physicians.

The nation's second-largest private-pay health plan said that, beginning March 1, it would institute a policy that will minimally fine a physician $50 if a patient goes outside United's network for lab services. The sum represents the cost difference to United between nonparticipating and participating laboratories, according to a letter to physicians dated November 2006.

If patients continued to use out-of-network labs, the letter said, doctors could face further sanctions. Those include a "change of eligibility" in United's pay-for-performance and quality-rating programs, a "decreased fee schedule," or termination from the plan's network.

In a January meeting with the Iowa Medical Society, United representatives said the health plan did not intend to fine physicians every time a patient went to an out-of-network lab, unless there was evidence a doctor sent the patient there, said Jeanine Freeman, IMS senior vice president of legal affairs.

The objective, United told the medical society, was to remind doctors to refer patients to in-network labs. United spokespeople could not be reached for comment at press time.

But what is upsetting physicians and organized medicine is "the precedent that this sets," Freeman said.

The AMA and state medical societies sent letters to United protesting the intent to fine doctors. While plans have used various means to fight paying out-of-network rates, medical society executives say they can't think of a case in which plans bluntly assessed financial penalties on physicians for their patients' decisions.

"To penalize the doctor for patients making a choice in what they believe is in their best interest is crazy," said AMA Board of Trustees member J. James Rohack, MD, a Temple, Texas, cardiologist.

United points out in its letters to physicians that it has a "robust" network of 1,500 national, regional and local laboratories. It also notes that the penalty system does not apply to an in-office lab or to a facility in which a physician has a financial interest. In the company's eyes, patients have plenty of choice, and doctors had plenty of notice -- 90 days -- to tell patients they would no longer refer them to out-of-network labs.

But United's effort isn't only about cutting costs, Freeman said. It also reflects a huge fight between the two largest lab companies in the nation, a fight that is knocking physicians around like "a bit of a ping pong [ball] here," she said.

"Health plans have had preferred-provider relationships with labs for some time," said Kevin Schulman, MD, a professor of medicine and business administration at Duke University in North Carolina. "But this does sound new."

Battle of the behemoths

United's decision to penalize doctors has its roots in a deal the plan executed as of Jan. 1. On that date, it began a 10-year agreement with Laboratory Corp. of America that made the Burlington, N.C.-based company United's exclusive national supplier of lab services. Left out is the company with which LabCorp is fighting for the largest share of the $40 billion clinical lab market -- Lyndhurst, N.J.-based Quest Diagnostics.

LabCorp, which splits 25% of the nation's lab business with Quest, expects to receive at least $3 billion from United over the course of the contract.

LabCorp said that over the next three years it would reimburse United up to $200 million in administrative costs "related to developing an expanded network." Translated, that means United might spend $200 million in out-of-network costs as LabCorp adds locations, particularly in the Northeast, where Quest is more dominant.

The stakes are high. Quest lost about 8% of its annual business when it failed to land the United contract. It also lost out to LabCorp on an exclusive deal with Horizon Blue Cross Blue Shield of New Jersey. The New Jersey plan has not announced punitive actions against physicians for sending patients to Quest.

As a result of the deals, LabCorp is crowing about its record stock price, while Quest is warning investors about the hit to profits.

Quest also is launching its own offensive against United and LabCorp. On Feb. 14, it released a survey purporting to show that physicians preferred Quest over LabCorp. It also produced a handout for physicians, and another for physicians to give patients, that outlines how to contact medical societies, state insurance commissions and others to protest the United-LabCorp deal.

Iowa Medical Society's Freeman said her association is taking no position in the LabCorp-Quest fight.

The AMA's Dr. Rohack said that in this corporate battle, the physician and the patient are collateral damage. For example, he said, no one is offering to pay physicians' costs for switching their administrative systems from Quest to LabCorp, nor are patients given the option of going to whatever lab is most convenient and best for them.

"This highlights our concerns of the monopoly domination of large insurers, and the trickle-down aspects of when they make a decision," Dr. Rohack said. "They result in hassles to patients, and hassles to doctors, to maximize profits [for insurers]."

Fighting the deal

Medical societies are making clear to United they are not happy with the LabCorp deal or the physician fining policy. The Connecticut State Medical Society met with the state's attorney general to discuss whether the deal was illegal. The society contends the policy restricts access to care. On its Web site, LabCorp lists 14 Connecticut patient service locations, most of them opened in the last four months. On its Web site, Quest lists 87 locations in the state.

United has been responding to medical societies, including a letter to CSMS that said patients still have access to more than 150 labs statewide. But medical society spokeswoman Audrey Honig Geragosian said United's response "has not been sufficient."

Freeman said she's not sure what legal recourse physicians might have in trying to fight United. "Contracts can do an awful lot," she said. "Our practices have very little ability to battle an unfavorable practice issue."

The concern is that United's move could inspire other health plans to penalize in-network doctors whose patients decide to go out of network for further care, Freeman said. United, she said, is giving itself "the authority like a state agency to assess fines or penalties."

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UnitedHealth Group's penalty policy

Excerpts from letters:

  • "It is the intent of UnitedHealthcare to work with participating physicians to promote network viability and stability, and to maximize the value of in-network laboratory services. Our expectation is that this collegial approach will continue to succeed, and that the interventions ... will be applied only in rare circumstances, if at all."

-- Company letter to physicians explaining a policy that would fine physicians a minimum of $50 if their patients received tests at an out-of-network laboratory

  • "The Iowa Medical Society is concerned with UnitedHealthcare's sanctioning protocol for use of out-of-network laboratory providers and questions UnitedHealthcare's authority to impose such a sanctioning system. It is one thing to say that contractually a health plan will not reimburse for or will pay less for or will not pay directly for services received by an out-of-network provider; it is quite another to impose a penalty for use of the services of an out-of-network provider. Patients and their physicians cannot be affirmatively sanctioned for making a marketplace decision. This United policy goes too far."

-- Jeanine Freeman, senior vice president for legal affairs, Iowa Medical Society, to Rita Donovan, director of network development for UnitedHealthcare of the River Valley in Des Moines, Iowa

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Other UnitedHealth policies under fire, too

The Connecticut State Medical Society is protesting two other decisions UnitedHealth Group recently enacted.

Under one policy, United will no longer reimburse a facility fee for any endoscopy service provided outside a physician's office. The society said this would result in a reimbursement reduction of up to 30%.

Encouraging such procedures to be done in the office is also "a practice inconsistent with today's standard of care in Connecticut," the society said in a letter to state Attorney General Richard Blumenthal.

The other policy requires that all physician reimbursements be by electronic funds transfers through a United-owned bank, Exante. In the same letter to Blumenthal, the society notes that it and the AMA are against mandating electronic claims payments. The society also says this mandate, if followed by other health plans, would force physicians' costs up by requiring them to have relationships with potentially dozens of banks.

United wrote back to the society that its endoscopy policy changes are consistent with Centers for Medicare & Medicaid Services standards for payment.

United also wrote that it spent 10 months educating physicians on the electronic funds transfer, so they should have had time to adjust.

Also, United says the society is incorrect in saying physicians must have a banking relationship with Exante to receive payments.

The society met with Blumenthal to discuss these topics, as well as the lab services requirement. As of press time in mid-February, Blumenthal had not taken any action against United.

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