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Insurers' out-of-network pay changes likely mean they will pay less for care

Health Care Service Corp. is among plans adopting a fee schedule based on what Medicare pays, rather than on "usual, customary and reasonable."

By Emily Berry — Posted Feb. 14, 2011

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Physicians who are outside big insurers' networks in several states can expect health plans to pay even less of the cost of their services as Medicare rates replace fee schedules based on "usual, customary and reasonable" rates, doctors organizations say.

For physicians outside its networks, Chicago-based Health Care Service Corp., parent company of Blues plans in Texas, Illinois, New Mexico and Oklahoma, is moving to a fee schedule equal to what Medicare pays. Company spokeswoman Mary Ann Schultz said the implementation dates would vary depending on the state and individual products, but the switch is ongoing.

According to the company, more than 97% of its claims are for in-network services, with 3% out-of-network.

Others are on the same path. Though a UnitedHealth Group spokeswoman said there had been no systematic change, according to the Medical Society of the State of New York, United's New York subsidiary has been changing many of its contracts, particularly those with small businesses, so that its payment for out-of-network pay is based on Medicare rather than usual, customary and reasonable charges.

Aetna spokeswoman Cynthia Michener confirmed that it has moved some of its customers to out-of-network pay rates based on Medicare rather than on UCR. She said that the majority of Aetna members' out-of-network benefits are paid based on "reasonable" or "prevailing" charges, but added: "More members are in Medicare-based out-of-network benefits this year than last year. This is one of a number of benefit changes in these economically challenging times to help keep premium increases in check."

The switch to Medicare rates for out-of-network services probably will mean members who pay more for policies that include out-of-network benefits will be stuck with higher out-of-pocket costs, said J. James Rohack, MD, a cardiologist in Bryan, Texas, and immediate past president of the American Medical Association.

For example, the national average charge for a visit with an established patient, CPT code 99213, is $87.01, according to numbers provided by the AMA. The Medicare payment for a family physician in Chicago, in ZIP code 60654, for the same code, is $74.37. In many cases, a PPO plan would pay 50% of the national average charge, which would mean that the patient and insurer responsibility would be virtually evenly split at $43.50 each. However, if the insurer would pay $37.18, the patient would have to cover $49.83 -- a 14.5% decline, or $6.33, in what the insurer would pay. (See correction)

For other common CPT codes, the difference could be even higher.

"All of a sudden the insurer is going to pay less and pocket the difference in that higher premium," Dr. Rohack said. "The Medicare payment rate is not usual, customary and reasonable. It underpays physicians."

HCSC said it is making the change so that out-of-network expenses will be more predictable.

"This is not necessarily a savings across the board, but rather a consistent, transparent methodology that is widely recognized by the provider community," HCSC spokesman Ross Blackstone said in an e-mailed statement. "In some cases, reimbursement may be higher than before."

The AMA has long advocated for transparency when it comes to calculating out-of-network payment rates. In 2000, the Litigation Center of the American Medical Association and the State Medical Societies sued UnitedHealth Group over its subsidiary Ingenix's charge database that was until recently used industrywide as a basis for UCR rates.

In 2009, New York Gov. Andrew Cuomo, then attorney general, targeted insurers in the state, including United, after his office found the database was "rigged" to undercut payments. United and other insurers never admitted wrongdoing, but United settled its lawsuit with the Litigation Center and the Missouri and New York state societies days after it signed its deal with Cuomo's office.

United agreed to pay $350 million to physicians and patients who were reimbursed for out-of-network care at rates determined by the Ingenix database.

As part of insurers' settlements with Cuomo, they agreed to pay to establish a new database, FAIR Health, which sent its first claims information to health plans and other customers on Jan. 31.

In contrast to the old way of setting UCR, which Cuomo referred to as a "black box," some insurers argue that using the Medicare fee schedule is a somewhat more transparent method.

But Dr. Rohack said transparency isn't enough. "To most physicians, they don't believe [the Medicare rate] is acceptable. It's tolerated. It is transparent -- it's transparently broken."

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