Benefits and Compensation

Attitude Shift: The Glacial Pace of Hospital Billing Transparency

Hospitals are still resisting transparency, and reacting in unconstructive ways to reference-based pricing. The evidence shows many health care providers have some way to go in embracing changes designed to repair our nation’s cost spiral. We in the self-funding industry can make a difference, and at the same time protect our plan members from unfair balance-billing practices.

IRS guidance issued in December 2013 requires nonprofit hospitals to follow rules on balance-billing patients. Plans should explore these rules and take other measures to escape the dangers and waste of the current managed-care-network system.

Know Provider Mindsets

It is important for self-funding plans to know what large-scale health care providers such as hospitals think about, and how they respond to, payer initiatives such as reference-based pricing.

Many hospital organizations and their attorneys are sharing memorandums lamenting the fact that more self-insured, employer-sponsored benefit plans are electing not to enter into contracts with hospitals, either directly or through PPO networks.

They complain that plans, including municipal and county plans, are basing payment on a pre-determined reasonable amount, which in turn typically is based on some multiple of Medicare-allowable charges. (We call these reference-based pricing plans.) Amounts thus paid are typically far below commercial health insurance payments for the same services, they say.

We admit: RBP can reduce amounts paid, but exactly by how much?

My experience has shown that RBP payments are just below or comparable to in-network commercial payer disbursements. But why should hospitals limit themselves by comparing RBP payments to commercial carriers only? Why not all payers, such as uninsured, self-payers, Medicare and Medicaid?

Hospital Tactic: Target Patients

Regardless of the ultimate outcome, the patient is placed in the middle of a dispute between the hospital and the plan. It’s too bad: Plans are looking for health care value by learning the actual cost of services rendered by facilities and reimbursing based on that cost. It seems fair to everyone … except the facilities themselves.

These hospitals and other facilities have responded to RBP by informing such plans that the hospital does not agree to discount-billed charges, absent a written agreement to do so. The problem is that RBP plans are not looking for discounts off of billed charges and the facilities do not explain how they create their charges in the first place. Thus, what the hospitals are being advised not to accept is not what the plans are asking for.

The hospitals are informing patient beneficiaries that they are responsible for paying the billed charges for hospital services received; that there exists no agreement between the hospital and their plan; and that absent such an agreement, the patient may be responsible for any shortfall between the hospitals’ billed charges and plan benefits.

Hospitals understand that the self-funded health plan is not required to pay any additional amount and that their only recourse is against the patient. So, hospitals send demand letters notifying patients they do not waive their rights to hit patients for amounts not paid by health plans, based on their billed charges. Their main area of attack is on the patients themselves, and that leaves the task of defending patients to self-funded plans.

Therefore, plans that adopt RBP need to fight for the patient’s right to see and agree to a facility’s pricing parameters. If facilities are threatening to balance-bill patients, then they should give patients a clear list of the costs involved.

Cashing Check = Payment in Full

But if plans issue checks with conspicuous statements saying: “If this check is cashed, it constitutes full satisfaction of a disputed claim,” that indeed is a waiver of the hospital’s right to balance bill the patient, hospitals admit.

A letter I’ve seen from a hospital attorney stated that if it gets such a check, the hospital has two options: (1) it can accept the check subject to the condition; or (2) it can return it to the payer within 90 days and refuse to be bound by the condition. So, basically he agreed with our position that if the check is cashed, the hospital is bound to the statement.

If no explicit price is agreed upon before services are delivered, we simply ask the hospital to advise how the costs, resources expended and other expenses reasonably equate to the charges being billed to the patient. In all of my years, I have never seen a facility respond adequately to this … ever.

Considering the fact that most facilities could not defend the amount they charge if they were to have to do so in court, most facilities do not attempt to prove that billed charges reasonably reflect the value of their services. They realize that it would be safer for them to just accept the amount paid by the plan as payment in full.

Notice to Employers and Employees

Hospitals are beginning to send letters to employers that have adopted, or are looking into, RBP. They tell plans: (1) they ought to sign contracts with provider networks; and (2) if they don’t, workers could be held responsible for up to 100 percent of billed charges.

The reality is that employers are looking at RBP specifically because managed care networks aren’t working! An interesting aspect to the letter is that the hospital states that it is willing to negotiate directly with the employer on a deal. That’s a crack in the wall that employers should consider.

New Rules for Non-profit Facilities

But in their letters, hospitals make no mention of the IRS final ruling on Section 501(r), which limits how much a non-profit facility can collect from a patient in collection actions and the time frame in which it can actually proceed.

The IRS ruling contains new requirements for nonprofit hospital organizations covered under Section 501(c)(3), and tells them what they must do to retain their federal tax-exempt status. The reality is that most nonprofit hospitals have not met these guidelines, and calling them out on this is a great way to negotiate your claim payments.

Once a health plan establishes to a hospital that it owes no further payment, the attention turns to the patient and the facility’s attempt to seek additional payment from the patient.

Some of the new requirements include:

  • Conducting a Community Health Needs Assessment at least once every three years and providing solutions to address any community health needs discovered.
  • Having a written financial assistance policy and adhering to limits on how much they can charge patients with financial needs for emergency and medically necessary care. This means such hospitals have to think twice before balance billing and know more about which patients they are balance billing.
  • Observe new restrictions on collection and billing practices.

Before engaging in extraordinary collection actions against a patient, hospitals must ensure that reasonable efforts have been made to determine if a patient is eligible for the hospital’s financial assistance policy.

Examples of extraordinary collection efforts include denying medically necessary care to a patient until their previous medical bills are paid; reporting information to a credit agency; selling a patient’s debt to a third party; and initiating legal actions such as foreclosing on a patient’s property, seizing the patient’s back account or garnishing wages.

Extraordinary collection efforts are subject to two periods: the notification period and the application period. The notification period is a 120-day period starting after the first post discharge bill. The hospital is expected to notify the patient during this time that extraordinary collections efforts may occur if he or she does not make payments toward their outstanding hospital bill. After this period, the application period spans between 120 to 240 days from the conclusion of this notification period. During this period, the hospital or third-party agency may start to take extraordinary collections efforts, but in the event of patient payments or discovery of patient financial assistance eligibility, all collections efforts must cease or be reversed.

The hospital may not charge patients more than it generally bills to patients with insurance covering the same type of care. In other words, unlike what their attorneys may state publicly, the gross patient charges are never actually billed to patients. The law prohibits the use of gross charges, as hospitals may only bill patients at the best (meaning lowest) negotiated commercial rate, an average of the three best (lowest) negotiated commercial rates, or the applicable Medicare rate. Under none of these scenarios can the hospital balance bill the full billed charge amount!

In Conclusion

In summary, patients may not be billed more than amounts generally billed to insurers (including Medicare); nonprofit hospitals must make reasonable efforts to determine financial assistance eligibility before conducting extraordinary collection activities; and patients must be provided with financial counseling and should be aware of the financial assistance programs and protocol, under the ACA rules.

Once there is true pricing, there will be a health care revolution. As more and more employee benefit plans look to alternatives to the typical managed care network model, more eyes will be opened, and that can only be a good thing for the future of the self-insured industry.

Adam V. Russo is the co-founder and CEO of The Phia Group LLC, a cost containment adviser and health plan consulting firm. In addition, Russo is the founder and managing partner of The Law Offices of Russo & Minchoff, a full-service law firm with offices in Boston and Braintree, Mass. Mr. Russo’s practice is devoted to representing employers, plan fiduciaries, third-party administrators and insurers in employment and employee benefits matters. Mr. Russo is a frequent speaker and author on health care and employee benefits topics. Mr. Russo is the contributing editor of Thompson’s Employer’s Guide to Self-Insuring Health Benefits.

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