A woman strides past the Hartford, Conn., headquarters of health insurer… (Bob Child, Associated Press )
With federal healthcare reform still facing political head winds despite its validation by the Supreme Court, this probably isn't the best time for health insurers to admit their utter incompetence in handling their most important role under the reform, which is keeping a lid on healthcare costs.
But that admission underlies a couple of lawsuits filed by Aetna and United Healthcare earlier this year, alleging that a Northern California chain of small surgical clinics fraudulently overcharged them tens of millions of dollars by counting on the insurers being asleep at the cost-control switch.
The clinics have joined with 60 individual doctors and the medical associations of California and Los Angeles, Ventura and Santa Clara counties in what is basically a countersuit against Aetna, filed last week in Los Angeles County Superior Court.
They say their main concern is that Aetna is preventing doctors who are themselves members of Aetna's contract network from referring Aetna members to out-of-network clinics, in violation of the patients' rights under their insurance policies. Don't you believe it.
The real issues at the heart of the case are different. One is who gets paid, and how much, for your medical care.
The other, perhaps more important, is whether unnecessary medical utilization increases, driving up costs, when doctors refer patients to clinics they own — such as the clinics at the center of this courthouse battle. Evidence from all over the country suggests that the answer is yes.
"These providers only make money when they do stuff," observes Jean Mitchell, a Georgetown University expert on physician-owned facilities. Some physician-owned clinics have profit margins of more than 25%, she says. "They're cash cows — it's why they've proliferated."
That's especially troubling in California, where physician-owned clinics are subject to such lax regulation that state authorities have almost no idea how their surgical outcomes match up to hospitals and other better-regulated facilities.
That should be a concern to you, and it should be the insurers' job to monitor that usage and stamp it out if it's unnecessary or overpriced, or both. Judging from the Aetna and United lawsuits, those companies have finally gotten around to taking that task seriously, which is good. But it still leaves the question: What took them so long?
The insurers' lawsuits are aimed at a firm named Bay Area Surgical Management. BASM's business model is the sale of shares in its half-dozen Northern California outpatient surgery clinics to doctors, who agree to perform at least a third of their surgeries at the facilities. To the extent that the clinics don't have contracts with major insurers that specify how much they'll get paid for each procedure, they can charge whatever the market will bear.
What bugs Aetna is that some of the physician share owners are members of Aetna's network, which helps the doctors attract patients. The insurer's position is that when the doctors refer those patients for surgeries or tests to out-of-network facilities they themselves own, that defeats the purpose of building a network based on negotiated fees.
How does this affect you, the patient? Many health plans allow patients to get treatment from out-of-network providers, on the understanding that the choice will cost them — they'll pay a coinsurance share of 20% to 50% of the bill, and the insurer will pay only a percentage of the remaining "usual and customary" fee for the service, supposedly an average of the fees charged in the region. The patient bears responsibility for the rest.
The idea is to encourage patients to use network providers who accept negotiated fees, which saves everyone money. The Aetna and United lawsuits say the BASM clinics winked at the patient obligations by waiving the coinsurance charge and promising not to bill patients for any balance not covered by their insurers. They then allegedly filed sky-high claims with the insurers, hoping to be reimbursed for the whole sum.
Among the claims cited in the lawsuits is an outpatient bunion operation for which a BASM clinic claimed $66,100. Aetna says the average payment to its in-network clinics for this operation is $3,677, but it paid BASM $52,880 on the claim anyway. United says BASM submitted a claim for $128,813 for a kidney stone operation in 2010. United blithely paid $97,051, even though its usual in-network payment was $6,851.
BASM disputes these figures, according to Bobby Sarnevesht, a manager of the firm. (He says several of the doctors named as plaintiffs in the case against Aetna, though fewer than half, hold shares in BASM clinics.) He says the lawsuits inflate BASM's claims and low-ball the network payments to make the difference seem more shocking. He characterizes the lawsuits as weapons in negotiations for network contracts — the insurers want the clinics to accept reimbursements so low they can't make money as independent facilities.