Out of Network Claims Market Gets More Interesting: Cedars-Sinai, UCLA Dropped by Anthem

Out of Network Claims Explained

One of the most significant inefficiencies in health care is the pricing strategy of health plans regarding their policy on reimbursement for members who receive medical services from health care providers who are not contracted as part of the network. So called “out of network claims” are those that are sent by a health care provider to a health plan when seeking reimbursemnt for an insured.  In other words, if you choose your own doctor, hospital, clinic, or other health care provider and that provider does not have a contract with the health insurance company that covers you, you may pay more out of your own pocket for those services.  The health care provider may bill more for the services, but the health plan may either delay prompt payment or attempt to negotiate a lower payment.

Affordable Care Act and Out of Network Claims

So-called “Out of network claims”  are a key component of building Accountable Care Organization business models.  The reason is that to create incentives for members of an ACO plan to stay in the network of contracted providers of the health plan, they must realize cost savings as well as improved health care.

  1. The Affordable Care Act caps out of pocket charges to insureds in qualified health plans (QHPs).
  2. Self-insured employers under the Employee Retirement Income Security Act of 1974 (ERISA) are not exempt from this under the ACA though there is an exception.
  3. QHPs do NOT have to count out of network out of pocket costs for out of network. See https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs18 , Q4 “If a plan includes a network of providers, is the plan required to count an individual’s out-of-pocket expenses for out-of-network items and services toward the plan’s annual maximum out-of-pocket limit? No.”

This creates a conundrum for health care consumers. If they wish to use a health care provider that is out of network, they may select their own doctor or other health care provider, but they may also incur higher costs in the form of ‘patient responsiblity’ which is billed by a health care provider but not covered by a health plan. (see Does a flaw in the ACO business model leave out the patient?)

Cedars Sinai Dropped by Anthem

The Los Angeles Times ran a story that Anthem is cutting well-respected health care providers UCLA and Cedars-Sinai from its network of contracted providers.   Cedars alone is a $3 billion health care system and if industry averages apply, probably over 20% (twenty percent) of their patients are out of network or covered by Anthem Blue Cross.  There are solutions that enable out of network claims cost reductions for health plans while accelerating payments to health care providers, and potentially reducing out of pocket costs on those claims to patients.  There have been solutions that offer some of these benefits for years, but they charge the health plan for some of the savings, which increases administrative fees and therefore works against new Medical Loss Ratio (MLR) provisions of the Affordable Care Act [1].  (See note below regarding CMS and Medical Loss Ratio).

Out of Network Solutions

Solutions that accelerate payments, increase the velocity of capital and decrease the cost of healthcare while supporting Medical Loss Ratio are the way of the future (see Out of Network Claims Strategy: Don’t Damage MLR).  New standards such as ICD-10 are expected to have an initial negative impact on reimbursement speeds, so these solutions are going to be more important in the future.

Thomas Priselac, chief executive of Cedars-Sinai Medical Center, said the Anthem  exclusions offer a “false economy” because they don’t reduce costs in the health care system overall.  See: Cedars-Sinai and UCLA cut from Los Angeles health plan – latimes.com.

Why Medical Loss Ratio is Important in Solutions for Out of Network Claims

[1] Medical Loss Ratio – Many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing.  The Affordable Care Act requires health insurance plans to submit data on the proportion of premium revenues spent on clinical services and quality improvement, also known as the Medical Loss Ratio (MLR). It also requires them to issue rebates to members if this percentage does not meet minimum standards. MLR requires health plans to spend at least 80% or 85% of premiums received on medical care, with provisions imposing tighter limits on health insurance rate increases. If they fail to meet these standards, the insurance companies will be required to provide a rebate to their customers starting in 2012.

Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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