Judge Upholds Department of Managed Health Care Balance Billing Rule

California physicians suffered a setback in the effort to block the “balance billing” regulation this week when Sacramento County Superior Court Judge Michael Kenny denied the California Medical Association’s (CMA) petition to invalidate regulations promulgated by the California Department of Managed Health Care (DMHC) that prohibit physicians and hospitals from “balance billing” for emergency care.

“Balance billing” is the practice of billing patients directly for outstanding out-of-network care costs not covered by health plans. Balance billing has been a remedy to address nonpayment or underpayment by HMO’s and health plans; physicians could seek payment of “usual and customary” fees not only from the plans, but from the patients enrolled in the plans when the plans failed to pay. Until the regulations took effect, the only constraint on balance billing were contractual provisions in health plan contracts that prohibited billing patients for “covered services.”

The “Balance Billing regulation” defines “unfair billing pattern” to include balance billing in the context of emergency care rendered to enrollees in a health plan or HMO. The regulation provides as follows:

(a) Except for services subject to the requirements of Section 1367.11 of the Act, “unfair billing pattern” includes the practice, by a provider of emergency services, including but not limited to hospitals and hospital-based physicians such as radiologists, pathologists, anesthesiologists, and on-call specialists, of billing an enrollee of a health care service plan for amounts owed to the provider by the health care service plan or its capitated provider for the provision of emergency services.

(b) For purposes of this section:

(1) “Emergency services” means those services required to be covered by a health plan pursuant to Health & Safety Code section 1345(b)(6), 1367(i), 1371.4, 1371.5 and Title 28, California Code of Regulations,, sections 300.67(g) and 1300.71.4.

(2) Co-payments, coinsurance and deductibles that are the financial responsibility of the enrollee are not amounts owed to the provider by the health care service plan.

(3) “The plan’s capitated provider” shall have the same meaning as that provided in section 1300.71(a).

The DMHC policy appears to have emerged as a negative reaction to a single provider, hospital system Prime Healthcare, which balance billed thousands of Kaiser Permanente HMO patients for out-of-network emergency care. In retrospect, Prime’s action –which was intended to put pressure on Kaiser — led to a alignment of the state with the health plans in a way that puts emergency physicians in California in a terrible position. DMHC now takes the position that California law bars balance billing for emergency services because the legal obligation to provide emergency care under EMTALA gives rise to an implied contract with the health plans obliged to pay for those services.

The CMA had sued DMHC on behalf of California physicians over the regulation, Title 28 California Code of Regulations, § 1300.71.39 (28 C.C.R. 13700.71.39). Judge Kenny heard the CMA writ petition (seeking a writ directing DMHC to cease and desist from enforcing the regulations), Case No. 34-2008-80000059, on November 21, 2008. The CMA was joined by other groups whose members will be hard hit by the new regulations: the California Hospital Association (CHA), California Chapter of the American College of Emergency Physicians (ACEP), California Orthopeadic Association, California Radiological Society, and California Society of Anesthesiologists.

Judge Kenny’s ruling focused on the authority of DMHC under Health and Safety Code § 1371.39, which was added to the Knox-Keene Act as part of Assembly Bill 1455 (Scott, 2000) and allows HMOs to report “instances in which the plan believes a provider is engaging in an unfair billing pattern” to DMHC. Judge Kenny rejected the arguments that the regulation was invalid, which were:

(1) that the DMHC lacked the requisite delegated authority;

(2) that DMHC did not follow proper procedures under the California Administrative Procedure Act in promulgating the regulation because its economic impact statement conflicts with substantial record evidence;

(3) that the record lacked substantial evidence that the Balance Billing Regulation was reasonably necessary to effectuate the statutory purpose;

(4) that the regulation conflicts with the Knox-Keene Act’s purpose that contracts between HMO’s and providers be “fair and reasonable to ensure adequate networks”; and

(5) that the regulation violated due process because it is overly vague. Judge Kenny’s analysis of the issues was as follows:

The full text of Judge Kenny’s ruling can be downloaded here. He rejected all of the CMA’s arguments, concluding that the Knox-Keene Act, California Health and Safety Code § 1371.39(b)(1), plainly authorized DMHC to define “unfair billing practice,” in the manner reflected in the regulation. He declined to consider CMA’s argument that the Legislature never intended to vest DMHC with such sweeping authority. Among other arguments, Judge Kenny also rejected the contention that DMHC lacked statutorily-delegated authority to regulate emergency services providers because doctors and hospitals are regulated by the Medical Board and Department of Public Health, respectively. Relying on a plain language reading of § 1341(a) of the Knox-Keene Act, he held that the Act gives DMHC authority to execute laws “relating to” HMO’s and does not limit that authority to laws directly regulating HMO’s. Moreover, he noted,

the Legislature expressly stated in § 1371.39 that DMHC was to define certain provider conduct. As § 1371.39’s provisions regarding “unfair billing patterns” engaged in by providers in submitting bills to HMO’s are plainly laws “related to” HMO’s, it is within DMHC’s jurisdiction to regulate providers with respect to such billing patterns.

The balance billing issue remains at the heart of a separate case pending before the California Supreme Court. Physicians, hospitals, and their advocates can only hope that the Supreme Court takes a different view. For emergency physicians and hospitals that purposely avoid health plan contracts, balance billing had offered leverage to demand payment of their usual and customary rates; if health plans failed to pay, they faced the prospect of patient-enrollees angered by receiving physician or hospital bills. As of October 15, that leverage is gone as a result of the DMHC, enabling health plans to underpay providers. (DMHC claims that it will regulate plan payment, but, if history is any indication, providers should not expect DMHC to be able to rein in plans’ discretion to set rates for payment where they deem appropriate.) Indeed, early reports from our emergency medicine clients have confirmed that health plans are now unilaterally setting rates for noncontracted emergency care at absurdly low rates that do not even cover staffing costs. Emergency physicians who depended on balance billing (or the threat of balance billing) are likely to cancel or renegotiate contracts with hospitals, who in turn will be pressured to subsidize care. Should the law fail to change, the end result is almost certain to be the closure of even more emergency rooms in an already decimated Southern California emergency care system. Or perhaps another bailout plan?

Microsoft HealthVault Partners with Aetna

Microsoft’s HealthVault or Google’s Google Health are the best known competitors is the emerging market for electronic health records (EHR) or personal health records (PHR). (The two terms are often used interchangeably, although EHR is meant to refer to the provider-controlled record (with myriad legal issues attendant to its content) and PHR to the patient-controlled record, so that, technically, both are PHR.) The Wall Street Journal reports that Microsoft has partnered with Aetna to transfer enrollee medical records to HealthVault. Patients enrolled in Aetna health plans will have the option of placing their Aetna PHR (e.g. claims, diagnoses, test results and prescriptions in HealthVault. The partnership with Aetna follows a June 2008 announcement of a HealthVault trial partnership with Kaiser. None of the major health plans (in California, Anthem Blue Cross, Blue Shield, United, Cigna, or Health Net) have yet partnered with Google Health.

California Department of Managed Health Care Limits Balance Billing by Hospitals and Emergency Physicians

Lisa Girion reports in the Los Angeles Times on a new directive from the California Department of Managed Health Care (DMHC) that prohibits hospitals and physicians from “balance billing” patients for emergency care not covered by insurers. “Balance billing” refers to the practice of billing patients for the balance of the charges remaining after their insurance has paid a portion of the bill. When physicians are contracted to health plans, their contracts typically prohibit the practice. Hospital emergency rooms and emergency physicians have relied upon balance billing whenever treating patients with whose plans they are not contracted.

While DMHC’s self-congratulatory public statements treat this decision as a victory for consumers against an unfair practice, the reality is far more complicated. The real victory is not for patients, but for health plans, whose control is expanded by the imposition of this constraint. For patients, this decision is certain to worsen already strained access to emergency care. The practice of balance billing has been integral to the sustainability of emergency medical practice in California as a result of the unfair practice of the health insurers, which use their disproportionate economic power to delay and reduce payments unilaterally. Although hospitals and physicians are theoretically entitled to a usual and customary charges in the absence of a contracted rate of payment, health plans avoid paying such charges with impunity. Skeptics should compare the fiscal track record of the health plans with the record of emergency rooms in recent years. The result has been the closure of hospital after hospital in some parts of California, resulting in significantly less hospital bed access than other parts of the country.

The backdrop for the DMHC decision has been litigation between Prime Healthcare and Kaiser, in which DMHC intervened. Prime, the hospital chain founded by physician Prim Reddy, has developed a successful model of acquiring failing hospitals, canceling their private health plan contracts, and forcing health plans to pay usual and customary rates. Prime appears to have made a tactical error when it antagonized Kaiser patients in order to put pressure on Kaiser to pay for patients who visited a non-Kaiser, Prime emergency rooms. Kaiser urged patients to complain to DMHC, and succeeded in depicting Prime as the problem. Hospitals and emergency physicians need to find ways to turn patients and DMHC into allies to address the challenge of abusive health plans.

Newly Enacted Mental Health Parity Act Expands Benefits

The Los Angeles Times reports on the recently enacted Mental Health Parity Act. Included in the financial bailout legislation enacted last week, the new law requires health plans to cover mental and physical illnesses equally. Among other things, the law prohibits companies from establishing higher co-pays or deductibles for mental health and substance abuse treatment. Companies with fewer than 50 employees are exempted.

Recommended Action: While news coverage has focused on the anticipated increase in health insurance costs resulting from the law, the expansion in benefits should be positive in many respects for providers of mental health services and providers who treat substance abuse issues by ensuring more expansive coverage of benefits. Among other things, the law bars restrictions on outpatient therapy sessions or hospital treatment days. Not all patients will benefit, however; the law does not require plans that do not currently offer any mental health treatment to begin doing so.

Harry Nelson is a partner in Fenton & Nelson, LLP. Fenton & Nelson counsels physicians and other healthcare providers on regulatory compliance and business matters. For additional information, please contact him at harry@fentonnelson.com

©Harry Nelson 2008

Ninth Circuit Upholds San Francisco’s Pay-or-Play Healthcare Ordinance

Marc Lifsher reports in the Los Angeles Times on the Ninth Circuit Court of Appeals’ decision to uphold the San Francisco municipal healthcare ordinance. The ordinance, which took effect in January 2008, is “pay or play”: employers with 20 or more employees (50 for not-for-profits) are required either to “pay” for health care insurance or “play” by the rules of the city health care fund. Although the plan is strictly local, the fact that it has been upheld is expected to boost efforts to legislate statewide universal health insurance system.

Models of Physician Compensation

Meredith Rosenthal’s New England Journal of Medicine review of models of physician compensation models, old and new, is recommended as a preview of what lies ahead. Her preview of emerging models of compensation is below.

Emerging Models of Payment Reform

Helping Patients Challenge Insurance Denials

Watching patients struggle with health insurers’ refusal to cover treatments can often be excruciating for providers. Anna Matthews describes strategies that increasingly better educated patients are using to appeal payors’ denials in the Wall Street Journal. (“Pushing Back When Insurers Deny Coverage for Treatment,” 9/25/08).

First, Matthews, recommends, patients need to discover “what led to the insurer’s decision, and keep a careful paper trail.” Patients need to review the particular insurer’s procedure for appeals, and then to demand documentation of why coverage was denied. Second, patients need to establish proof that the treatment sought qualifies for coverage under their health plan. Third, patients may need to appeal to the state if the insurer rejects their appeal. Matthews also highlights helpful online resources, such as the Kaiser Family Foundation website and the Patient Advocate Foundation. In addition, she recommend the state advocacy resources compiled by Families USA. Sometimes employers will provide assistance; otherwise, patients can seek help from Health Proponent, Patient Care, or or a similar organization.

Recommended Action: Advising patients on how to challenge insurers can be time consuming for providers, who have enough struggles of their own in dealing with insurers. One upside of the trend towards consumer-directed care is patients who have the knowledge and resources to pick their own battles with payors. Providers can should have suggestions for patients to educate themselves and be able to challenge insurers directly.

Harry Nelson is a partner in Fenton & Nelson, LLP, a law firm that counsels healthcare providers on business and compliance issues. For additional information, please contact Fenton & Nelson at harry@fentonnelson.com

©Harry Nelson 2008

California Imposes Restrictions on Health Plan Rescissions

The L.A. Times’ Lisa Girion reports that Governor Schwarzenegger has signed into law A.B. 1150, a measure banning health plans from paying incentives to their employees (or otherwise establishing performance goals) for cancellations of coverage or associated financial savings. “Post-claims underwriting” is the unlawful practice by which health insurance companies rescind coverage for their enrollees based on supposedly incomplete underwriting, which led the plans to issue coverage that they would otherwise have denied. Over 2,200 Californians are believed to have lost their insurance through post-claims underwriting over the past four years.

The California Department of Managed Healthcare (DMHC) has entered into settlement agreements with health plans under which they will pay fines, offer enrollees new coverage without medical underwriting, and, in certain cases, reimbursement of enrollees’ out-of-pocket costs for medical treatment after the contracts were rescinded. The plans also agreed to corrective action to make their underwriting processes more transparent, and to subject themselves to self-audits for fairness.

Recommended Action: California health plans are using a variety of tactics to deny financial responsibility for treatment rendered by providers. Providers should ensure that patients who encounter unfair treatment by their health plans are educated as to their rights, and should encourage them to assert themselves when plans improperly deny coverage.

Harry Nelson is a partner in Fenton & Nelson, LLP. Fenton & Nelson advises healthcare providers on disputes with payors, including private health plans, Medicare, and Medi-Cal. For additional information, please contact him at harry@fentonnelson.com

©Harry Nelson 2008

Adapting to Consumer-Directed Care

Professors Mark Hall and Carl Schneider examine legal challenges relating consumer-directed healthcare in the Michigan Law Review . What is consumer-directed healthcare? Traditionally, healthcare was doctor-directed: doctors administered care to patients by giving them limited options, as to which patients had limited access to information on which to base decisions and their respective risks or benefits. In the “consumer-directed” paradigm to which we are shifting, patient-consumers now exercise control over the range of options and the information on which to choose. As a consequence, control has shifted from healthcare provider to healthcare consumer.

Recommended Action: The trend presents wide ranging ramifications for providers to consider. Increasingly empowered patients will be a boon or bane for providers, depending on the success with which providers adapt to negotiating, rather than dictating, the delivery and management of caring for a new generation of patients. The trend toward consumer-directed care also presents new legal challenges: patient control over health care records, patient control over the patient-provider relationship, and issues of cost and pricing. Providers need to consider how to be respectful of patients without ceding their rightful role in the provider-patient relationship, how to engage patients most productively in sharing decision-making, and how to protect themselves from patients who abuse their increased power.