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Out-of-network operations: Time to assess the opportunities, risks & issues in a changing marketplace

Out-of-network operations have formed a significant component of the business of ambulatory surgery centers for many years. Some providers operate on an exclusively out-of-network basis. Others use OON strategies to leverage their dealings with insurers. Some facilities have a mix of in-network and OON activities based on variances in insurer reimbursement and contractual requirements. Whatever the profile of an individual facility, developments in today's marketplace call for a careful assessment of the requirements, risks, potential rewards and strategic issues associated with OON operations.

Multiple marketplace trends impact OON operations

There is no one right or wrong answer in terms of how a facility should address OON operations. There is, however, a growing list of sophisticated issues that need to be addressed in order for any facility to determine an appropriate OON strategy and properly configure its OON operations in a compliant and effective fashion.

Litigation over OON operations is on the rise

For some time now, insurers have been evidencing an increasing willingness to litigate over ASC practices associated with OON status. Payers argue OON ASCs overcharge for their services and fail to properly collect copayments from beneficiaries. Cases have been brought by payers in a number of jurisdictions, including significantly in California, Texas, New Jersey, New York and Indiana, to name but a few. Legal standards governing these lawsuits vary widely between the states. ASCs need to familiarize themselves with the applicable legal requirements in the jurisdictions in which they operate and then also determine the policies and litigation histories of their major carriers.

Failure to properly address an ASC's OON billing obligations not only can impact a facility's eligibility for reimbursement, but can also create exposures under legal theories of fraud, breach of a statutory duty or various unfair trade practice or unfair insurance practice theories. These can create major liability and attorney fee exposures. Aside from the outcome of any such litigation, the resultant press coverage can be injurious to an ASC's reputation and operations.

For example, in one suit brought by Aetna the insurer vigorously attacked the OON billing practices of Humble Surgical Hospital LLC in Texas. The insurer said that patients were charged "outrageous" amounts for OON services. The lawsuit claimed that doctors told patients they would not be subject to higher costs for going to an OON facility. The charges billed by the OON doctors were up to 10 times higher than the usual, customary and reasonable fees of hospitals in the same market, according to Aetna's allegations.

Similar suits with politically damaging allegations against ASCs have in the past been filed in other jurisdictions including New Jersey and New York. The providers often countersued in these proceedings, alleging inadequate OON reimbursement. One key issue to be mindful of is that discovery and the cost of litigation can be crushing. Facilities are well served by being cognizant of the local payer landscape and by avoiding undue litigation exposures.

Recently, Cigna filed a billing fraud suit in federal court attempting to recoup millions paid to Indiana-based surgical centers allegedly participating in a "fee-forgiveness" model to attract Cigna's OON patients. Cigna claimed the surgery centers attracted OON members by reducing the members' copayments and other financial responsibilities associated with surgical care, but at the same time charged Cigna inflated prices for the services in question.

Cigna also has gone to court in the past to stop other OON providers from attracting patients through fee-forgiveness.

The American Medical Association has warned against "fee-forgiving" and some states have laws against the practice. Cigna also alleges the model violates the Employee Retirement Income Security and Racketeer Influenced and Corrupt Organizations Acts.

At Constitution Surgery Centers, we carefully assess with our affiliated surgery centers the ins and outs of OON reimbursement practices of payers in any given marketplace. We then couple this with an assessment of state regulatory requirements associated with OON billing to determine an appropriate course of conduct for a particular facility. Finally, we look at the practice patterns and contractual obligations of our affiliated physicians to determine what the best course of conduct is for both the facility and the physicians.

Payer practices

Beyond litigation, payers have moved aggressively to place limits on the utilization of OON facilities and on the rates paid to such facilities. Historically, OON facilities benefited from somewhat lax payer application of charge-based reimbursements that enabled facilities to receive significantly higher reimbursements than in-network facilities.This is fast-changing. Often, insurers now build into their policies and subscriber agreements reimbursement limitations unique to OON facilities. This may include distinct artificial fee schedules or discounts off reimbursement for OON providers.

Many payers also are placing stringent limitations on both the referral practices of physicians and the reimbursements paid to OON providers. Insurers often tend to impose contractual obligations on referring physicians to limit OON "leakage." These limitations should have their genesis in policy and contract language, but insurers have been known to be quite aggressive in trying to establish limits for OON referrals.

A facility should determine the major payers in its marketplace. Then, as a matter of due diligence those payers' policies applicable to OON referrals by participating physicians and contract terms for subscribers need to be evaluated in addition to the ASC looking at its own obligations and potential reimbursements. An ASC needs to coordinate this analysis with billing and collection expertise. OON payments can negatively impact the ASC's cash flows and the number of days outstanding for its accounts receivable. Failure to know and address OON claim submission requirements at the outset only exacerbates this situation.

Finally, a facility needs to guard against inappropriate reductions on the reimbursement to which it is entitled for its services. Only by regularly auditing claims payments and by coupling good legal and billing expertise can a facility ensure both the compliance of its operations and the adequacy of payer reimbursements to the facility.

Coordination with affiliated physician professional practices is essential for proper patient interaction

As noted above, a major consideration for any OON facility is what the contractual obligations of its referring physicians may be. Even if a facility is OON, many of its referring physicians may be in-network for the services of their professional practices. In-network physician agreements often contain a variety of limitations against OON referrals. These can vary widely, as do the enforcement practices of insurers.

In-network providers may be obligated to refer to in-network facilities "when available." Contracts frequently now go beyond this and require physicians in some instances only to refer to in-network providers or to make referrals OON only with the prior authorization of the insurer. Even when permitted to refer to an OON facility, a physician may be obligated to provide information to patients as to the in-network alternatives and/or the cost of OON operations.

Recently, some payers have actually terminated the participation agreements of in-network physicians over non-compliance with these referral requirements. An ASC must align its participation profile with the status and obligations of its referring physicians.

There also must be sophisticated education and coordination programs between the professional practices of referring physicians and the facility. Failure of a physician's staff to properly communicate to patients on the front end and to disclose the requisite information required under state law can not only jeopardize reimbursements to the facility, but can also create legal exposures for both the facility and its referring physicians.

Regulatory trends

A number of regulatory trends also are creating added issues for OON facilities.

In a number of states recent transparency and other initiatives require referring physicians and/or facilities to disclose their fees, copayment obligations or the OON status of a facility in advance to patients. This can create patient relations issues and deter patients from utilizing a facility. You need a sophisticated billing department to properly quantify patient obligations and coordinate communications with patients consistent with both applicable state laws and contractual obligations.

Patient copayment and billing practices

Numerous insurer lawsuits and enforcement actions by regulatory officials have focused on facilities not billing patients for applicable copyaments. Facilities have been successful in some states in arguing that they are under no obligation to bill or collect such amounts as OON providers not in privity of contract with the insurers. In other jurisdictions, failure to bill and collect such amounts has created major exposures for facilities. It is critically important for an ASC to have qualified counsel address any billing, unfair trade practice, consumer protection and health insurance billing statutes in the jurisdiction in which an ASC operates.

Once a facility's legal obligations are determined, it then is essential for a facility to work with a seasoned management staff to ensure that its operations, billing and patient communications comport with applicable legal requirements. Audits on a recurring basis can help a facility from backing into exposures due to poor operational practices.

Strategic considerations

OON operations can have significant impact on the strategic positioning of ASCs.

First, increasingly, hospitals are the strategic partners of choice with which ASCs seek to align. Hospitals are far less likely to have large OONprofiles with payers. For this reason, ASCs with significant OON profiles are less attractive affiliation candidates for hospitals. For both hospitals and other potential acquiring entities or joint venture partners, OON revenues are routinely discounted, in part because of the increased regulatory burdens of OON operations and because some third parties view such revenues levels as non-sustainable on an ongoing basis.

Finally, in many specialties such as orthopedics, ASCs are closely examining the possibility of engaging in more extensive procedures, such as total joints, to be performed in the ASC in conjunction with an affiliated recovery care services. If this is a major focus of an ASC's plans, the ASC needs to recognize that any OON case rate reimbursements may be time consuming and difficult to achieve. Further, many payers now are establishing detailed participation criteria associated with these major revenue procedures. In many cases, payers establish criteria of excellence, and these criteria in certain instances may require an ASC to consider in-network participation.

In light of all the foregoing, it is clear that the OON landscape has a growing complexity about it. It also should be evident that any OON strategy for a faculty has to include a sophisticated legal and financial analysis of the facility's own operations and the local marketplace. OON activity remains an important tool for facilities but one, just like the surgical scalpel, that needs to be wielded with precision by experts who are armed with a full understanding of the pertinent underlying facts and circumstances.

We at Constitution Surgery Centers welcome addressing these issues as part of our overall work with our facility partners to maximize the value of facility operations to patients and providers.

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