The out-of-network co-pay conundrum – To waive or not to waive ... And how?

A recent federal court ruling in Texas highlights a growing trend of private insurers scrutinizing "out-of-network" providers that waive patients' cost-sharing amounts.

On February 15, 2017, the court ruled that Cigna can move forward with its suit to recoup $8 Million in alleged overpayments from a network of ambulatory surgery centers.1 Cigna alleges that the Employee Retirement Income Security Act of 1974 ("ERISA")2 and various state law prohibitions against fraud and negligent misrepresentation were violated when the surgery centers improperly submitted claims to Cigna because the centers had waived patients' financial responsibilities related to out-of-network services. This pending case is one of a handful of recent cases involving insurers suing providers that routinely forgive patient responsibilities for services provided out-of-network.

While patients generally receive services from healthcare providers who are "on their plan", or "in-network" with their particular insurance carrier, some patients have the choice to go to providers that are not "in-network" with their insurer. These providers are often referred to as "out-of-network". Because an out-of-network provider has not contracted with a particular insurer, such provider is not obligated to accept the insurer's pre-negotiated rates for services. Rather, an out-of-network provider is generally free to bill its standard charge to an insurer. As part of many insurers' coverage agreements with enrollees, insurers agree to pay a certain portion of bills submitted by out-of-network providers, leaving the enrollee responsible for the remaining "balance". This "balance" often entails a larger percentage of the cost of a service than if the service was provided in-network, including by way of higher co-insurance percentages, co-payments and out-of-pocket maximums. When an out-of-network provider submits a bill to an insurer, the insurer assumes the patient will be billed and pay the remaining balance due.

For various reasons, however, out-of-network providers may not want to bill a patient for the full amount of this responsibility, or even any amount at all. For example, a provider may be happy with the amount which an insurer has reimbursed out-of-network, which may often be greater than the amount the provider would have received from the insurer had the provider been in-network. A provider may also waive a patient's balance as a form of professional courtesy or general patient accommodation, or due to a patient's financial resources.

Regardless of the reasoning behind the waiver of a patient's financial responsibility for an out-of-network service, such a waiver can give rise to various legal claims, including alleged violations of the following:

State insurance fraud laws: Many, if not all, states have prohibitions against the submission of claims to an insurer which contain false or misleading information.3 When an out-of-network provider submits a claim for services to an insurer, the provider is stating that it is charging "$X" for the service. In turn, pursuant to the insurer's agreement for coverage with the applicable enrolled patient, the insurer agrees to reimburse the out-of-network provider a certain percentage of "$X", with the understanding that the patient will pay the remaining amount. However, when a provider reduces or waives the amount for a which a patient is responsible, such a waiver may be viewed as causing the submission of false or misleading information to the insurer, as it could be argued that because the provider never intended to collect the amount (or any portion thereof) due from the patient, the submission of a claim for "$X" to the insurer was false or misleading (because "$X" was not the provider's standard charge).

Common law fraud prohibitions: States also have prohibitions against common law fraud, which often require: (i) a showing that a material misrepresentation was made, (ii) which the representing party knows or should know to be false, and (iii) that such misrepresentation was made with the intent that it be relied and acted upon, and (iv) further that such misrepresentation was relied upon by another to that party's detriment. Just as with state insurance fraud laws, a waiver of a patient's financial responsibility while submitting a claim to an insurer listing the "full" charge for a service may be viewed as making a material misrepresentation to an insurer.

ERISA: While the out-of-network claims of the type described in this article do not involve reimbursement by federally funded healthcare programs, such as Medicare and Medicaid, federal law may still be implicated. Insurers have brought claims against providers who have waived patient responsibility for out-of-network claims under ERISA. Insurers have claimed that ERISA empowers them to deny coverage for services (including out-of-network services) pursuant to which a provider has not enforced a plan's patient cost-sharing requirements, and further that insurers are entitled to recover overpayments which were made to providers pursuant to promises that patients would pay their cost-sharing requirements. Additionally, in the self-funded plan setting, becoming more and more common among larger employers, the plan (or the employer, depending upon how the payment of claims actually is funded) could potentially assert the same claim as an insurer.

Claims for tortious interference: Even though out-of-network services are not reimbursed pursuant to contracts between providers and insurers, such services are reimbursed as a result of the contracts which insurers have with employers (and individuals) to provide insurance coverage to employees and their families. Such contracts establish patient responsibility amounts for both in-network and out-of-network services, and further create financial incentives for beneficiaries to utilize in-network services. By waiving a person's financial responsibility for out-of-network services, the provider is reducing such person's financial obligation under his or her insurance contract. Such action could thus be viewed as "tortiously interfering" with the contract between the insurer and the employer (or individual).

The issues surrounding billing for out-of-network services are exacerbated by the fact that more and more services are being provided out-of-network. The reason for this expansion is two-fold. First, insurance companies, in an effort to increase efficiency through tighter management of their contracted physicians, are narrowing their panels of in-network physicians, thus causing more physicians to become out-of-network with such insurers. Second, along with decreasing the number of in-network physicians, many insurers are also lowering the reimbursement to in-network physicians, or at the very least raising the "hoops" which providers must jump through in order to be reimbursed for certain services. Thus, rather than deal with the increasing procedural hurdles and decreased reimbursement, a growing number of physicians are themselves opting not to be included in insurers' networks.

Moreover, the recent case law surrounding waiver of patients' financial responsibilities for out-of-network claims has not provided clear guidance for providers. For example, while Cigna, as noted above, has been allowed to move forward with its claims against ambulatory surgery centers based on the centers' failure to collect amounts owed by patients for out-of-network services, less than a year earlier, the same court – the U.S. District Court for the Southern District of Texas – ordered Cigna to pay $14 Million to a Texas hospital for refusing to cover out-of-network services provided by the hospital.4 Cigna originally accused Humble Surgical Hospital, a physician-owned hospital, of engaging in fraudulent billing practices under ERISA and state common law as a result of waiving patients' financial responsibilities for out-of-network services, and thus nullifying Cigna's responsibility for reimbursement of such claims. Cigna originally sued for $5.1 Million in alleged overpayments, but wound up having to reimburse the hospital $13.7 Million ($11.4 Million for underpayments and $2.3 Million in ERISA penalties) as a result of the hospital's counterclaims.5

Given the uncertain state of the law, providers should create and follow a set of policies and procedures to minimize the risk involved in billing for out-of-network services. The following are a few "best practices" for providers to follow in regard to collecting patient cost-sharing amounts for out of network services:

Implement a compliant policy and follow it – A provider should implement written policies and procedures regarding the collection of patient cost-sharing amounts for out-of-network services. Such policies and procedures should be part of a provider's compliance documents, and staff (including those involved in billing and collection) should be regularly educated on the policy, and providers should audit their compliance with the policy.

If you regularly waive cost-sharing amounts, disclose this to insurers – The most conservative approach is always to attempt to collect the full amount owed by a patient for out-of-network services. However, if a provider is going to institute a policy of regularly waiving such amounts, the provider should disclose such waivers to insurers. By making such disclosures to insurers, providers minimize the risk that an insurer can later claim that a provider submitted false or misleading information. Alternatively, however, a provider should be aware that such disclosures may cause an insurer to reject such claims outright for failure to collect a patient's cost-sharing amount.

Implement a financial need policy – While an across-the-board waiver of patient cost-sharing amounts for out-of-network services involves risk for providers, this does not mean that providers cannot reduce or waive such charges in accordance with an established financial need policy. Many providers have established policies to aid patients who have a demonstrated financial need, and such policies can be used in tandem with other policies and procedures to ensure that providers are minimizing risk while still remaining sensitive to the individual needs of their patients.

Finally, whereas the waiver of patient cost-sharing responsibilities by providers often arises in the context of out-of-network services, it is important to note that such waivers can have similar, if not harsher, consequences when done in relation to both in-network services, and those provided to federal healthcare beneficiaries, such as those with Medicare and Medicaid. Waiver of cost-sharing amounts for patients for which a provider is in-network may involve all of the laws described above, in addition to breach of contract claims, as in-network providers are bound by the terms of their agreements with insurers to collect the amounts owed by patients. Moreover, in regard to services provided to patients with Medicare and/or Medicaid, such waivers can implicate various federal and state laws, including the Federal Anti-Kickback Statute6, the Federal Civil Monetary Penalties Law7, the Federal False Claims Act8 and various state analogues. A recently unsealed qui tam lawsuit involves such claims, alleging that a New York medical group specializing in the treatment of cancer and diseases of the blood violated the Federal Anti-Kickback Statute and the Federal False Claims Act by including routinely waived co-payment amounts in claims submitted to Medicare.9


John D. Barry is an Associate in the Health Care and Life Sciences practice of Epstein Becker & Green, P.C. in its Newark, NJ office. He can be reached at

Gary W. Herschman is a Member of Epstein Becker & Green, P.C. in its Newark, NJ office. He is a member of Epstein Becker & Green's Health Care and Life Sciences practice and serves on the firm's National Health Care and Life Sciences Steering Committee. He is also a member of the firm's Board of Directors and can be reached at

1 Conn. Gen. Life Ins. Co. v. Elite Ambulatory Surgery Ctrs. LLC, 2017 BL 45450, S.D. Tex. No. 4:16-cv-571.
2 29 U.S.C. § 1001 et seq.
3 See, e.g., N.J. Stat. § 17:33A-4; NY Penal Law § 176.05; Cal Ins. Code § 1871.4.
4 Connecticut General Life Insurance Company et al v. Humble Surgical Hospital, LLC, No. 4:2013cv03291 (S.D. Tex. 2015).
5 See also, Oxford Health Plans (NY), Inc. and United Healthcare Services, Inc. v. Biomed Pharmaceuticals, Inc., 2017 NY Slip Op 24093, Doc. No. 264 (Sup Ct, Suffolk County 2017) (waiver of patients' cost-sharing amounts for out-of-network services did not amount to fraud or tortious interference under New York law). But see, Biomed Pharms., Inc. v. Oxford Health Plans (NY), Inc., 522 Fed. Appx. 81 (2d Cir. N.Y. 2013) (insurer allowed to reimburse an out-of-network provider a reduced amount due to the provider's waiver of patients' cost-sharing amounts).
6 42 U.S.C. § 1320a-7b.
7 42 U.S.C. § 1320a–7a.
8 31 U.S.C. § 3729.
9 United States of America and the State of New York ex rel. Lucille Abrahamsen v. Hudson Valley Hematology-Oncology Associates, R.L.L.P., No. 7:14-cv-02653-KMK (S.D.N.Y).

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