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Would Patients Save Cash if Out-of-Network Provider Charges Were Slashed?

Report commissioned by Horizon says insurance premiums could drop if state took action

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Horizon Blue Cross Blue Shield of New Jersey members could see significant savings in their insurance premiums if the state reined in the charges from some hospitals and healthcare providers outside of the insurer’s network, the company said this week.

And a new Horizon-commissioned analysis lays out a series of policy actions that the state could pursue to make that happen.

Avalere Health LLC suggested that the state could lower out-of-network costs by setting benchmarks to determine payments for healthcare services, or by requiring providers and insurers to settle payment differences through arbitration.

The analysis cites a separate Horizon-commissioned study that found that if, instead of paying what it pays now for out-of-network services, Horizon instead paid 50 percent more than what Medicare pays for these services, the company would be able to cut its out-of-network costs by 52 percent, or $497 million in 2013 alone. That equals 4.3 percent of the total amount of claims paid through Horizon’s commercial insurance plans.

Insurers and providers have been wrangling over out-of-network fees since last fall, when legislators held on ways to reduce out-of-network fees.

Under state law, New Jersey insurers must pay for coverage of emergency visits, including ambulances, which are outside of a patient’s insurance network. They must also cover higher charges for specialists who are outside of an insurance network but work in hospitals that are inside an insurance network.

This has contributed to some hospitals and providers charging high out-of-network fees – in fact, New Jersey hospital charges are the highest in the country.

While patients can see some frightening out-of-network bills, they don’t usually pay these bills directly, as insurers wind up picking up most,or all, of the tab. But insurers, employers and consumer advocates argue that these bills drive up private insurance premiums.

However, healthcare providers argue that being able to go outside of insurance networks is often the only leverage that they have in negotiations with insurers, and losing the ability to charge higher rates could force them to offer services at prices that are below their costs.

Avalere, a Washington, D.C.,-based healthcare analysis and strategy firm, noted that the ratio of what New Jersey hospitals charge to what they’re paid is the highest in the country, which can make out-of-network payments higher. While higher charges don’t have a big impact on in-network payments, they do influence out-of-network payments.

In addition, the state has the fourth-highest insurance premiums in the country and is the only state that requires insurers to pay as much as the full hospital charge for out-of-network (OON) emergency services.

“Since New Jersey does not regulate how much OON providers can charge, the rules thereby permit OON providers to charge amounts that, at times, are excessive,” according to the Avalere analysis. In addition to having to pay for out-of-network emergency services, insurers also must pay when patients must use other out-of-nework providers; they don’t have to pay when patients voluntarily use out-of-network providers.

Lawrence Downs, CEO of the Medical Society of New Jersey, warned against giving too much weight to the Avalere analysis.

“Horizon paid for a study and got the answer it wanted and then suggested they were going to lower premiums if they don’t pay as much to hospitals and to doctors,” Downs said, calling Horizon a “financial juggernaut” that takes in much more money than it pays out and has built up a multi-billion-dollar reserve.

“It seems to have some room to lower premiums now,” he said.

Treating out-of-network payments as a separate issue from the in-network payments that sometimes don’t cover providers’ costs “is really intellectual dishonesty, in my opinion,” Downs said.

Downs said state officials should be having a broader conversation that includes in-network and out-of-network payments, as well as the growth of “narrow network” insurance plans that exclude many doctors. These plans limit costs by only including a limited set of providers who accept lower reimbursements from an insurer, or who agree to coordinate patient care with other providers in the network.

The Avalere report lays out different ways that the state could reduce out-of-network payments:

  • It could base payments on a certain percentage above what insurers pay or providers receive for in-network services.

  • It could base payments on Medicare reimbursement levels, or it could set its own fee schedule.

  • It could also opt for an arbitration system, in which the arbitrator would either determine that amount of the payment, or choose between the amounts submitted by the insurer and provider.

Joel Cantor, director of the Rutgers Center for State Health Policy, said that a state-mandated fee schedule would be the most efficient system, but that it would be difficult to develop the schedule.

“Arbitration can be difficult and time-consuming and add administrative costs,” although there may be ways of simplifying such a system, said Cantor, an NJ Spotlight columnist.

Downs added that a state arbitration process could draw on the opinion of medical specialists, but arbitration should not be burdensome to providers or establish a “de facto fee schedule.”

Executives with the for-profit Hudson County system CarePoint Health have argued that hospitals could be forced to close if they don’t have the option of going out of network and charging more. They point to a history of more than two dozen hospitals closing in the state since the hospital market was deregulated in the early 1990s.

But Cantor pointed out that the hospitals that closed generally served uninsured patients and Medicaid recipients.

“The vast majority of hospitals that have closed have not been in a position to charge out-of-network fees,” since they had few patients with private insurance, he said.

Cantor added that there may be a problem with some insurance reimbursements being inadequate, “but creating a system where you’re charging extraordinarily high rates to individuals and third-party payers doesn’t seem to be the right solution.”

Assemblyman Craig J. Coughlin (D-Middlesex) has been working with Assemblyman Gary S. Schaer (D-Bergen and Passaic) and Assemblyman Troy Singleton (D-Burlington), as well as Sen. Joseph F. Vitale (D-Middlesex) on writing a bill to address out-of-network costs and related issues.

“I think we have a clear understanding of what the issues are, so we’re trying to craft something that will be successful,” Coughlin said.

He said the paramount issue is to “stick up for consumers and try to do what we can to assist ratepayers -- the people who pay the bills for medical insurance.”

Coughlin said the statistics in the Avalere report backed up what legislators have been hearing about out-of-network costs, adding that it’s useful to know where the state’s largest insurance carrier (Horizon Blue Cross Blue Shield) is coming from.

Coughlin acknowledged that legislators must also weigh the interests of hospitals and providers.

“(Legislators) have to perform a balancing act, and I think we always have to err on the side of the people,” he said, adding that he wants a “good, solid consumer bill” that also provides for the best-quality hospitals the state can have, robust insurers and the necessary supply of medical professionals.

While he said it’s premature to say what the bill will include, he’s hopeful that legislators will make progress in writing it while the Legislature is on its annual budget break in the coming weeks. When the legislation is further along, Coughlin plans to discuss it with Gov. Chris Christie’s office, noting that he wants a bill that Christie would sign.

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