Commentary: Carol Lucas, Esq. 

Health Plan Week

Aetna Inc. won a victory in a California state court last month against an out-of-network medical provider that is striking for the fact the award was so high at $37 million. The case showcases just how motivated health insurers have become in seeking to protect the integrity of their networks and reap the financial certainties from doing so, legal experts tell HPW. Aetna’s win may not be a landmark event, these sources say, but it is an important battle in what one lawyer dubs the “Network Wars.”

The Aetna case started in 2012 when the carrier filed suit (1-12-CV-217943) against Northern California surgery provider Bay Area Surgical Management LLC (BASM) for allegedly conducting a widespread conspiracy to defraud the insurer via the use of out-of-network benefits. Aetna said BASM did this by offering exorbitant payments to doctors; lying to patients, insurers and employer sponsors; and filing tens of millions of dollars in inflated claims for surgeries. On April 13, a jury in the Superior Court of the State of California for the County of Santa Clara issued the hefty award, but BASM lawyers have said the company will appeal.

Robert Wolin, a Houston-based partner in the health care practice of BakerHostetler, tells HPW that the Aetna case is part and parcel of a huge effort by carriers to audit and then enforce if necessary the terms of their in-network and out-of-network provider agreements, as well as the terms of their consumer policies. “This is industry-wide and Aetna, United [Health Group] and Cigna [Corp.] particularly, and Blue Cross [and Blue Shield plans] to a lesser degree, have similar cases from New Jersey to Florida to California. Here in Texas we’ve got a slew of them,” he says. “This is really part of their [insurers’] larger war on out-of-network providers. And I think what you’ll find is that they are looking at (1) the rates that are charged, (2) the physician ownership involved, (3) the referring physicians and (4) the plan terms themselves to try and shut these things down.”

Aetna Award Slams Provider Hard

For its part, Aetna says it is pleased with the jury’s award and the reasons for its victory in court. “BASM was found liable for fraud, intentional interference with physicians and health plan members, and unjust enrichment,” Ed Neugebauer, Aetna’s chief litigator, tells HPW. “This case was about honesty, transparency and fairness in health care billing practices. After hearing and seeing the evidence presented, the jury correctly decided that BASM’s egregious and fraudulent billing schemes needed to be stopped.” BASM did not respond to requests for comment from HPW for this news article.

A second lawyer, Carol Lucas, chair of law firm Buchalter Nemer LLP’s Health Care Practice Group in Los Angeles, tells HPW that the high jury award is not to be overlooked. “The amount of judgment certainly ripples through the non-participating facility community, at least in California, because $37 million is a lot of money,” she says. “The other thing is BASM is fairly well known in the industry, at least in California, and people were wondering if anything was going to be done to stop those guys. Even other out-of-network facilities were very, very leery of these guys because they are giving the whole business model a bad name, and in some respects endangering the whole business model.”

To allegedly engorge profits at their six surgery centers, BASM started by cherry-picking high-volume doctors from other surgery centers in their area by offering them ownership interest at ridiculously low prices based on the returns they were getting, Lucas says.

“Let’s say you have a high-volume surgeon in another surgery center that is more or less playing by the rules, where they all have an equal opportunity to invest and they purchase their interest from what you think their market value is,” she continues. “And they do their cases, satisfy the same [regulatory] requirements, and then all of the sudden you have a marketing person from BASM saying, ‘you’re crazy for doing your cases over there. You could buy into one of our surgery centers for $10,000 and by the end of this year you will have $300,000 in distributions or whatever it was.’”

This alleged enticement with a very low buy-in and paying doctors back with inordinate returns was only the beginning. “Another part of the scheme, allegedly, was [BASM] routinely waiving copayments and deductibles,” Lucas explains. “So, one issue that out-of-network surgery centers have is that if someone gets their surgery done at an in-network center their coinsurance responsibility might be 20% of whatever the contracted rate is. So they could wind up paying $400 or something for their surgery. If they go to an out-of-network facility that charges, say, $20,000 for the same surgery, and the insurance company pays some percentage of what it considers reasonable and customary, then the patient responsibility on that surgery could be huge” — several thousand dollars rather than a few hundred dollars, she says.

“In order to not drive patients away, out-of-network surgery centers tell patients, ‘we’ll accept whatever your insurance company pays or you won’t have to pay any more here’ than you would have to pay at in-network surgery center rates, which takes the patient away as a factor in providing any check on the charges,” Lucas says.

If the surgery center never intends to collect the patient portion, then the dollar amount of its claim to the insurer is fraudulent. Suppose the total price for the surgery is $20,000, but the surgery center never collected the $4,000 portion owed by the patient. “Then really their price is only $16,000 to start with,” Lucas says. “Aetna is saying two things: It is a fraudulent claim in the first place because the surgery center has overstated its price based on the fact it never intends to collect the whole price. And then the other argument they made was that the practice of routinely waiving copayments and deductibles interfered with Aetna’s relationship with its insured, which is based on the terms of the plan that say the insured is supposed to pay a percentage of an out-of-network charge. And that is supposed to encourage them to stay in-network.”

She adds that an out-of-network surgery center using its knowledge of a plan’s contracting arrangements with in-network providers and members to tell patients they don’t need to pay is in fact compromising Aetna’s ability to manage its own business.

When asked why these network wars are happening now, Wolin says insurers are intent on improving the integrity of their networks as well as controlling costs. “And three, I think it is perceived by them [insurers] as a set of abusive practices, particularly some of the physician-owned entities where they will cite charges of multiples of what other in-network charges are,” he says.

Despite the Aetna triumph, this type of case is not a one-way street. “These cases have gone both ways. The day before or the day after [the Aetna award] we had a case that went the opposite direction. So there is a lot of skirmishing still going on these issues. The law is not necessarily settled and it will vary from state to state,” Wolin says. “And it’s very specific to what the practices and the providers have engaged in, like how they bought and sold units of physician referrers or institutional referrers, how they disclosed their pricing and whether they waived copays and deductibles and how they disclosed that. It is a function of the insurance fraud statute of the applicable state. So there is a whole host of issues that go with it.”

In the Aetna-BASM case, it is also interesting that the doctors were not individually named, he says. “What we are beginning to see is not so much doctors being named but the referring physicians, which are often times the surgeons, and the facility having their provider agreements terminated by the insurer,” Wolin explains. Insurers are fearful of losing in-network flows of patients and are conducting more audits and then excising doctors if need be.

“For example, if you have cardiac guys [removed from a network] it can devastate their practice if they are not in Medicare Advantage plans.” He also adds that some insurers are looking at the terms of their policies and may include new language that basically prohibits payment unless the copay and deductible have been paid. “It is a multi-pronged war they are engaged in at this moment,” Wolin says.