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Healthcare Providers, Insurers Spar over cause of High Out-of-Network Costs

A sharp debate has broken out over why New Jersey residents with insurance coverage pay some of the highest bills in the country for out-of-network healthcare.

After hearing from constituents about astronomically high medical bills that can result from out-of-network claims that insurers won’t cover, state lawmakers are aiming to pass legislation in the coming months that will ensure that consumers are protected from the billing battles between medical providers and health insurers.

Insurers are pushing for legislative relief, blaming the hefty bills sent out by out-of-network hospitals and medical specialists for premium increases and higher healthcare costs in general in New Jersey.

But at a legislative hearing yesterday in Trenton, healthcare providers — ranging from neurosurgeons to the top executive of Bayonne Hospital, which has the highest Medicare charges in the country — pushed back against the insurance industry.

They argue that being outside of insurers’ networks often amounts to their only leverage in negotiations over reimbursements, and that providing their services wouldn’t be financially viable if they accepted insurers’ payment offers.

The issue has prompted a series of legislative proposals in recent years, ranging from a bill that would have required informing patients of their potential financial liabilities before they decide to seek out-of-network care to a measure that would have used arbitration to resolve payment disputes.

Assemblyman Craig J. Coughlin (D-Middlesex), chairman of the Financial Institutions and Insurance Committee, said he doesn’t care who comes out on top in negotiations between healthcare providers and insurers — he just wants to protect the interests of patients.

“We need to stick up, I think, for the folks who pay the bill, for the folks who receive the services,” he said.

Wardell Sanders, president of the New Jersey Association of Health Plans, an insurance trade group, cited reports of sky-high prices charged by emergency rooms and compared it to the illegal price-gouging charged by some gas stations after Hurricane Sandy.

He said patients with high-deductible insurance coverage bear part of the burden in out-of-pocket costs. Deductibles are the amounts that must be paid by patients before the insurer picks up costs.

“These large price-gouging type of charges blow you through your deductible,” Sanders said, adding that high charges ultimately affect the amounts that insurers pay for out-of-network patients. “There’s a direct line between these charges and what people pay” in their premiums, which are the monthly insurance bills.

Some consumer protections are already in place. Patients who go to emergency rooms that are outside their networks must are required to pay only the in-network price – a protection that insurers say adds to their costs and, ultimately, the the cost of premiums.

In addition, uninsured patients with incomes equaling less than 500 percent of the poverty line — currently $58,350 for a single person or $119,250 for a family of four — can only be billed 15 percent more than Medicare rates for hospital services.

But patients — including those whose employers self-fund their insurance — frequently must pay significant balances on medical bills, Sanders said.

He added that state regulations requiring insurers to pay patients’ bills give too much strength to healthcare providers in negotiations, and he urged the Legislature to “swing the pendulum” back toward payers.

A different perspective

The insurers’ case met fierce resistance from neurosurgeons, who say they couldn’t stay in business if they accepted the reimbursement rates offered by insurers — which are generally pegged to a certain percentage above or below Medicare reimbursements.

Dr. Jonathan H. Lustgarten of Neurosurgical Associates of New Jersey PC in West Long Branch said there are only 80 to 85 neurosurgeons in the state, with each covering as many as four or five hospital emergency rooms each night. The vast majority of them don’t participate in insurance networks, because insurers offer them reimbursement rates that amount to only 10 percent to 15 percent of their usual fees.

“It’s certainly our perspective that we have an in-network problem,” Lustgarten said, not an out-of-network problem. If financial pressures become too great, neurosurgeons will choose not to practice, he said.

He said that, with a few exceptions, insurers are interested in building networks that are as small as possible, with the lowest-paid providers.

Lustgarten said the limited networks restrict where people can go for medical treatment.

“That’s something that’s fundamental to our way of life in this country – that people want to choose their doctors,” he said.

The neurosurgeons received support from Assemblywoman Caroline Casagrande (R-Monmouth), who said she was concerned that low insurance reimbursements would lead to a two-tier medical system in which wealthy patients pay for the most highly skilled doctors, leaving the rest with lower-quality healthcare.

Dennis Kelly, as CEO of the for-profit, three-hospital system CarePoint Health, leads Bayonne Medical Center, which has received national attention for having the highest Medicare charges in the country. These charges are what the hospital bills Medicare, but the government insurance program for older residents uses its own formula – which is affected by local charges – to determine its reimbursements.

For-profit model defended

Kelly forcefully defended CarePoint’s business model, saying that it isn’t deliberately built to depend on being out-of-network with major insurers. But, he said, the rates offered by these insurers are so low that CarePoint has no choice but to use the out-of-network charges to cover its costs.

Kelly said the Hudson County hospital chain serves a large number of low-income uninsured residents and Medicaid recipients, and that having higher out-of-network charges allows it to cover its costs.

Kelly compared the approach to the system that was in place in New Jersey in the 1980s, when insurers for privately insured patients paid a subsidy to offset the cost of treating low-income patients. “We have to use the same dynamics to accomplish the same thing,” Kelly said. “Some liken it to making sausages. It’s not a pretty process.”

Coughlin called Bayonne’s charges “egregious” and noted that a for-profit hospital must, by definition, have a goal of making a profit.

Kelly said the for-profit structure encourages his hospitals to provide efficient care and that the charges are “the only leverage we have left” with insurers, noting that no one pays the full amount of the charges. He said every hospital in the country — for-profit and nonprofit — seeks to have positive operating margins.

“The difference is that one pays taxes and the other doesn’t,” he said of the two models, noting that CarePoint’s hospitals are still obligated to serve low-income patients under federal and state laws.

“We’re not embarrassed that we’re for-profit,” Kelly said. “We think it provides us a discipline to be innovative, to take risks and to try to reduce our costs” and serve patients.

New Jersey Appleseed Public Interest Law Center Executive Director Renee Steinhagen said CarePoint is encouraging emergency room visits for routine or pre-scheduled treatments in order to extract higher payments.

In addition, she said, patients aren’t informed when they visit hospitals that are inside their insurance networks that they might be treated – and billed – by medical specialists who are outside their networks.

Finally, too many patients have coverage through inadequate insurance networks, forcing them to seek out-of-network treatments, she said.

Steinhagen pointed to proposed legislation in New York as a model for New Jersey.

This legislation wouldn’t allow patients to be charged higher out-of-network fees that are outside of their control, requiring both insurers and providers to be more transparent so consumers can make decisions.

It also would set up an arbitration process that would encourage both insurers and providers to take more moderate positions on prices. It also would streamline the process for going out of network when needed.

Coughlin said he would like to have legislation enacted by the end of the year, but admitted that will be a challenge. He also said he would reach out to Gov. Chris Christie’s administration, hoping to increase the chance that any bills will become laws.