Keeping a Tight Rein

Health Plans Clamp Down on Out-of-Network Referrals


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Medical Economics Feature - April 2007  

ByKen Ortolon
Senior Editor  

Houston orthopedic surgeon Larry L. Likover, MD, likes sending his patients to an orthopedic specialty outpatient surgery center a few blocks from his office. The facility is convenient for both him and his patients, and Dr. Likover believes the patients get better care there than at a nearby general hospital.

But he can no longer send many of his PPO patients to that facility because it does not have contracts with the patients' PPO plans. Under threat of termination from at least three PPO plans, Dr. Likover has agreed to start sending orthopedic surgery patients covered by those PPOs to Memorial City Hospital, an "in-network" facility.

While the health plans say they are simply managing their physician networks, Dr. Likover and others believe they actually are shortchanging patients who are paying higher premiums for greater choice of where they seek health care.

"A PPO gives you the right to go out of network; otherwise, you might as well be in an HMO where you have to stay in network" Dr. Likover said. "The insurance companies are charging more for these PPO plans but if you use the benefit, if you want to go to an out-of-network facility, they hammer the doctor. To me, it's a huge consumer fraud." 

Getting the Boot  

Dr. Likover is one of a number of Texas physicians who have received letters from health plans over the past several months informing them they could be terminated from the insurers' networks if they do not cease referring PPO patients to out-of-network physicians, hospitals, ambulatory surgical centers, or other facilities.

Texas Medical Association officials say they have received physician complaints about such letters regarding a number of health plans, including Aetna Inc., Blue Cross and Blue Shield of Texas, and CIGNA Healthcare. Also, TMA is concerned about a new UnitedHealth Group Inc. policy that threatens to fine doctors $50, cut their reimbursement, or drop them from the network if a patient has tests done in an out-of-network laboratory. (See "UnitedHealthcare to Fine Doctors for Out-of-Network Lab Referrals.")

TMA has complained about these practices to the Texas Department of Insurance (TDI). The association contends the insurers are violating state regulations regarding preferred provider benefit plans because they are restricting a patient's access to treatments or diagnostic techniques prescribed by their physician.

TMA also believes the health plans are violating Texas Insurance Code provisions against insurers prohibiting or attempting to prohibit a physician from communicating with a patient about the patient's treatment options. In fact, the code says that an insurer may not terminate a physician for discussing treatment options with his or her patients.

But health plan representatives say they are only trying to protect enrollees, as well as their employers who pay for health insurance premiums, from unexpected out-of-pocket costs.

"In our contracts with the physicians, they agree to refer to participating facilities whenever it's possible, whenever it's appropriate," said David Valdez, MD, Aetna's senior medical director for the Southwest Region. "Since a lot of the plans have significant out-of-pocket costs for non-par use, we try to protect the members from that."

Paul Handel, MD, vice president and chief medical officer for Blue Cross, also says guidelines requiring in-network referrals when possible are part of all PPO contracts with physicians. Dr. Handel says the problem is not so much that physicians are sending patients out of network, but that they are not always making the patient aware they are going out of network and, therefore, might incur added out-of-pocket expense.

"Although the patients do indeed have out-of-network benefits, when physicians routinely refer their patients to out-of-network facilities or for laboratory studies, the patients are balance billed a significant amount of money," Dr. Handel said.

There is no problem if patients are aware they are being sent out of network and they may incur additional costs, and they agree. But if they are unaware, their employer comes knocking on the health plan's door wanting to know why the employee is being hit with large bills for otherwise covered services, he adds.

"Unfortunately, in most cases, the patients are not informed that they're being sent out of network and they wind up being billed for those services," Dr. Handel said. 

Setting a Trend  

Both Drs. Handel and Valdez say physicians who only occasionally send patients out of network need not worry about getting called on the carpet for it. Dr. Handel also says insurance carriers should never inhibit a physician from discussing all treatment options including sites of service.

"Blue Cross Blue Shield of Texas' approach to that has been to look at the physicians who occasionally send patients out of network and nothing is ever said, understanding that there are always going to be compelling reasons why something like that should happen," Dr. Handel said. "On the other hand, there are doctors who I've had to look at, and almost all of their referrals are out of network. In those cases, the doctors are sent a letter that says they signed a contract that they would abide by the policies of Blue Cross Blue Shield of Texas related to referrals and this is part of helping to make the product more affordable to people."

However, TMA has received complaints from physicians who received letters for as few as two out-of-network referrals. And a letter from Aetna to one physician states "our records indicate that on at least one occasion" an Aetna patient was sent out of network.

Dr. Likover says he effectively has been gagged from discussing the benefits of an out-of-network facility even if the patient wants to go there. "Sometimes the patients want to go to some of these facilities, and I can't send them there because I'll get kicked out," he said.

Jennifer Ahrens, TDI associate commissioner for life, health, and licensing, met with TMA staff about the issue and says the agency is investigating the complaints. She acknowledges that the insurance code prohibits insurers from discouraging discussion of treatment options with patients, but says TDI also is getting a significant number of complaints from patients about being balance billed.

"In general, we certainly understand that consumers, when they're paying for a benefit plan that offers out-of-network choices that they should be able to take advantage of those out-of-network choices as long as they understand the extent to which they will be balance billed," Ms. Ahrens said.

She says TDI has no timeline for settling this dispute.

In the meantime, Dr. Likover says he will abide by his agreement to stay in network. But he doesn't like it.

"The insurance companies are pulling a big deception on the patients, telling them they have out-of-network benefits, and they effectively don't. I can't let them avail themselves of all the benefits they're paying for. It is absurd for an insurance company to claim to 'protect' the patients from using a benefit they just sold them in good faith. What they are really doing is selling a plan at a higher price, then allowing the patients to use only the facility that costs the insurance company the least. If this is what they are going to do, the insurance companies should offer only HMO plans, charge less, and not tell the patient they have the right to go where they want to go."

Ken Ortoloncan be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at  Ken Ortolon.


UnitedHealthcare to Fine Doctors for Out-of-Network Lab Referrals

UnitedHealthcare made Laboratory Corp. of America (LabCorp) its single, national in-network provider of laboratory services in January and has told physicians who refer patients to other laboratories that they could face penalties ranging from a $50 fine to expulsion from the health plan's provider network.

In a letter to physicians posted on the company's Web site, United said Quest Diagnostics will no longer participate in the UnitedHealthcare network except in limited markets.

"This decision means that, for your patients who are covered by UnitedHealthcare and its affiliates, laboratory services provided by Quest Diagnostics after Dec. 31, 2006, will be out-of-network and, as such, may result in increased health care costs," the company stated. "To avoid this outcome, it is important that you prepare for this transition which is effective Jan. 1, 2007, by becoming familiar with the broad portfolio of UnitedHealthcare participating laboratories."

UnitedHealthcare has posted a lab locator at

As of March 1, physicians whose United patients go out of network for laboratory services could be fined $50. They also could be subject to lower reimbursement and exclusion from United's network.

Quest Diagnostics has offered to waive out-of-network charges if physicians refer United patients to one of its laboratories, but physicians would still face penalties from United even though neither United nor the patient would be charged.

"It is the intent of UnitedHealthcare to work with participating physicians to promote network viability and stability, and to maximize the value of in-network laboratory services," United's Protocol on the Use of Non-Participating Laboratory Services says. "Our expectation is that this collegial approach will continue to succeed and that the interventions listed above will be applied only in rare circumstances, if at all."

The American Medical Association complained that doctors could be fined even if the patient chooses to go out of network. United officials say, however, that the new policy is not intended to punish physicians but to remind them to refer patients to in-network laboratories.

AMA Trustee and former TMA President Jim Rohack, MD, recently told the Associated Press that United's policy is more about saving money than providing the best coverage for patients.

TMA officials say they have heard complaints from physicians in some Texas cities, including Houston, that LabCorp locations are not as convenient for patients as other laboratories. Physicians also have raised quality concerns regarding having to refer patients for anatomical pathology services to pathologists with whom the referring physician is unfamiliar.

TMA has met with United regarding the new laboratory protocols, complaining that they limit patients' choice of where to seek care.

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