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Just Like “Truth in Lending”—

We Need “Truth in Spending”

“It’s time for health insurance companies to stop this business practice that shocks our
patients with unexpectedly high bills for health care they thought they’d already paid for.”
— TMA President Josie R. Williams, MD

Over the past few months, the Texas Association of First, there are several reasons a physician may bill
Health Plans (TAHP) has distributed flyers and held a patient like you for an out-of-network medical
a tutorial for legislative staff on balance billing. The service:
Texas Medical Association (TMA) reviewed TAHP’s • Your health plan benefits do not cover the medical
materials and found its assertions neither accurate nor care,
addressing the real reasons patients like you and your • A physician who did not have a contract with the
constituents incur additional costs for out-of-network health plan provided your medical care,
medical services. TMA believes it is time to set the • You have not met your annual deductible amount
record straight. Here are the facts. or paid your coinsurance portion, or
• Most importantly, your health plan single-handedly
determines what it is willing to pay for your out-
of-network care. In many cases, health plans
arbitrarily use inaccurate data to establish their
TAHP Rhetoric No. 1: When you receive a bill for an out-of-network service,
“When health plans it is solely the physician’s fault.
don’t bother to put
together a comprehensive TMA Response: NOT TRUE.
network of physicians, It is the result of your health plan’s benefit design for out-of-network ser-
they force patients to go vices and what your health plan decides to pay or “allow” for your medical
out-of-network for the service. A physician who is not contracted with the health plan is allowed
care they need. And when to bill you for the difference between the amount of the charge filed on the
the insurance companies claim and what the health plan decided to pay, less the patient’s copay or
use their own secret
formulas, they dump
higher costs onto patients Why TAHP Is Wrong
who thought they were
Patients are shortchanged when health plans lowball their payments for out-of-
exercising their options network services. They do this by using their “usual and customary” determination
under their insurance for payment, and/or manipulating the patients’ “maximum allowable.”
policy to see the doctor
of their choice.” Patients choose to pay higher health insurance premiums for two reasons: (1)
for the freedom and ability to choose a doctor not in their health plan’s network,
— TMA President
Josie R. Williams, MD
and (2) so their out-of-network care is covered when they don’t have access to an
in-network physician. Patients are penalized with higher and unexpected out-of-
pocket costs when health plans fail to have contracted network physicians avail-
able to provide the most basic health care services, such as an elective surgery, or
unexpected emergency or hospital care.

Here’s how patients end up pay-
ing greater out-of-pocket costs:
Usually a patient’s health insurance
coverage for out-of-network services
is based on a 70/30 coinsurance
benefit design. The patient assumes
he or she will pay 30 percent of
the amount billed for the medical
service. For example, when a physi-
cian files a $1,000 claim to the health
plan for an out-of-network service,
the patient assumes the health plan
will pay $700 and the patient $300
(Fig. 1). However, this is not the case.
Health plans pay their percent-
age of the patient’s claim based
on what they determine is the
“maximum allowable amount”
for that medical service.
Fig. 1
One major Texas health plan de-
fines the “allowable amount” in the
patient’s benefit handbook as “the “maximum amount determined by [PLAN] to be
eligible for consideration of payment for a particular service, supply or procedure.”
As a patient, does this definition help you understand how the plan deter-
mines what it will pay for your out-of-network service? Does it help you
know what your out-of-pocket cost would be? Hardly.
Because the insurer determines the
dollar amount or value it will use to
multiply the 70 percent, the insurer
determines how much it will pay
and pushes the remaining expense
down to the patient.

If we look at the many and varied
maximum allowable amounts for
out-of-network services reported by
the five health plans to the Senate
Bill 1731 workgroup, we can see
how the plan’s maximum allowable
determinations affect patients.

For example, if we assume all five
health plans cover 70 percent of the
out-of-network allowable amount,
you can see clearly why some pa-
tients are balance billed more than
others. The patient covered under Fig. 2
Plan E expects to pay 30 percent of
the charge, or $300. Instead, the patient will pay 63 percent of the charge, or $626,
for an out-of-network charge of $1,000. This is because Plan E pays only $374 of
the patient’s claim — that is, the health plan based its 70 percent on its self-deter-
mined allowable amount. Plan E reported that its maximum allowable amount for
out-of-network services, on average, is 53 percent of actual billed charges. No other
health plan reported limiting its out-of-network maximum allowable to that degree
(Fig. 2).

At the same time, if you are lucky and happen to be a patient covered under Plan
B, you will pay only $343 for the same service because Plan B pays $657, based on
its maximum allowable amount of 94 percent.
TAHP RHETORIC No. 2: Physicians, especially facility-based specialists such
as radiologists, anesthesiologists, pathologists, and emergency room physicians,
are unwilling to contract with health plans. TAHP also states that facility-based
physicians systematically avoid contracting with health plans, and this forces
patients to receive care by an out-of-network physician.

TMA Response: NOT TRUE, and we can prove it.

Why TAHP Is Wrong
A statistically valid TMA survey conducted in 2008 asked physicians to tell us
which health plans they contract with in their community. The survey showed
the following information.

Physicians do contract with all large health plans in Texas. Physicians on aver-
age have seven HMO contracts and 17 preferred provider benefit plan contracts.
Facility-based physicians on
average have seven HMO
contracts and 11 preferred
provider benefit plan
contracts (Fig. 3).

Facility-based specialists
(indirect-access physicians)
contract equally as often as
nonfacility-based physi-
cians with most large health
plans, except for Blue Cross
and Blue Shield of Texas
(BCBSTX) and Unicare
(Fig. 4).

Fig. 3 As stated in the 2009 Texas
Department of Insurance
(TDI) SB 1731 Health
Plan Network Advisory
Committee Report, 90
percent of the total facility-
based physician claims/
visits in Texas were
delivered by in-network,
facility-based physicians.

Fig. 4
TAHP Rhetoric No. 3: Balance billing occurs because physicians use deceptive
trade practices.

TMA Response: NOT TRUE.
The law requires physicians to bill and collect coinsurance, deductibles,
and copays from their patients. In addition, if the physician is not contract-
ed, he or she may pursue the difference between what the health paid and
the charge on the claim. This balance amount is influenced greatly by the
health plans’ determination of the maximum allowed for the service and
what it pays.

Why TAHP Is Wrong
The health plans’ benefit designs and other tools they use lessen their risk and “For years this database
push more cost onto patients. For instance, it was found that health plans use a [Ingenix] was treated
flawed database to determine their usual and customary or maximum allowable as credible and
determinations. In January 2009, after a year-long investigation, the New York at- authoritative, and
torney general (AG) found that “insurers unfairly saddle patients with too much of consumers were left to
the cost of out-of-network care.”
accept its rates without
The centerpiece of the investigation was Ingenix, Inc., a wholly-owned subsidiary question. This is like
of UnitedHealth Group. Ingenix compiles schedules that many large health insur- pulling back the curtain
ance companies, including those here in Texas, purchase to determine “usual and on the wizard of Oz. We
customary” and/or “maximum allowable” rates for out-of-network care. have now shown that for
years consumers were
The New York AG found that the Ingenix databases understated the market rate for consistently lowballed
health care services by up to 28 percent across the state of New York. Nationally, to the tune of hundreds
this translated to at least hundreds of millions of dollars in losses for consumers of millions of dollars.”
over the past 10 years. The AG’s report described the industry calculations as
“created in a well of conflicts” that produced information that was “unreliable, — New York
inadequate, and wrong.” Attorney General
Andrew M. Cuomo
New York has issued 16 subpoenas to other health plans — including Aetna,
CIGNA Corp., Humana, and WellPoint subsidiary Empire Blue and Cross Blue
Shield — to determine how they calculate “usual and customary” or “maximum
allowable” rates.

Here in Texas in 2008, TDI issued a Disciplinary Order against Blue Cross and
Blue Shield of Texas. TDI alleged that “BCBSTX’s reimbursement rates are unrea-
sonably low in light of representations made by the company in its advertising
and its policies,” and that “the reimbursement rates are so low as to violate Texas
insurance laws and regulations.” BCBSTX denied the allegations but nonetheless
settled for $3.9 million and agreed to modify its method of determining the
“allowable” for certain facilities such as ambulatory surgical centers.

And, in February 2009, TMA joined a pair of class-action lawsuits against CIGNA
Corp. and Aetna. The two lawsuits contend that for more than a decade the
two health insurance companies used the flawed Ingenix system to underpay
physicians for out-of-network medical services and forced patients to pay an
excessive portion of the costs.
Insurers mislead and
obfuscate in their policy
language. They
promise to reimburse
based on usual and
customary rates —
a form of market rate
— but then reimburse
based on schedules
compiled by one of
their own [Ingenix], the
nation’s second largest
health insurer, which
has an interest in
reimbursement rates.

Our investigation found
TAHP Rhetoric No. 4: So-called physician “exclusive contract arrangements”
that the [Ingenix]
with hospitals to provide the 24-hour/seven-day-a-week coverage required by
schedules themselves, Medicare and law affect physician participation in health plan networks and increase
created in a well of the prevalence of balance billing.
conflicts, are unreliable,
inadequate, and TMA Response: NOT TRUE.
wrong — usually at On the contrary, it is the health plans’ “exclusive contracts” with national
the expense of the companies competing with local physicians that lessen the likelihood
consumer. physicians will be in the health plan’s network.

— Finding from the
New York Attorney Why TAHP Is Wrong
General ’s Healthcare
Industry Taskforce Facility-based physicians prefer to have contracts with health plans that allow them
to provide both inpatient and outpatient services. For example, any pathologist,
radiologist, or anesthesia group could provide both types of services if given such a
contract offer. This preferred type of contract arrangement with local physi-
cians would provide patients greater access to the full spectrum of services
by in-network physicians and reduce their out-of-pocket costs. Unfortunately
for patients, some major health plans will not contract with local physicians for out-
patient services (e.g., at outpatient hospital locations, ambulatory surgical centers, or
office-ordered labs). Instead, they look to national companies or groups to provide
outpatient services.

At the same time, the health plan will offer local physicians a contract limited
to only inpatient services and excluding the more lucrative outpatient
services. The health plan’s refusal to offer competitive inpatient contract rates,
combined with the absence of the contract for outpatient services, often influences
whether the contract negotiation will be successful.

By the health plans’ own actions and use of exclusive contract arrangements with
national companies, they:

• Increase the prevalence of balance billing,
• Contribute to the lack of facility-based physician participation, and
• Single-handedly increase the likelihood that patients will have greater out-of-
pocket financial costs for facility-based physician services.
TAHP Rhetoric No. 5: Physicians are overcharging for their services. You
can see that easily by comparing the physician charge with what the federal
government pays under the Medicare fee schedule.

TMA Response: Quite simply, TAHP’s physician-charge comparisons
with Medicare are erroneous and off the mark.

Why TAHP Is Wrong
TAHP’s attempt to compare a primary care physician office-visit charge with a facil-
ity-based physician procedure-based charge is like comparing apples with oranges.
Because facility-based physicians do not provide office visits, these comparisons
are disingenuous and misleading.

The commercial market for physician services is
not reflected in the Medicare schedules. The use
of percentages to demonstrate unfair physician
charges is invalid because the basis for comparison
is not the same across specialties under Medicare.
The TAHP Medicare percentage examples have
no real connection to practice costs or the mar-
ketplace environment. Fig. 5 clearly illustrates the
Medicare fee schedule:

• Has not accounted for general inflation,
• Is set artificially low to meet federal budget
needs, and
• Does not keep pace with operating costs.
Fig. 5

TAHP Rhetoric No. 6: TAHP alleges that “more than 820 complaints involving over-
charging or overtreating by physicians have been filed with the Texas Medical Board
(TMB) since June 2003. To date the agency has not disciplined a single physician for
balance billing.”

The Texas Medical Board has told TAHP its interpretation is wrong, but the
health plans continue to use it.

Why TAHP Is Wrong
According to Mari Robinson, executive director/director of enforcement of TMB,
“The 820 figure is not the correct representation of the number of complaints for
balance billing.” She has conveyed this to TAHP.

Ms. Robinson stated, “First and foremost, balance billing in and of itself is not a
violation of statute, and therefore no disciplinary action will be taken simply for
balance billing. Secondly, while the board does receive billing complaints, a review
of actual disciplinary orders will find that billing violations are often addressed among
other violations. A basic data search will report few, if any actions, categorized as
billing violations.”

Despite Ms. Robinson’s clarification, TAHP has continued to misrepresent the facts
about the complaints. In addition, TAHP included the erroneous information in its
stakeholder brief in TDI’s recently released report to the legislature on health plan
network adequacy.
All this information leads to a surprising discovery: There is much we still don’t
understand about all the factors that influence your out-of-pocket costs. We still do
not fully understand the impact of:

• Your health plan benefit design,
• The adequacy of the health plan’s network, or
• The amount the health plan arbitrarily decides to pay based on its determination
of the maximum allowable for the out-of-network service on your out-of-pocket

It would be premature for the legislature to look at “quick fixes” such as TAHP sug-
gests, which allow hospitals to hire physicians, prohibit balance billing, or require
you to file the claim to the health plan and have the health plan reimburse you.

Lastly, due to the great variations in what each plan pays out-of-network, it is evi-
dent that how health plans determine a “maximum allowable” for out-of-network
services is neither consistent, well understood, nor transparent to the patient.

TMA Recommendations
1. We must have much more health insurance transparency. There must be a
better understanding of how preferred provider benefit plans are designed and

2. For the protection of insured Texans, the legislature should require preferred
provider benefit plans to disclose how they determine “maximum allowables”
and how those determinations impact patients’ out-of-pocket costs.

3. Authorize the Texas Department of Insurance to review data mining companies
like Ingenix that supply price information to insurers. As a consumer protection,
give TDI authority to regulate how preferred provider benefit plans utilize
the services of data mining companies, such as determining the “maximum

4. Examine the integrity of each health plan’s network in local markets to
determine where preferred provider benefit plans are not delivering the network
promised to consumers.

5. Require placement of a standard insurance label on all preferred provider
benefit plan offers and advertisements. This label would permit consumers
to make side-by-side comparisons through a standardized layout containing
important information, such as the percentage of expenses paid by the plan
in-network, the percentage of expenses paid by the plan out-of-network, and
annual out-of-pocket expenses.

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