In February 2012, Aetna Life Insurance Company (“Aetna”) filed a lawsuit in Santa Clara County Superior Court against Bay Area Surgical Management, LLC (“BASM”). The case is captioned Aetna Life Ins. Co. v. Bay Area Surgical Management, LLC. The outcome of the Aetna case is profound, and in my own practice, I have consistently warned physicians to be mindful of when they waive co-pays and deductibles, and to do so only in certain, limited circumstances. Just ask BASM, a moderately sized outpatient surgery practice which was tagged with a $37,400,000.00 jury verdict. The Aetna case is relatively dated, but the lessons will never stale.
- Brief Case Background
BASM managed several surgery centers in the San Francisco Bay Area. Aetna alleged that BASM induced in-network physicians to refer what ordinarily would have been in-network cases to out of network surgery centers with promises that the patients would not have to pay co-insurance, deductibles, or have any other financial responsibility. Aetna additionally alleged that the surgery centers would then submit “artificially inflated billings” to Aetna, as evidenced by the fact that the surgery centers did not collect any payments from the patients. Finally, Aetna alleged that the physicians did not disclose the payment obligations waivers to Aetna.
Helping Aetna’s case was evidence of what appeared to be gross overcharges for procedures. For example, one of BASM’s managed surgery centers billed $66,100.00 for a bunion repair, as compared to another local center that charged $3,677.00 as an in-network service. There were several other instances of similar comparisons that appeared to be gross overbilling.
BASM countered Aetna’s allegations by accusing Aetna of using the lawsuit to “strong arm” patients into having to select in-network providers and centers, thereby depriving patients of choice. Further, BASM argued that it was not under contract with Aetna and had no obligation to collect Aetna’s contractual co-insurance payments.
Two issues really were at the heart of this case. First, whether an out of network ASC can waive co-insurance and deductibles? Second, keeping in mind that in California a physician and ASC may bill “reasonable and customary charges,” what is considered reasonable?
After a jury trial on the merits, the jury found in Aetna’s favor and awarded the large insurer $37,400,000.00. The jury found (1) that BASM gave its physician’s a substantial kickback in exchange for directing in-network cases to out of network ASCs, and (2) that BASM overbilled Aetna $23,000,000.00 for approximately 1,900 procedures over two years.
2. Lessons From Aetna
There are two lessons to be taken from Aetna. First, as a general rule, an ASC or provider should not waive co-insurance and deductibles. However, a provider can, in limited instances, waive co-insurance and deductibles if a patient demonstrates financial hardship. This should be on a limited, case-by-case basis.
Waiver of co-pays and deductibles, especially by an out of network provider, can be seen as a kickback, insurance fraud, or grounds for disciplinary action against a physician who waives them. In addition to Aetna, courts in a cases throughout the country have held that by waiving a patient’s copayment or deductible, the provider also waives the right to collect from the insurance company.
Here are the only ways a provider should ever waive any patient co-payment obligation:
· In limited instances where the patient proves financial hardship. This is a case-by-case determination. This should be for a very small percentage of patients.
· A provider can discount a co-pay or deductible and then offer that same discount to the insurance company. So, for example, if a provider discounts the co-pay by 50%, the provider should also discount your billing to the insurance company by 50%.
· A provider can discount a co-pay or deductible by a dollar amount and then offer than same dollar discount to the insurance company. For example, if a provider discounts the co-insurance by $3,000.00, you then discount the billing to the insurance company by $3,000.00, and provide the insurance company with a letter explaining the discount.
The second global lesson from Aetna is that the provider and ASC should be mindful of that “reasonable and customary” must, indeed, be reasonable. A provider simply should not bill at rates that seemingly gorge the payer. The examples set forth in Aetna by BASM are illustrative that a charge that is 20 times than in-network rate can be seen as completely unreasonable. A provider should be mindful of the Medicare multiplier when setting its reasonable and customary fee schedule.
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Richard E. Haskin is a partner at Gibbs Giden. Mr. Haskin has a lengthy and impressive history as a litigator in commercial, construction, real estate, and general liability matters in both California and Nevada federal and state courts. His practice concentrates on all phases and legal aspects related to the formation, development, syndication, construction and operation of outpatient surgery centers and private medical practices. Mr. Haskin counsels outpatient surgery centers, medical clinics, private medical practices, and physicians. Mr. Haskin often serves as outside general counsel, serving client needs in several health care related areas, including regulation, compliance, and employment.