High-stakes lawsuits filed by insurers against out-of-network providers continue to keep plan litigators busy a year after Aetna Inc. won a landmark $37 million victory in a California state court against Bay Area Surgical Management LLC (BASM) (HPW 5/9/16, p. 1). More recently, Aetna was awarded $51 million in a Dec. 31 judgment that sent a tiny out-of-network Texas hospital spiraling into bankruptcy protection in late February (HPW 3/6/17, p. 8), and such cases show no sign of letting up, Aetna’s chief litigator says.

Ed Neugebauer, Aetna’s chief litigation officer, tells AIS Health that the cases taken to court by the plan over the past several years, since its proactive provider litigation program began, involve “a very small group of outliers trying to find ways to maximize their revenue” — by using in-network physicians in schemes to funnel patients to out-of-network facilities.

“You’ve got to grab the genie in the bottle and run with that…and hope it stops some of the behaviors,” Neugebauer says, noting that it can be “frustrating for us to catch this, find it and bring it to court.”

He explains that Aetna is “continually farming data” to analyze providers, searching for dramatic changes in referral patterns and significant upticks in charges and volume. And he asserts that Aetna has found effective ways to present legal cases, applying lessons learned to subsequent litigation and gaining momentum along the way.

Aetna currently is involved in the bankruptcy proceedings of Humble Surgical Hospital LLC in Houston and expects collateral litigation from that, Neugebauer says. The insurer also is working out payment with BASM, which Aetna alleged conducted a wide-ranging conspiracy to defraud the insurer via the use of out-of-network benefits. And Aetna has appealed its loss in a $120 million fraud claim against out-of-network North Cyprus Medical Center, also in Houston, in which the judge took the case away from the jury. Aetna alleges that North Cypress promised ownership stakes in the company to physicians for recommending the hospital to patients over less costly, in-network facilities.

BASM, Humble and North Cypress represent the first cases filed under Aetna’s proactive provider litigation program, and are what Neugebauer describes as hard-fought, “scorched earth” litigation. In addition, Aetna has about 22 out-of-network fraud cases pending across the U.S., he says.

Aetna is not alone. Cigna, UnitedHealthcare and other carriers also have filed lawsuits alleging improper out-of-network billing practices. In November, Cigna appealed a $13 million award in Humble’s favor in what Neugebauer describes as bad luck in the way claims were characterized by the court. (Aetna had a different Houston-based judge in its own case against Humble.)

Aetna is getting queries about its out-of-network cases from other plans and discusses issues at seminars, Neugebauer says. Conversely, he says he has attended seminars where lawyers presented strategies on how out-of-network providers can maximize their revenues.

Insurers Redefine Networks

It’s all happening amid significant changes in insurers’ contracting strategies over the past couple of years, says Bill De Marco, president of Pendulum HealthCare Development Corp., a consulting firm in Rockford, Ill. Now insurers likely won’t honor a network if it is “a loose-knit club” of affiliated providers without performance improvement built in, he says, and there is what he calls “a constant network churn.”

According to De Marco, networks are being redefined by the plan and attached to the product. This is necessitating very specific, complex value-based contract negotiations with providers, some of whom may work to find loopholes to get paid until the payer catches up and says they’re ineligible. And consumers’ expectations may be affected by voluminous, at times inaccurate, online information on participating network providers.

“Once a plan has paid [out-of-network providers] a couple of times, it’s hard for the plan to say they’re not in-network,” he says. “It’s tough for the third-party administrators, coders and everyone else….For them, the insurer might say, ‘It looks like one of ours. They’re billing right.'”

Out-of-network fraud “is an issue with my clients,” he says. “It’s becoming more and more of an issue because of the redefinition of networks and the ability of technology to track down claims.”

De Marco explains that insurers’ software now has fraud detection capability, identifying members using out-of-network providers who charge inappropriate rates. If fraud is detected, providers often demur and say they won’t do it again because they worry about being banned from networks. It seldom advances to costly, lengthy litigation, he says.

“In addition to the litigation that’s taking place, I also think…[that] payers are putting more diligence into business strategies, especially post-Affordable Care Act, to try to reduce costs of care overall,” says attorney Deborah Dorman-Rodriguez, principal of Chicago-based Laurus Advisors LLC, and former chief legal officer for Health Care Service Corp., parent of Blue Cross and Blue Shield plans in five states.

Dorman-Rodriguez says her clients, as smaller carriers, often stick to HMO products and don’t offer PPOs with out-of-network benefits. But in general, payers have wrangled with out-of-network billing rates for a long time, she says, noting how “incredibly off the charts” the facility charges were in the Aetna/Humble case.

She agrees that only a small number of outliers are trying to game the system, with most providers operating in good faith and seeking to have good business relationships with providers. Yet “payers can’t ignore these situations,” she says. “If the provider doesn’t enter into a contract with the payer and you don’t require the patient to pay the rest, you’re taking away the whole concept of managed care.”

She says she expects to see more retrospective reviews and self-audits on what insurers paid out, followed by their attempts to recover funds. If payers cannot reach a business resolution, she predicts that many might head to court given the potential financial impact on the insurer and on the health care system as a whole. But she concedes that smaller carriers in this situation probably would think long and hard about the resources required to pursue a lengthy, complicated lawsuit — and while payers are evolving their strategies to present such cases, there still are few cases in the courts and scant legal precedent.

“In my mind, litigation isn’t the first option,” she says, “but it’s also a deterrent to file these types of cases against outliers so they know payers are being diligent….To the extent there’s an understanding [that] insurance companies are going to challenge these business practices, I think that’s the deterrent. I’d hope a small percentage of providers would be dissuaded” from out-of-network fraud schemes.

Dorman-Rodriguez describes Humble’s activity in the Aetna case as particularly egregious, boxing in the payer and forcing action to address it. But she says other out-of-network billing issues might not stand out. “It would be interesting to know how much is resolved through provider-payer discussion,” she says. “In my experience, there certainly is a desire” to resolve issues out of court.

Carol Lucas, chair of law firm Buchalter PC’s Health Care Practice Group in Los Angeles, represents surgery centers, physicians and other providers, both in and out of network. She says such providers typically have scant bargaining power in negotiations with insurers, and many say they can’t get a reasonable contract with rates to cover their expenses.

Lucas says it is unclear how much Aetna’s case against Humble, the tiny Texas hospital, was based on the merits since it was a default judgment in the payer’s favor — a case that never got to trial — and based on what the judge viewed as poor behavior by Humble’s lawyers during litigation. She notes that Humble had said it intended to appeal, but also is unclear what will happen now that the facility has filed for bankruptcy protection.

However, Lucas says that Aetna’s closing arguments in its earlier out-of-network case against BASM in California “were just stunning.” In fact, she says Aetna’s legal victory over BASM has had a lasting effect in California. “Every out-of-network surgery center is concerned about this and addressing issues like the routine waiver,” she says, explaining that facilities are carefully documenting their efforts to assess a patient’s level of hardship and other factors to explain any reduced copay for any individual. They also review what are considered reasonable charges by similar local providers “to avoid being tarred with the BASM brush,” she says.

Interestingly, she says, issues related to the Aetna/BASM litigation are arising in merger and acquisition transactions. “M&A lawyers look at the BASM case and freak out,” she says, which requires “a lot of due diligence to convince investors that not all out-of-network providers are crooks.” The upshot, she says, is that out-of-network surgery centers “are trying to improve their documentation and processes…and prove they’re not BASM.”