Phia Group Media


Phia Group Media

Second Quarter Newsletter 2016 – The Stacks

The Stacks  

The High Cost of Healthcare Dissected, by Adam Russo, Esq., Ron Peck, Esq., and Jon Jablon, Esq.

I. The Cost of Healthcare in The US is Arbitrary and Out of Control

It is no secret that the cost of healthcare in this country is out of control. It is true, of course, that providers’ costs of doing business increase within a normal distribution — but that certainly cannot account for the abnormal and indeed exorbitant markup that most medical providers place on their services rendered.

In truth, the provision of medical services is difficult to quantify. In many service markets, the price is determined by what the market will bear — although in the medical service market, the market will bear a nearly infinite charge, primarily because consumers have limited choices, aren’t paying the price (directly), and have no incentive to be selective as it relates to price. The unregulated market is truly scary, since the individuals consuming the services have (they believe) pre-paid for their medical care in the form of insurance, and fail to see how excessive pricing impacts them financially.

A 2013 article1 has revealed many instances of inadequacies in the pricing market in this particular area. A 1,000% mark-up on generic Tylenol, a blood test costing about 1,400% of what Medicare would pay, $77 for a box of sterile gauze pads, $18 for a single diabetes check strip sold elsewhere for $0.55, and $7,997.54 for a stress test that would be paid by Medicare at $554 are examples listed to illustrate the impropriety with which many hospitals conduct their billing. This is not confined to one particular hospital or even one geographical area; these results seem to be the norm throughout most of the urban and suburban United States. The official record of a Congressional hearing — “Pricing Practices of Hospitals”2 — contains a submission quoting:

$57 for a FRED (Fog Reduction Elimination Device–a 2X2 gauze used to wipe moisture from lenses in the operating room (not even a billable item);
$200 for a bag of IV solution that costs the hospital about 25 cents;
$985 pair of scissors (which is not a billable item);
$1,028 for a contrast solution that CMS deems not chargeable as it is included in the cost of the procedure;
$11 for a mucous recovery system (also known as a box of tissues) ;
$350 for an IV kit that is not billable in the operating room, and in any event costs less than $2;
Thousands of dollars per day for “nursing services” that CMS mandates as incorporated into the daily room charge and is not separately billable.
The law doesn’t help either. Providers are required to file their pricing parameters — albeit parameters that are arbitrary and without basis. This is the charge master, and the charge master can specify that — for instance — one single off-brand Tylenol pill costs as much as 100 of the same pill at a local drug store — but as long as a charge master is filed, the hospital has complied with its legal requirements as far as the state is concerned.

The market is unregulated both by the government and by consumers. This is especially odd given that consumers have no knowledge and no power when they are in need of medical services; if one expected the government to provide some sort of regulatory scheme for ensuring that consumers are not grossly mistreated, one would be sorely disappointed.

II. How Do Market Forces Control Prices?

Price is ordinarily arrived at by the interaction between supply and demand. Price is dependent upon the characteristics of both these fundamental components of a market.

Demand and supply represent the willingness of consumers and producers to engage in buying and selling. When a product exchange occurs, the agreed upon price is called an “equilibrium” price, or a “market clearing” price, which exists at the intersection of demand and supply. At this point, supply and demand are in balance. When the quantity demanded is greater than the supply, a shortage exists. In this event, consumers would choose to pay a higher price in order to get the product they want, while producers would be encouraged by a higher price to bring more of the product onto the market. The end result is a rise in price, until demand shrinks, resulting in supply and demand being in balance. This natural equilibrium between supply and demand is the essence of a free market.

Ordinarily, if a price is set too high, consumers will choose not to purchase the good; the market would be in surplus, and there would be too much supply relative to demand. If that were to happen, producers would be willing to accept a lower price in order to sell, and consumers would be induced by lower prices to increase the volume of their purchases. Only when the price falls would balance be restored.

III. Why are These Forces Absent from Healthcare?

As already described, prices charged by providers are excessive and arbitrary. The amounts charged differ from provider to provider, and even the same provider will charge different amounts depending upon who is paying the bill. How is it that prices can continue to skyrocket?

Unique to the healthcare market, increases in price fail to impact demand. Until the payer and consumer are one, and they cease purchasing the good when priced unreasonably, equilibrium cannot be reached.

Despite insurance carriers’ deep pockets, they do not print money. Eventually, the cost of care will be so high that even insurance carriers will not be able to afford the coverage. We are already witnessing this today. Plans are featuring high deductibles, carving out or limiting coverage for high-cost items, and applying objective price modifications to the maximum payable amounts (using things like MSRP, Medicare rates, cost to provider to supply, and other references to determine fair market value and thus maximum payable amounts). The root of the issue can be found in the fact that the payer is not the consumer in a health insurance arrangement.

IIII. Absence of Contract Law in Healthcare

A contract consists of three things: offer, acceptance, and an exchange of consideration. In the context of a provider-patient relationship, the provider offers to treat the patient, and the patient accepts said offer. The treatment is in and of itself the consideration supplied by the healthcare provider. In exchange, the provider accepts monetary compensation as payment. To be a valid exchange, in almost all other contexts, the parties must dicker the terms of the agreement, whereby they agree upon what the consideration shall consist of, and confirm that they do indeed approve of the exchange.

In the realm of healthcare, however, the patient has no idea what the provider expects by way of consideration. In other words, the patient agrees to accept the provider’s consideration (services), in exchange for an unknown sum of money.
No other industry besides healthcare could legally enforce contracts such as this.
This should be especially true in a scenario where one party has all of the power, and undue influence, over the other party. In healthcare, it is impossible for the patient to decline the offer. To decline the offer, in most healthcare circumstances, is unthinkable and can even be literally life-threatening.

The issue is then compounded by the health insurance payer system. The reason open-ended contracts such as the one described above could not survive in any other industry (besides healthcare) is because the consumer, upon seeing these terms, would refuse to accept them. These open-ended agreements are allowed to thrive in the healthcare industry, however, because

(1) as explained, the provider has all of the power (the consumer is powerless to say “no”), and
(2) the consumer is not directly responsible for payment.
Instead, the bill is directly forwarded by the provider to an insurance carrier or other third party payer. The patient never sees the bill. The patient may be advised of the matter post submission, and then only in the form of an explanation of benefits (EOB). The consumer is unlikely to examine the EOB, however, as it clearly states in bold letters “This is Not a Bill.” Like many consumers, when something is not a bill, it is not read. The only time the consumer feels the effect of these open-ended agreements is when their premiums rise, or if they are balance billed.

This leads into the next issue, which relates to how billing is accomplished. With every other form of insurance claims are processed in the same fashion.

First, the insured suffers a loss.
Next, the insured reports the loss to the insurer.
Then, the insurer assesses the damages, and provides compensation to the insured, with said compensation equivalent to what the insurer feels is the fair market value for the loss, based upon industry accepted parameters.
Finally, the insured either uses the compensation to address the loss or not.
How the insured uses the funds is of no concern to the insurance carrier.

As an example, consider a motor vehicle accident. The insured is truck at a busy intersection. The insured calls their automobile insurance carrier. The carrier has an examiner view the vehicle, and he then assesses the value of the loss. The value of the loss, and thus funds available, are based on standards set by the industry and the particular carrier. The insurance carrier sends a check to the insured for that amount, (minus a deductible if applicable). The insured may then:

(1) choose to have the carrier’s preferred mechanic repair the car, and pay said mechanic the amount advanced by the insurance carrier,
(2) find another mechanic that will fix the car for less, with the insured then pocketing the difference,
(3) choose not to repair the vehicle, and pocket the full amount paid by the insurer, or
(4) select a mechanic that will charge more (but presumably do a better job). If the insured selects this fourth option, however, the insured — not the insurer — is responsible for paying the difference.
The responsibility to “shop around” and act as an informed consumer falls squarely upon the shoulders of the insured. The risk of loss (or reward of gain) goes to the insured; the insurer pays what it pays, regardless of the insured’s decision.

Not so in the realm of healthcare. In the realm of healthcare, health insurance carriers are charged vastly different amounts for the same service by similar providers practicing less than a mile from each other. These medical service providers even charge different entities different amounts for the same service. Moreover, the insurance carrier is expected to pay these varied charges in full, regardless of what the carrier believes is the actual, fair market value of the loss.

Unlike the automobile collision example, a medical provider bills the insurer directly. The medical provider will even pursue a claim against the insurer if they feel they are under compensated. Yet, what consideration has the provider provided to the insurer? The medical service provider has not provided any service to the health insurer. The only consideration received by the insurer came in the form of premiums, paid by the insured — NOT the provider. The insurer therefore owes consideration to the insured — NOT the provider.

Why, then, can the provider bill the insurer directly; and why, then, does the provider have an enforceable expectation of payment from the insurer? The answer is an assignment of benefits.
The reason patients don’t care how much their provider charges their insurance, and thus feel like they have no “skin in the game,” is because unlike the other scenario described above (the automobile example), a healthcare service provider accepts an assignment of benefits from the insured rather than bill the insured. The insured never sees the bill. Insureds have no incentive to seek out fair priced healthcare, and providers need not fear disgusting customers with unconscionable pricing.

V. Assignment of Benefits, Networks, and Other Elements Unique to Healthcare Eliminate Market Forces

One reason payers are willing to take such abuse is that to do otherwise would result in providers seeking payment from the patient  — for amounts above and beyond what the insurance or health plan is willing to pay. This practice is called balance billing. Balance billing can be prevented by entering into a network agreement, and is the only real reason to access a network; (the discounts a payer sees via network participation are small and applied to arbitrary, excessive rates, making the discount worthless).

Balance billing can also be prevented by revising provider practices such that their bills do not exceed objectively reasonable amounts. Balance billing can be prevented by patients who negotiate with providers and ensure the charge amounts will not exceed eligible benefits available from their insurance carrier or benefit plan. If insurance carriers and benefit plans allow providers to balance bill, educated patients will push back against the providers. The fear – that patients will blame the benefit plan and insurance carrier for balance billing — is reasonable, until the plan and carrier educate patients regarding payment practices and the prevalence of excessive charging by medical service providers.

When patients aren’t well-informed, they often ally with providers — but when patients are told what is going on and why, patients tend to ally with their health plans and insurance companies. Since self-funded health plans are funded primarily by the  patient’s own employer (or the spouse or parent, in the case of a dependent) as well as the employee itself, these patients have every incentive to try to help the health plan lower its costs across the board.
Education is the only way that patients will share ideologies with their health plans; patients who are uneducated regarding provider billing will side with the provider against the big bad insurance company or self-funded health plan.

If insurance carriers and benefit plans advise their participants as to why the eligible benefit amount is what it is, and the true nature of the billed amounts compared to the services rendered, the participant will come to realize that fault lies with the provider — not the payer. Once participants have some “skin in the game” a free market will force providers to compete, and develop strategies to keep costs down while improving the quality of their wares.

VI. Without PPOs, TPAs Cannot Offer Consistent Discounts, so Alternatives are Sought

The consumer doesn’t care about the actual cost of care. This is why our system will not change unless the actual consumer knows or even want to know what the costs of the services are. Hospitals know this, the networks know this, the large insurers know this, and this is why nothing will fundamentally change.

Providers love the fact that they do not have to justify their charges and they will continue to take advantage as long as the players don’t agree that the overall costs of medical care are the real problem.

Within the current healthcare environment, many provider networks limit or just outright deny self-funded plans and members the right to audit the claims. The language is right in the agreements that networks sign with self-funded employers and their administrators when contracting for access to the networks. They typically state that a self-funded plan and its TPA cannot audit a claim until they pay the entire amount first. After paying in full, they can do an audit to see if they overpaid and attempt to get the money back. The current industry norm is not just damaging to plans and their administrators; providers that want to change the system are affected as well, and there are certainly many providers that are as unhappy with the current market as are payers. Part of the problem is that if a facility or a doctor wanted to place its prices online — to add a much-needed layer of transparency to this market — the provider would be explicitly contractually barred from doing so if they want to be a part of a national or regional network.

Reference-based Pricing

A phenomenon called reference-based pricing (or “RBP”) is sweeping the industry. RBP is a plan design that entails a health plan paying not the provider’s full arbitrary billed charges, but instead based on objective metrics such as a percentage (almost universally above 100%) of what Medicare would pay the provider. There are many different types of RBP plan designs and therefore different levels of success depending on the program. RBP is an innovative way to cut costs, and can ultimately be successful, but it depends on preparation, education, claims data integrity, plan document expertise, and proper claim defenses — notably including a health plan’s willingness to negotiate with providers to eliminate balance billing.

When hospitals receive only a small percentage of their egregious  bills from a health plan, they sometimes seek to recover the rest from patients, which creates a balance billing scenario. There are certain methods that can be used to combat such scenarios, and partnering with the right vendors in the industry is key.

Part of the confusion and anger from not only medical providers but from the Department of Labor as well stems from the harsh reality that networks have been so pervasive, for so long, that providers and the government agencies responsible for enforcing the Affordable Care Act’s provisions simply cannot conceive of a world without them.

VII. As the Cost of Care Becomes More Relevant, Cost-Saving Alternatives Become More Desirable

Employers, administrators, brokers, and courts have begun to realize that determining the value of healthcare services must involve something more than considering only a provider’s billed charges.  More and more courts are limiting evidence based on the reasonable and customary value of the services rendered, and ignoring what the facility actually billed. The growing trend is finally a realization that provider billing is completely arbitrary, and egregious to boot — often at an unconscionable magnitude.

Where we truly are seeing a growth in RBP utilization is specifically on out of network claims. Where in the past a run-of-the-mill network plan would pay out-of-network claims based on the prevailing charge in the area for similar claims, more and more health plans are amending their plan language to pay based on Medicare rates. In this situation, the health plan is saving money and since the patient made the conscious choice to visit an out-of-network provider, the plan does not need to be concerned with patient balance billing.

In the larger picture, traditional networks have failed to stem the rising costs of healthcare. This has the overall effect of reducing access to healthcare. Further, networks have encouraged a pricing system where providers charge one amount for their services but accept an entirely different payment from plans they contract with based on some percentage of those charges — or even by simply not pursuing some health plans that do not pay the full bill.

Unlike network discounting from unrealistic gross charges, RBP plans use bottom-up pricing based on costs. As more and more patients begin to look at the overall cost of care and the actual billed charges, it is getting harder for plan administrators to preach the benefits of network discounts when compared with the alternatives.

The best RBP process involves implementing best practices for cost analysis, claim repricing, patient advocacy, plan design, balance bill protection, patient advocacy, and member education.
Any other way will spell disaster for the plan, meaning they will have a bad taste in their mouths when it comes to self-funding and ultimately move plans to the fully insured carriers and the exchanges.

VIII. In Conclusion

The society we live in is capitalistic; it is driven by a not-so-complex system of supply and demand and charging based on what the market will bear. The health care market, however, deviates from the rest of the economy in a significant way, and it is apparent that this is primarily caused by the fact that consumers (patients) are not the ones who actually directly pay for their goods and services — instead, insurance pays. As a result, medical providers are able to charge literally any amounts they want, and patients are usually none the wiser. That paradigm, however, is beginning to shift, as health plans are getting increasingly unhappy with being taken advantage of and instead they are seeking other alternatives, such as RBP and various patient incentives to examine bills and seek less expensive treatment.

This paradigm shift, though, is not happening all at once. It is a slow transition, with many health plans still skeptical about its effects and the disruption it may cause. The status quo is therefore preserved for the most part, for the time being, and medical providers continue to be able to artificially inflate their already arbitrary charges. It is only a matter of time until we experience a regulatory or economic market upheaval in the health care industry — but until then, health care payers will still be taken advantage of, and those payers that push back against providers are punished anyway, when providers go after the plan members member instead. The status quo presents a no-win scenario for health plans, employers, and patients — but providers make a killing. Something needs to be done, and it is only a matter of time.


1. “Bitter Pill: Why Medical Bills Are Killing Us,” by Steven Brill, Feb. 20, 2013;


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The View from the Other Side, by Adam V. Russo, Esq.

Truth be told, I have always been more interested in knowing what the opponents of my views have to say rather than those that may agree with my position.  It is probably the reason why I watch the news channels that have a different political tilt than I do.  Knowing what your adversaries think and believe is very important in understanding how to beat them on the playing field, so it’s no surprise that whenever my attorneys and I get information relating to the strategies of our opposition, we take great interest.  As they say, “Keep your friends close and your enemies closer!”

What “They” are Saying

Many hospital organizations and their attorneys are sharing memorandums stating that there has been an increasing number of self-insured, employer sponsored benefit plans electing not to enter into contractual agreements with hospitals, either directly or through an established provider network.  These plans seek to limit payment for the hospital services provided to plan beneficiaries by repricing the services at a plan determined reasonable amount, typically based upon some multiple of Medicare allowable charges. In our world, these are called reference based pricing plans and while they haven’t taken storm nationwide, they are growing rapidly in certain areas of the country.  They add that this amount is typically far below commercial health insurance payment for the same services and that most recently, these organizations are making progress with government employers, such as municipality plans and counties.  We have started drafting many municipal plan documents with this type of design so they are correct.

My questions start with just what does far below commercial health payments truly mean?  Are these plans paying roughly the same, just below, or is it truly far below what a Blue Cross organization would pay?  My experience has shown that the typical reimbursements are just below or comparable to what one of the carriers would pay.  In addition, why are these facilities only comparing reference based pricing plans to commercial carriers?  Why not all payers, such as uninsured, self-payers, Medicare, and Medicaid?

Regardless of the ultimate outcome, the patient is placed in the middle of a dispute between the hospital and the plan.  Where the facilities are getting it wrong from my perspective is that these plans are not looking for a discount off of some billed charge; they are attempting to pay a reasonable amount above the facility’s actual charges based on cost to charge ratios and Medicare pricing.  What these forward thinking plans are doing is looking for health care value.  It’s no different than you or I purchasing a car.  The actual cost of services rendered by facilities is readily available on the internet so reimbursing a facility above that cost seems fair to everyone except the facilities themselves.

The Opposition’s Tactics

The attorneys representing these hospitals and other facilities believe it is important for them to proactively respond to these tactics by managing expectations in a clear and consistent manner. They state that hospitals need to inform such plans that the hospital does not agree to discount billed charges, absent a written agreement to do so.  The problem is again that these reference based pricing plans are not looking for discounts off of billed charges and the facilities do not explain how they create their charges in the first place.  Thus, what the hospitals are being advised not to accept is not what the plans are asking for; it’s apples and oranges.

The hospitals state that patient beneficiaries need to be informed that they are responsible for paying the billed charges for hospital services received; that there exists no agreement between the hospital and their plan, and that absent such an agreement, the patient may be responsible for any shortfall between the hospitals’ billed charges and plan benefits.   Later on in this article you will learn that is a majority of situations the patient is not responsible for paying full billed charges.

The interesting piece of the hospitals’ approach is that it seems they understand and agree that the self-funded employee benefit plan is not required to pay any additional amount and that their only recourse is against the patient.  Therefore, all of the discussion in the self-funded industry relating to protecting the plan seems to be overkill.  The hospitals overwhelmingly acknowledge that the main area of attack is on the patients themselves, and this is why protecting and potentially defending the patients are so vital in these types of plans.

Hospital attorneys send template letters notifying patients that while they will accept the repriced amount for services from the plan, the hospitals do not waive their rights to collect billed charges.  This is rather interesting to me, since if it went to a court of law, the hospital would have to justify that what it is charging is reasonable even though all of the data available to these plans shows that it is not reasonable and exactly why the employee benefit plan is paying less than the full billed charges.


The biggest issue that I really wanted to get some insight on from the opposition’s viewpoint was their opinion as it relates to cashing a check that states that if they cash it, then they accept payment in full.  Is it considered a waiver of the hospital’s right to balance bill the patient?  The hospital attorney stated that if the hospital accepts a check with a conspicuous statement to the effect that it is being tendered in full satisfaction of a disputed claim, the hospital has two options:  It can accept the check subject to the condition or it can return it to the payer within 90 days and refuse to be bound by the condition.  So, basically he agreed with our position that if the check is cashed, they are bound to the statement and it also adds another element that the 90 day clock ticking has a huge effect on the position as well.

Notice to Employers and Employees

Hospitals are beginning to send letters to employers that are either involved in or beginning to look at reference based pricing options.  The letters focus on these employers offering employee health benefits without a contracted network of providers.  The letters state that employees and their families may be held responsible for up to 100% of the billed charges for services and encourages the employer to join a managed care network, even though the networks don’t actually justify their payments since they are just offering discounts based off of some fictional charges.  The reality is that these employers are looking at reference based pricing specifically because the managed care networks aren’t working!  An interesting aspect to the letter is that the hospital states that it is willing to negotiate directly with the employer on a deal.  It seems to me like they are realizing that the walls are cracking all around them.

In their scare tactic letters to employees, they state that patients will be responsible for paying 100% of the facility’s charge master rates minus whatever the employee benefit plan pays.  They make no mention of the Internal Revenue Service (IRS) and the U.S. Department of the Treasury’s final ruling on §501(r), that limit how much a non-profit facility can collect from a patient in collections actions or the time frame in which it can actually proceed.  I am sure that if I was to present a copy to the fine folks over at the department of labor or the IRS, they wouldn’t be too happy with the information being told to employees.

In addition to the federal laws protecting patients, doesn’t the patient have a right to see and agree to these pricing parameters before accepting treatment?  Isn’t this the problem with our healthcare system today?  Patients have no idea of the quality or cost of the services they are getting.  In no other part of our business or personal life does such a situation exist.  Imagine going to Disney with your family and when entering the park, you sign a document stating that you agree to pay 100% of the final bill when you leave, but at no point during your stay will you have any idea what anything is actually costing you.

The Reality of the Billing Process

Once an employee benefit plan simply establishes to a hospital that they own no further payment, the attention obviously turns turn to the patient and the facility’s attempt to seek additional payment from the patient.  When there is an express contract for a stipulated amount, the parties cannot abandon that contractual price.  If there is no explicit price agreed upon prior to the delivery of services, quantum meruit is the rule by which we calculate the measure of damages owed.

A court will measure this amount either by determining how much the patient has benefited from the transaction or by determining how much the plaintiff has expended in materials and services.  To that end, we simply ask the hospital to advise how the costs, resources expended, and other expenses reasonably equate to the charges being billed to the patient.  In all of my years, I have never seen a facility do this…ever.

Considering this information, most facilities decide not to attempt to prove the fair market, reasonable value of the services rendered in open court.  They realize that they would be better served by accepting the amount paid by the plan as payment in full.

On December 29th 2014, The Internal Revenue Service (IRS) and the U.S. Department of the Treasury issued a final ruling on §501(r), which contains new requirements for nonprofit hospital organizations covered under section §501(c) (3) and dictates how they retain their federal tax exempt status.  The reality is that most nonprofit hospitals have not met these guidelines (based on their own articles) to date and calling them out on this is a great way to negotiate your claim payments.

Some of the new requirements include conducting a Community Health Needs Assessment (“CHNA”) at least once every three years and providing solutions to address any community health needs discovered.  The hospitals are required to have a written financial assistance policy and they are limited in how much they can charge patients with financial needs for emergency and medically necessary care.  Basically, any patient’s services that are covered under an employee benefit plan would be subject to this limitation if the hospital balance billed a patient who would need financial assistance to pay the bill.  This basically covers almost every employee of any plan.  Lastly, but most importantly, there are new restrictions on collection and billing practices.  You don’t see anything on this in the template documents that hospital attorneys are sharing across the country and I really don’t understand why.

Prior to engaging in extraordinary collection actions against a patient, hospitals must ensure that reasonable efforts have been made to determine if a patient is eligible for the hospital’s financial assistance policy.  If a patient is not eligible, the hospital must provide required extraordinary collection efforts notices to the patient. Examples of extraordinary collection efforts include denying medically necessary care to a patient until their previous medical bills are paid; reporting information to a credit agency; selling a patient’s debt to a third party; and initiating legal actions such as foreclosing on a patient’s property, seizing patient’s back account and garnishing wages.  I can personally attest to the fact that these extraordinary efforts are pretty routine in today’s hospital billing offices.  All of the above actions happen every day on the accounts that I handle and most of these nonprofit hospitals are following the rules.

The Calm before the Storm

Extraordinary collection efforts are subject to two periods – the notification period and the application period.  The notification period is a 120 day period starting after the first post discharge bill.  The hospital is expected to notify the patient during this time that extraordinary collections efforts may occur if they do not make payments towards their outstanding hospital bill.  After this period, assuming the patient has been appropriately notified that the collections efforts can occur, the application period spans between 120 to 240 days from the conclusion of this notification period.  During this period, the hospital or third party agency may start to take extraordinary collections efforts, but in the event of patient payments or discovery of patient financial assistance eligibility, all collections efforts must cease or be reversed.

The hospital may not charge patients more than amounts generally billed to patients with insurance covering the same type of care.  In other words, unlike what their attorneys may state publicly, the gross patient charges are never actually billed to patients.  The law prohibits the use of gross charges as hospitals may only bill patients at the best (meaning lowest) negotiated commercial rate, an average of the three best (lowest) negotiated commercial rates, or the applicable Medicare rate.  Under none of these scenarios can the hospital balance bill the full billed charge amount!

In Conclusion

In summary, patients may not be billed more than amounts generally billed to insurers (including Medicare, the largest insurer of all); hospitals must make reasonable efforts to determine financial assistance eligibility before conducting extraordinary collection activities; and finally patients must be provided with financial counseling and should be aware of the financial assistance programs and protocol.  Once there is true pricing transparency meaning that patients actually understand and care about the actual cost and charges involved, there will be a health care revolution.  This will never occur under a system where all they care about are their co-pays and deductibles.  As more and more employee benefit plans look to alternatives to the typical managed care network model, more eyes will be opened and that can only be a good thing for the future of the self-insured industry.



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All’s Fair in Love and Subro…The Supreme Court Challenges Our Current Understanding of “Fairness,” by Chris Aguiar, Esq.

Legal writing in statutes and case law, alike, can be difficult to understand.  Phrases like ‘heretofore’, and ‘notwithstanding’ often make it quite the headache to read for those with an untrained eye.  Many, including much of legal academia, argue that the law is better served with clarity.  With that in mind, allow me to state this as clearly as possible: on January 20th, 2016, The Supreme Court of the United States ruled that a plan participant who receives benefits from its health plan due to injuries caused by a third party, and later receives a settlement from any third party related to those injuries, may avoid reimbursing the benefit plan by simply spending the settlement money.  This is true even when that plan participant knows that some or all of those settlement funds are to be reimbursed to the benefit plan, in full.  And this, the Supreme Court opines, is equitable?

In the interest of keeping this article as simple as possible, the term “equitable” is really just a fancy word for “fair.”  Any health subrogation representative recognizes this notion of “equity” or “fairness” all too well; they have been contending against members and their representatives with it for years.  In fact, over the past few years, the concept has been interpreted overwhelmingly in favor of benefit plans.  The typical scenario goes something like this: a plan participant’s attorney calls the plan’s subrogation representative and demands that the benefit plan reduce its right to reimbursement from the third party settlement the plan participant just received.  And so the chess match begins!

The attorney goes down the checklist of arguments that was likely pulled from a form letter distributed at the latest conference for personal injury attorneys.  First, the attorney claims that under the Employee Retirement Income Security Act of 1974 (“ERISA”), if the plan cannot produce every document ever even contemplated on behalf of the plan since its inception, the participant has no obligation to comply with the terms of said plan.   Then, the attorney cites decisions like Cigna Corp. v. Amara, Ark. Dep’t of Human Servs. v. Ahlborn, Wurtz v. Rawlings, and others, regardless of whether the attorney’s arguments are actually supported by the court’s opinion – which they are often not.  Baffled by the insistence of the plan that it is entitled to be reimbursed in full (despite the plan’s clear language to that effect), the attorney resorts to the notion that the plan participant was not “made whole,” and so the plan is not entitled to anything.  Finally, he’s left with the argument that regardless of the plan’s ability to emerge victorious on any of those issues, surely the benefit plan understands that it has an obligation to reduce its lien in accordance with its “fair” share of the costs of pursuing the recovery – because, naturally – the plan could certainly not have recovered without the attorneys efforts!

Once these arguments have been defeated with the long list of cases provided to us by the Supreme Court that unequivocally state that Plan’s terms control the arrangement for benefits between the plan and its beneficiaries, many lawyers will concede that the law leans in favor of the Plan, and accept that the most prudent approach is to come to an amicable settlement or face federal litigation. After all, there is considerable value in avoiding the delays and costs of trial on these issues especially when the outcome is reasonably certain.  A select few attorneys, however, frantically seeking just one more argument, resort to one of the most basic concepts there is. That concept is fairness.  Quite simply, these attorneys argue that it is not fair for a benefit plan to be able to sit back and recover the money of the injured participant and their attorney.   They wonder, “why should a benefit plan be able to get a free ride off the actions of the Plan participant? No fair!”

Frankly, until now, the answer to that question has been quite simple; the Supreme Court has very clearly stated that the terms of the plan define what it means to be equitable.  Put more simply, by virtue of the understanding between the plan participant and the benefit plan as set forth in the terms of the plan, the plan is allowed to decide what is “fair.”  In most cases, then, guided by the language of an effective subrogation and recovery provision, “fair” was determined to mean that the plan was entitled to 100% recovery, up to the total amount received by the plan participant, even if that meant (practical ramifications aside) that the plan participant received none of the settlement as a result of its obligation to reimburse the plan. Regardless of the participant’s damages or losses as a result of the accident, every penny of the settlement was considered the property of the plan until the plan was fully reimbursed.

In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, however, the Supreme Court established a new idea of what “fair” actually means.  Mr. Montanile was the victim of an accident with a third party who was driving under the influence of alcohol.  Mr. Montanile’s benefit plan paid approximately $120,000.00 in medical claims arising from the accident.  Following the accident, Mr. Montanile sued the driver of the vehicle and was able to obtain a settlement in the amount of $500,000.00.  The Plan and Montanile’s attorney engaged in negotiations for some time, but after discussions broke down, Montanile’s attorney warned the Plan that he was going to remove the funds from his trust account and disburse them to Mr. Montanile.  The Plan did not respond until almost seven months later, when it filed a lawsuit in which the Plan argued that even though Mr. Montanile had spent some or all of the settlement funds, the Plan still had a right to any of the funds whether Montanile actually had them or not.  The Supreme Court disagreed, stating that the Plan would have had an equitable right if it had “immediately sued to enforce the lien against the settlement fund then in Montanile’s possession.”   Further elaborating on the effects of delayed action by the Plan, the Court expressed no pity for the steps that a Plan might be required to take to protect its right.  The Court stated:

“… The Board protests that tracking and participating in legal proceedings is hard and costly, and that settlements are often shrouded in secrecy.  The facts of this case undercut that argument.  The Board had sufficient notice of Montanile’s settlement to have taken various steps to preserve those funds.  Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds …unless the Plan objected …. The Board could have – but did not – object.  Moreover, the Board could have filed suit immediately, rather than waiting half a year.”

Given all the above, it is clear that the Supreme Court disapproved of the Plan’s failure to protect itself in a timely manner. Did the Court, however, give any consideration to whether it was appropriate for Mr. Montanile to spend money he knew was not his?  Not only did the Supreme Court comment on the appropriateness of Mr. Montanile’s actions, its opinion all but endorsed the strategy, providing a plan participant with plenty of fodder to rely on to avoid its reimbursement obligation.  According to the Supreme Court, “Even though the defendant’s conduct was wrongful, the plaintiff could not attach the defendant’s general assets.”

Despite all of the negative rhetoric pervading the health subrogation industry following this case and the Supreme Court’s decision that it is “fair” for a plan participant to simply spend settlement funds that do not belong to the participant, all hope is not lost.  The fact remains that strong and clear plan language prevails in circumstances where a self funded benefit plan takes all the steps necessary to actually preserve the settlement funds – although this case reinforces the notion that strong plan language alone is not enough. In order to ensure that benefit plans recoup all funds that were advanced on behalf of a plan participant despite those damages being the responsibility of a third party, benefit plans must have a comprehensive recovery process that ensures early identification, intervention in, and constant oversight over those subrogation opportunities.  Gone are the days where a benefit plan can take its time to decide whether it is willing to reduce its interest rather than file suit.  No longer can subrogation claims be handled as though they are the least important aspect of a claims administration process; instead, they must now be treated with care and extreme urgency.  Legal resources must be available from the outset so threats to settlement funds can be handled with creative legal arguments and assertions of ethical obligations that may force an attorney to hold settlement funds pending resolution, and most importantly, so that legal action can be taken, as the Supreme Court put it, “immediately.”

Make no mistake: attorneys who have been expressing righteous indignation over how “unfairly” self-funded benefit plans have treated their clients over the years will now argue that it is perfectly “fair” for their clients to avoid their obligation by spending the settlement funds received.  Can you blame them? We’ve been beating the drum of the Supreme Court’s interpretation of fairness proudly since the pendulum shifted in favor of benefit plans sometime after the Supreme Court’s decision in Great–West Life and Annuity Ins. Co. v. Knudson in 2002.  The difference here, though, is that in all the cases since Knudson, the Supreme Court has made it clear that a health plan can establish an ownership right over those funds, and with this decision the Supreme Court has now seemingly provided plan participants with an incentive to do like the Steve Miller Band did in the 70’s and “take the money and run.”

Luckily, we in the self-funded industry have the luxury of having resources at our disposal to ensure that the plan’s assets are protected and that the plan’s rights are not lost.  The only question is, do you have the plan language and recovery process to make sure the clock doesn’t run out on your subrogation rights?



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They Charged What???, by Adam V. Russo, Esq.


 One of the questions that I am rarely asked in my line of work is why I do what I do and it’s a question that all of us should ask ourselves when it comes to the line of work we are involved in.  Based on my observations with friends and colleagues, if you don’t know why then you probably aren’t very happy in your job.   In my opinion, this is a key differentiator when it comes to business strategy, implementation, process, results and overall success.  There is no difference when it comes to a well-run self-funded employee benefit plan.  You need to ask yourself why you are self-funded.  Are you doing it because your broker thinks it’s a great idea or are you doing it because you actually value your employees and their dependents and want to offer affordable yet strong coverage?  How you decide to solve the problem that you want to tackle, what the strategy will be and how you will implement the strategy is key to the success of a self-funding program.

The Mission

 While I am the CEO of a company that is a provider of health care cost containment techniques designed to control costs and protect plan assets, the mission of my life’s work is to reduce the overall cost of healthcare through innovative technologies and legal expertise.  I truly believe that by providing innovative tools for cost savings and opportunities through expert consultation, that we can change the self-insured industry for the better; meaning lower costs of care and more access to quality medical treatments.

I do what I do because the entire health care industry is a $2.3 trillion dollar mess with costs spiraling out of control.   This is due to over 30 years of managed care legislation that has made navigating the ever changing laws in health care more and more difficult to manage and control costs.  The lobbyists and special interests are ensuring that our elected politicians do nothing to lower the cost of receiving care, resulting in out of control spending with no end in sight.  Sure this mission is monumental but it’s worth the effort because I have been able to help one employer at a time deal with their own health insurance crisis.

My company was created to change the game through innovative self-funded plan designs with the expectation that everyone will lower their costs, pool their risk and navigate the complex world of healthcare through our services.

The Horror Stories

 So based on all of this what are the biggest challenges that I see when it comes to provider costs?  Better yet what are the horror stories in our industry? Sure there are plenty to go around but it was pretty easy to identify the true culprits and why strong actions need to be taken to stop this death spiral. Thus, I created a summary of some of the most heinous practices I encounter on a regular basis.

While I certainly don’t think the insurance industry is faultless for the rising costs and the mess we find ourselves in, any meaningful change to the system must look at the bills providers’ charge, the practices they engage in, and the abuses they get away with against benefit plans, employers, and patients alike.

As medical costs increase, it’s no surprise that health insurance costs increase as well for both employers and employees alike.  A Kaiser/HRET Survey of Employer Sponsored Health Benefit’s in 2014 stated that the average annual health insurance premiums increased 69% from 2004 to 2014 from $9,950 to $16,834.  Meanwhile during the same time period, there was an 81% worker contribution increase from $2,661 to $4,823.  So while employers are paying more, they are cost shifting a larger percentage of the overall premium costs to employees.  So sure, employees have access to health insurance now more than ever but at what cost?  Nobody is doing anything about the actual cost of the care.  If you lower the cost then the masses gain more access to affordable health care.

Based on my extensive experience negotiating large hospital claims, one of the facility types that seem to get away with charging excessively are children’s hospitals.  I am not saying that they are all abusing the system but it seems like they are worse than most.  In Marty Makary, MD’s book “Unaccountable”, he shared that the salaries of three CEO’s of children’s hospitals range from $5.1 million to $5.9 million.  One study estimated that a hospital actually gets paid an extra $10,000 per surgical complication – wish I could get paid more for making mistakes!

Lastly, he shared that in 2009, Texas Children’s Hospital recorded a $275 million profit while the Children’s Hospital of Philadelphia had a profit of $359 million.  Aren’t these supposed to be non-profits? Children’s’ hospitals are above reproach because of their good faith in a community but they commonly charge upwards of 2,000% of their cost to charge ratios, or in other words 20 times the cost of the actual care.  How is any of this kosher?

This Isn’t Orbitz Pricing

 Another major over inflator of charges are medical flight operators such as air ambulances.  I recently had a claim where they were charging $272.00 per nautical mile for the flight.  I reviewed some information on the web and found that the operating cost of a Boeing 757 is only $40.00 per nautical mile.  So how again can a helicopter charge that much more?  It is simply because nobody questions it.  The sad fact is that many aircrafts are used for transport where it’s medically inappropriate and unnecessary.  The reality is that the same trip via ground transportation to and from the airport is as long or longer, with flight time, than a ground trip to the ultimate destination.  So why do they use the helicopter when it will actually take longer?  Well, it’s because they can get paid more money.  It’s as if I took a limousine to and from the airport every week instead of just grabbing a taxi or an Uber.

Dialysis Uncovered

 One of the worst providers when it comes to excessive charges is dialysis facilities.  For years, self-funded payers have been looking for ways to avoid the ridiculous charges so while some progress has been made, there is still plenty of work to do.  Dialysis providers typically charge up to 3,000% of what Medicare pays during the coordination period, which is before Medicare payments kick in and the private plan is secondary.

It has been suggested that the Medicare Secondary Payer Act requires that a health benefit plan maintain fully, for all dialysis patients the same coverage and benefits for dialysis as those benefits provided to all covered plan participants for other treatments.  Specifically, it has been said a benefit plan may not differentiate between patients requiring dialysis and patients who do not, by paying providers and suppliers of dialysis related services less than the usual and customary rates as applied to other medical services.

While it is true that a benefit plan may not limit benefits provided to individuals on the basis of their End Stage Renal Disease (ESRD) diagnosis, as compared to benefits which are made available to plan participants that do not have ESRD, benefit plans may set specific reduced rates for treatments in which patients suffering from ESRD must partake if the same pricing is applied to all plan participants.  In this way, there is no discrimination based upon a patient’s ESRD status.  Medicare is the secondary payer for persons who are eligible for coverage by virtue of their ESRD status, for the first 30 month of such eligibility.

In the case of National Renal Alliance, LLC v. Blue Cross and Blue Shield of Georgia, Inc., 598 F. Supp. 2d 1344, (February 19, 2009), the Plaintiffs (National Renal Alliance, LLC, and affiliated entities) filed suit against the Defendant, (Blue Cross & Blue Shield of Georgia, Inc.) alleging violations of the Medicare as Secondary Payer Act, 42 U.S.C. 1395y(b)(3)(A).  Looking at the facts of that case, Blue Cross cut its reimbursement for out-of-network dialysis to levels below the customary charges associated with such care. In 2006, Blue Cross had determined that the “usual, customary, and reasonable” charge for National Renal’s dialysis services was $2,900 per treatment, which was similar to the rate at which other commercial payors reimbursed National Renal. Id.  Then, in January of 2007, the reimbursement level dropped by eighty-eight percent (88%). National Renal contended the reduction in the “usual, customary and reasonable” reimbursement violated the Anti-Discrimination provisions of the Medicare as Secondary Payer Act because it took into account an ESRD patient’s Medicare-eligible status.  The rate cut, the Plaintiff thus contended, thereby singled out ESRD patients.

The Court determined that Blue Cross’s decision to lower reimbursement rates on dialysis treatments for all participants was not an impermissible differentiating of coverage provided to those suffering from ESRD and those not, that Blue Cross’s actions did not run afoul of the implementing regulations because the benefit plan still provided the same level of reimbursement for out-of-network dialysis treatments, regardless of the insured’s reason for receiving the treatment, and most importantly, that the new reimbursement rate was still greater than that which was provided by Medicare.  As a result, Medicare suffered no financial impact.  This was great news for the industry as a whole.

On February 18, 2016, Fortune magazine published a story about an 18 year old who created a $500 dialysis machine, which started out as a science fair project inspired by her time working at a local hospital’s dialysis unit.  Since that time, Anya Pogharian’s $500 dialysis machine, Dialysave, has captured the attention of former President Bill Clinton and the Cleveland Clinic.  Like the rest of us would be, Pogharian was shocked at the $30,000 cost of conventional dialysis machines—a price she felt was far too high for a lifesaving treatment.

Pogharian developed a prototype that’s able to filter 4 liters of blood in 25 minutes, much faster than the expected four hours that standard dialysis machines require. She’s now working on a third prototype as well as establishing a business framework for her invention—all while preparing for her first year of college.  Isn’t it amazing that a teenager could do this while the entire industry just assumes that the $30,000 price tag is correct.  The reason is that since private insurance is fitting the bill nobody cares and they are getting a 30% discount from the networks so it must be a great deal right?  If the common consumer had to purchase the machines then the price would already be less than $500.  Just look at the cost of Lasik or tummy tucks; as they have gone done significantly for years because it’s all out of pocket since most insurance plans do not cover the charges.

Cancer Killers

One of the worst types of overzealous facilities is those that focus on certain end of life issues such as cancer. Cancer facilities know that they are the last option for many of their patients who will pay whatever they want for a chance to be cured.  This is what disgusts me the most when a facility preys on people that have no options.  This is where I see most of the egregious pricing possible.  There is a simple way to put an end to this type of cost overrun – actually watch what you pay for out of network facility claims.

Most of these cancer facilities are out of network, however, since most self-funded plans have language in their plan documents stating that out of network claims are to be paid at the usual and customary rates for that facility.  Well, if the facility usually receives 500% above what Medicare would pay then that’s what they have the right to get from you!  This is a simple change that can be implemented immediately by limiting and structuring what the plan will pay for out of network facilities based on some variation of costs and Medicare rates.  The total cost of this plan document change is less than $1000.  Not a bad return on your investment, right.

I recently worked on a case where a patient sought treatment at a well-known cancer center.  Unfortunately the patient died but the facility aggressively went after the patient’s estate for more than $250,000 even though the self-funded plan paid them 50% more than what it actually cost them to deliver the care.  So not only did the patient die but his family was punished even more when his estate became insolvent, leaving his surviving spouse with nothing.  I will never forget the statement by the facility’s general counsel who stated that he didn’t care about the actual people involved in this case because there was a much bigger picture at stake.  He said the facility does amazing work and needs to be paid more – to keep doing the great work that they do.  There was never any reason given why they charged what they did or any need to justify it.  It’s the system I guess.

The System Just Needs an Overhaul

 The basic fact is that our health care industry is overrun with overcharges, overbilling, double billing, fraud and just an overall abuse that has been systematic for years on end.  The sad part remains that the facilities often admit it to us on the phone.  My team and I often hear the reason that they will not reimburse our self-funded client for an overpayment is because they often forget to bill other payers so in the end it all balances out.  Folks, I cannot make this stuff up.  How else can you explain hospitals frequently inflating charges for implantable devices by 1,000% or more and refusing to provide invoices showing the same?

So while your self-funded plan has a fiduciary duty to ensure that claims are being paid correctly and in a prudent fashion, many of your network and facility agreements specifically state that you do not have the right to audit claims.  So the question has to be asked how you expect to ensure that you are properly paying claims and that you are not being overcharged?  You cannot and that is precisely the point of these agreements.  This is the single biggest reason why health care coverage and insurance continues to cost more and more.  There in no accountability and this is why facility billing departments can easily admit that they overcharge private employers to shift losses from Medicare, Medicaid and patients that do not pay their bills.

We all need to take a closer look at our system and decide a simple question.  Do we want to continue to take the easy route of simple talking points and placing lipstick on a pig or do we want to revolutionize the way health care and insurance is handled in the future?  I have and continue to want to make a significant change and this is why I love what I do every day.



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The Wild World of Stop-Loss, by Adam V. Russo, Esq.

If there is any one area of the self-funded space that I feel industry leaders are still in the dark about, even though it may be the most important aspect of self insurance, it is the purchase and decision relating to stop-loss. While I have so many ideas about how to make the stop-loss experience better, I will hold off in case I ever start my own stop-loss company…not kidding, as it may be needed based on where the industry is heading. I would like to share some insight on what to look for when purchasing a stop-loss policy. It is probably the most important decision when deciding to self-fund. Those $500 claims will not bankrupt a self-funded plan; it is the $500,000 claim where the stop-loss carrier has denied your reimbursement request based on a policy exclusion that you and your broker didn’t bother to read, that will end your voyage into self-funding quickly.

At the end of the day, if you get nothing else from this article, I hope I imprint in your brain the understanding that the price of the policy should be your second most important factor – what the language in the policy states should be your number one focus. Then, compare the pricing on those policies that have the right language protection for your self-funded plan. Sounds simple but not followed by the majority of the industry, which always baffles me!

Stop-loss insurance is vital to the self-insured marketplace. All but very few self-funded plans have some element of stop-loss coverage, and for good reason – because catastrophic claims can bankrupt an employer in the blink of an eye.  As many TPAs and sponsors can attest, stop-loss does not always provide the protection expected of it. There are different types of carriers and MGUs in the marketplace with varying attitudes toward discretion, plan language, auditing, and many other aspects of a reinsurance arrangement that can be the difference between being able to comfortably self-fund a health plan and being forced into the fully-insured market.

This article will do a step-by-step analysis of key stop-loss policy provisions that you must keep an eye out for, as no two policies are the same.  For the sake of my readers, I have focused on the main ones we typically see but there are many potential roadblocks that you may need to look out for that are not discussed in this article.

 Exclusions for Usual, Reasonable and Customary

Some stop-loss policies contain their own definitions and exclusions for usual, customary and/or reasonableness of payments. This is one of the things that can cause the greatest number of conflicts between the self-funded plan and its stop-loss carrier. The best way to protect the self-funded plan is to have stop-loss be silent when it comes to auditing, pricing, or calculating reasonable plan payments. You want the stop-loss policy to defer to the plan document for how claims are paid in order to ensure there is no gap and that there will be a reimbursement when the claim is paid.  What you do not want is to have the stop-loss carrier have the ability to decide what a reasonable payment is on their own. There is widespread abuse in this area.

Some major carriers define these terms as standard charges in the area, and exclude all amounts in excess thereof. The stop-loss carriers would be better off not having this language at all since most plan documents have tighter language. This actually would allow a self-funded plan to pay more than what their own plan document allows, so I see no need for a carrier to have their own definition – it actually hurts them and not the plan.

Other stop-loss policies refer to unbundling and multiple procedures when it relates to usual, customary and reasonable payments. The result is that this term may conflict with that of the plan document, making it especially problematic for those plan documents that fail to mention code edits such as unbundling.

The worst possible definition, that many carriers have, states that the stop-loss carrier will reimburse only those expenses that are usual and customary. It is essentially meaningless, and there will be no way to determine what exactly the carrier will consider to be the usual and customary charges in a given case. We have even seen carriers add that they will take into account the fair market value of goods and services to determine whether they will reimburse the plan. That’s pretty subjective, don’t you think?

Medical Necessity and Experimental and Investigational Language Issues

Surgeries and procedures are getting more complicated and more expensive. Due to both of these occurrences, stop-loss carriers are looking very closely at each aspect of a surgery or service to see if the entire episode or pieces of it are medically necessary or are experimental in nature, thus not being covered under the plan and/or the stop-loss policy. Physicians and surgeons are using drugs for alternative off-label uses to find ways to cure illnesses and diseases. Carriers are hiring their own audit firms, physicians, and nurses to see if any of these procedures can be marked as not covered under the plan, ensuring that the carriers can save money by not reimbursing. As surgeries get more complex and costs continue to skyrocket, we are seeing more and more of this.

What may cause a significant issue when it comes to reimbursement is that many stop-loss carriers have their own unique definition of medically necessary treatment. Based on my evaluation, these provisions vary drastically from the plan document wording that they are offering reimbursement coverage to. Most of these policies do not defer to the plan documents at all, which means that they may cause a significant gap in coverage.  Many policies explicitly exclude expenses that are not medically necessary and specify that the carrier, not the plan, has the authority to make that determination for the purposes of the policy.  Watch out!

When it comes to defining experimental and investigational exclusion language in stop-loss policies, many carriers define the terms comprehensively. The definition does not defer to the plan document at all, which could cause a significant gap in coverage.  Regardless of what the plan may authorize, these carriers have their own interpretation as to what they will cover. Clearly, the best approach is to purchase stop-loss coverage that defers to the plan document’s language for experimental and investigational coverage, because if it’s covered under the plan, then it’s covered under the stop-loss policy. The problem is that we are seeing more and more reimbursement denials based on this exclusion. There have been many plans, brokers, and administrators who have stated that the carriers will not revise their policies to remove such language, however, we have seen many carriers provide a rider that amends the definition to mirror the terms of the plan.  We have even seen some carriers exclude services that do not meet the generally accepted medical standards or that the FDA considers experimental or investigational.

Occupational and Workers’ Compensation Coverage Issues

Health plans and stop-loss carriers treat occupational injuries and workers’ compensation coverage very differently. Some exclude all occupational injuries regardless of whether a claim was filed with a workers’ compensation carrier or if coverage is even available. Some plan documents and stop-loss contracts exclude occupational injuries when the participant has an active workers’ compensation policy, and others still exclude only injuries that workers’ compensation has actually accepted and paid for.

There are two very important potential problems here. First, in many situations, the plan document does not actually match the internal process that the TPA is using for the handling of workers’ compensation cases. We have seen many occasions where the TPA denied any claim where the patient was injured while working for wage or profit, yet the plan document states that the claim is only excluded if there is actually coverage under a workers’ compensation policy. This is an everyday occurrence. Let’s say you have a patient who has a full-time job working for the self-funded Apex Corporation, but at night he makes a little extra spending money by painting houses. One night, he sprains his wrist painting a wall while getting paid for the work. The plan administrator denied the claim as being work-related, but the plan document specifically states that it’s only excluded if there is actually workers’ compensation available. The problem is that TPAs administer so many different plans with various language in their plan documents that it gets very difficult for claims examiners to keep up with the customized documents. Thus, you end up with many situations where claims are paid or denied and it isn’t following the terms of the plan. In this case, the plan document stated that the claim is only denied if there is actual workers’ compensation coverage available.  In this situation, there wasn’t any since this was just the patient’s side job.  So, even if the carrier’s policy agrees to reimburse the plan based on the terms of the plan document, the TPA may be paying a claim incorrectly. Regardless, you want to check the stop-loss policy and also the plan document to ensure that the TPA is processing the claims correctly.

Some stop-loss carriers have language that makes it unclear as to whether an exclusion will apply.  The reality is, however, that the policy language varies greatly from those who exclude all injuries resulting from working for a wage or profit, to those that reimburse unless the workers’ compensation carrier agrees to pay, to the many variations in between. Check this language in detail as it can have some extremely horrible effects otherwise.

 Other Key Factors

This one is pretty funny, yet interesting. We are seeing more domestic and international medical tourism for all types of treatments. It is quite a growing phenomenon for medical facilities across the world. Yet, every single day my colleagues and I see a plan document that specifically excludes coverage for treatments outside of the country.  Why? It has always been there and nobody has bothered to update it. Many carriers also exclude reimbursement for claims outside of the country, so be careful here as well.  Before you begin a foreign medical tourism program for your self-funded plan, make sure you update your plan document and that the stop-loss carrier agrees to reimburse.

It is also important to look for any other miscellaneous exclusions or limitations that might factor into a plan’s decision when evaluating a stop-loss policy. Such provisions include those that might cause potential gaps in coverage, as well as those that may simply inconvenience or cause some detriment to the plan.  We have seen policies that exclude any reimbursement from validly paid plan benefits when the claims were paid pursuant to the Plan Administrator’s discretion, whether or not permitted by the plan document, which would not have been paid in the absence of discretion.  Basically, if the plan document has discretionary authority, which all of them do, the plan is at risk for being reimbursed.  My opinion is to stay away from carriers like this.  Thankfully, there aren’t too many of them that you need to worry about.

You also want to examine “proof of loss” provisions. Some policies clearly explain what documentation and information is necessary to constitute adequate proof of loss, but others do not. Many carriers utilize language that states proof of loss must be submitted as soon as possible after the date the deductible has been reached. This leaves some room for interpretation. Some policies specify certain documentation that must be submitted to render proof of loss adequate. Others state that the proof of loss must be submitted within 90 days of the claim payment being made, but do not explain what constitutes an adequate proof of loss.  If you are unsure, simply ask and get the clarification in writing.

Some stop-loss policies place strict timeframes within which the health plan must pay claims that are incurred. These are generally not ideal, because health plans often have different opinions of when a claim is “clean” than the stop-loss carrier.  In addition, many self-funded plans cover 1099 employees (independent contractors) as well as traditional employees, but many stop-loss policies do not cover such individuals.

Lastly, and maybe most importantly, there are some stop-loss policies that specify that though the Plan Administrator may make benefit determinations for plan participants, the Plan Administrator’s determinations are completely irrelevant to benefits paid under the stop-loss policy. Basically, this means that the carrier has the right to interpret the SPD to determine whether benefits were correctly paid. The Plan Administrator’s determinations therefore are irrelevant to the carrier’s determinations. Stay away…very far away from these types of policies!


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[1] Bill Gates, “The Road Ahead” published in 1996, quoted by Nancy Weil and IDG News Service  June 23, 2008,

[2] See, Are Medicare ACOs Working? Experts Disagree, KHN News as republished by ) October 21, 2015

[3] Timothy D. Martin. Cost-Sharing, Maximum Out of Pocket Limits, and Balance Billing: An Analysis of Regulatory Guidance for Reference-Pricing Plans Under the Affordable Care Act.

[4] David Frankford and Sara Rosenbaum, Go Slow On Reference Pricing: Not Ready for Prime Time,  March 9, 2015.

[5] Melanie Evans, Hospitals Rethink prices as patients grow more cost-conscious, December 5th, 2015

[6] See:; “Bitter Pill: Why Medical Bills Are Killing Us” By Steven Brill, Feb. 20, 2013

[7] Melanie Evans, Hospitals rethink prices as patients grow more cost-conscious, December 5th, 2015

[8] Jan Emerson-Shea, Vice-President for External Affairs for the California Hospital Association, quoted by Roni Caryn Rabin, Wide Range of Hospital Charges for Blood Tests Called Irrational,   August 14 2014.

[9] Statement from an unnamed Hospital spokesperson as reported by Stephen Brill, Bitter Pill – Why Medical Bills are Killing Us, Time Magazine, April 4 2013

[10] Grant Gegwich, vice president of public relations and marketing for the Crozer-Keystone Health System, as quoted by Patti Mengers, Study: Crozer is #12 in U.S for high patient mark-ups, Delaware County Daily Times, June 10th 2015

[11] James Wentz, CFO of University of Mississippi Medical as quoted in Emily Le Coz, The Big Shell Game: What you need to know about your hospital bills,  October 13, 2014

[12] Children’s Hospital Central Cal. v. Blue Cross of Cal. 72 Cal. Rptr. 3d 861, 876, Cal. App. 2014), review denied,

[13] 26 U.S. Code § 501 – Exemption from tax on corporations, certain trusts, etc

[14] ibid.

[15] Health Policy Brief, Reducing Waste in Health Care. A third or more of what the US spends annually may be wasteful. How much could be pared back – and how- is a key question  December 13, 2012

[16] U.S. Department of Labor, FAQs Aboout Affordable Care Act Implementation (Part XXI) October 10, 2014.

[17]Susan K. Livio 17 N.J. hospitals sue state for approving Horizon’s new health plans November 19th 2015.