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New York State Department of Financial Services releases report on out-of-network billing
March 8, 2012
Health Law Alert
Author(s): Michele A. Masucci, Rebecca Simone
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On March 7, 2012, the newly created New York State Department of Financial Services (DFS) released a report discussing the problems created by health care providers who bill patients and insurance companies at out-of-network rates without first warning patients that they are outside of the patient’s network.[1]  The report, titled “An Unwelcome Surprise: How New Yorkers Are Getting Stuck with Unexpected Medical Bills from Out-of-Network Providers,” (the “DFS Report”) was drafted in response to a request from New York State Governor Andrew Cuomo, who has charged DFS with the task of uncovering and publicizing billing abuses in an effort to bring about reform.[2]

According to the DFS Report, the DFS investigation into out-of-network billing practices made several findings:

  1. It is difficult for patients to “comparison shop” when selecting insurance plans because insurers “use multiple benchmarks to determine coverage” and do not adequately explain to patients what types of out-of-network medical bills are covered, and to what extent those bills are covered.
  2. Insurers and providers fail to properly notify patients when specialists providing patients with non-emergency care are not within the patients’ network. Patients typically are not made aware of whether specialists are out-of-network, how much they can reasonably expect to be charged, and how much they can reasonably expect their insurer to cover. Insurers were also found to routinely provide patients with outdated provider directories, making it even more difficult for patients to determine whether a provider is in or out of network.
  3. “A relatively small but significant number of out-of-network specialists . . . appear to take advantage of the fact that emergency care must be delivered” by charging excessive fees to emergency patients, who typically do not demand an in-network provider when accessing emergency care.
  4. Patients are not being sufficiently protected from inadequate provider networks, and are being expected to pay out-of-network provider bills even when an in-network provider of the appropriate specialty is not readily available.
  5. Insurers have both reduced the level of out-of-network coverage provided and failed to clearly articulate this reduced coverage level to insureds.
  6. Patients face many difficulties, confusion, and a general lack of transparency on the part of insurers when attempting to submit out-of-network claims for coverage.[3]

In light of these problems, DFS states that both providers and health plans must reform current policies and practices. Proposed reforms include enhanced disclosure, network adequacy requirements, standards for coverage of out-of-network services, prohibitions on excessive charges for emergency services, and a simplified electronic claims submission process.[4

Aetna sues providers over out-of-network billing practices

DFS is not the first organization to tackle the problems created by out-of-network billing. On February 2, 2012, Aetna filed suit against seven California surgery centers in California State Supreme Court seeking to stop the centers from waiving the co-insurance payments that patients must be charged when they use doctors or facilities that are not part of Aetna’s network.[5]

The lawsuit alleges that the centers waived required co-payments for out-of-network patients, and then billed Aetna up to 2500 percent more than what Aetna would pay an in-network provider for the same procedure.[6]  By waiving co-payments, the centers created incentives for Aetna patients to use out-of-network, rather than in-network physicians, allowing the centers to bill the patients’ procedures to Aetna at a higher rate. Further, since the centers share profits with the doctors who own the facilities, this billing scheme essentially created incentives for doctors to refer their patients to out-of-network surgeons within the facilities in order to increase their own personal share of the surgery center profits.[7]  

Although the recent California suit has gained the most national attention, this case is in fact part of a broader litigation strategy that Aetna has been pursuing for several months across multiple states.  Aetna has initiated suits against practitioners and health care facilities throughout the U.S. in an effort to prevent the abuse of out-of-network billing rates by providers. For example, in October 2011, Aetna initiated legal action against two specialty care centers, as well as several individually named providers, all located in Long Island, New York.[8]  

In the New York case, Aetna alleges that one doctor, an in-network physician and co-owner of the two named care centers, intentionally referred patients to his business partner, an out-of-network physician, in order to increase the amount of billings by the two care centers to Aetna.[9]  Aetna also seeks to prevent the defendants from following through on threats the defendants have made to bill Aetna patients directly for the balances Aetna has refused to pay on various procedures performed by out-of-network providers.[10]   

Regarding the allegations against the in-network provider who was referring patients out-of-network, Aetna claims that he violated his agreement as an in-network provider by referring patients to an out-of-network physician, and by using various out-of-network care providers to perform procedures that, if performed by an in-network provider, would have been viewed as incidental to the procedure performed and would have been included in the billing rate paid to him for the procedure.[11]  As a result of this in-network physician’s solicitation of out-of-network providers to perform these incidental functions, it is alleged that Aetna paid the in-network provider and the out-of-network provider to whom he referred patients over $1.2 million in charges improperly submitted to Aetna since 2008.[12]  Aetna has raised similar claims against providers in Texas and New Jersey as well.[13]

Aetna not the first to litigate over out-of-network billing practices

Although Aetna’s current litigation strategy is relatively new, the concerns these cases raise regarding the billing of out-of-network procedures have been around at least since 2008. In 2008, New York State Comptroller Thomas DiNapoli audited multiple providers who had rendered services to patients enrolled in state employee health insurance programs administered by United Healthcare Insurance Company of New York (“United”). In the course of the audit, the comptroller determined that the audited providers were waiving co-payments for out-of-network patients, and then over-billing United to make up the difference in cost.[14]  

An initial decision by the New York State Supreme Court in March 2010 held that the audit was invalid.[15]  The State Supreme Court concluded that the comptroller lacked the authority to audit United because it was not “a political subdivision of the State and does not directly receive State money.”[16]  However, in October 2011, the New York State Appellate Division overturned the State Supreme Court’s holding.[17]  Consequently, it appears that the comptroller may resume the existing enforcement action against providers based on his audit of United’s billings, and is also free to institute new audits and enforcement actions against other providers who bill insurers that provide health insurance to state employees. 

In addition to facing possible civil liability for waiving co-payments, there is a potential for criminal liability. For example, the Office of General Counsel for the New York State Insurance Department has repeatedly stated that practitioners who routinely waive co-payments for out-of-network patients may be guilty of insurance fraud.[18]  Likewise, the Office of the Inspector General has issued a statement indicating that the routine waiver of co-payments in connection with a federal health insurance program is unlawful and may be a violation of federal anti-kickback laws.[19]  While narrow exceptions exist,[20]  as a general rule, co-payments should not be waived.

Moving forward

In light of recent events, it would be wise for any physician considering waiving co-payments for out-of-network patients or referring patients to out-of-network practitioners to consult with legal counsel to determine whether these actions could create civil and possibly even criminal liability. In addition, the out-of-network provider needs to be aware of how the increased focus on consumer protection could impact its current practices. 


  1. See “An Unwelcome Surprise: How New Yorkers Are Getting Stuck with Unexpected Medical Bills from Out-of-Network Providers,” New York State Department of Financial Services (March 7, 2012).  Available at http://www.governor.ny.gov/
    assets/documents/DFS%20Report.pdf
    .
    [Back to reference]
  2. See “Doctors Gaming the System?” Crain’s Health Pulse (Feb. 9, 2012).
    [Back to reference]
  3. See “An Unwelcome Surprise: How New Yorkers Are Getting Stuck with Unexpected Medical Bills from Out-of-Network Providers,” New York State Department of Financial Services (March 7, 2012).  Available at http://www.governor.ny.gov/
    assets/documents/DFS%20Report.pdf
    .
    [Back to reference]
  4. Id.
    [Back to reference]
  5. See Aetna Life Insurance Co. v. Bay Area Surgical Management LLC, Case No. 112CV217943 (Cal. Super. Ct. Feb. 2, 2012).
    [Back to reference]
  6. See id.; see also Peter Waldman, “Bunion Repair at $66,100 Spurs Aetna Lawsuit Against Clinics,” Bloomberg Businessweek (Feb. 3, 2012, 6:41 p.m.), http://www.businessweek.com/
    news/2012-02-06/bunion-repair-at-66-100-spurs-aetna-lawsuit-against-clinics.html
    .
    [Back to reference]
  7. See id.
    [Back to reference]
  8. See Aetna Health Inc. v. Rak, Index No. 652819/2011 (N.Y. Sup. Ct. October 14, 2011).
    [Back to reference]
  9. Id.
    [Back to reference]
  10. Id.
    [Back to reference]
  11. Id.
    [Back to reference]
  12. Id.
    [Back to reference]
  13. See Waldman article, supra n. 2; see also Aetna Health Inc. v. Sofola, Case No. 2011-73949 (Tex. Dist. Ct. Dec. 7, 2011); Peter Waldman, “Ultrasound at $59,490 Spurs Aetna Outrage in Suit Naming Doctors,” Bloomberg (Mar. 24, 2011, 12:01 AM), http://www.bloomberg.com/news/2011-03-24/
    ultrasound-at-59-490-is-outrage-in-aetna-claim-against-doctors.html
    .
    [Back to reference]
  14. See Matter of South Island Orthopaedic Group, PC v. DiNapoli, Index No. 4182-09 (N.Y. Sup. Ct. Mar. 3, 2010).
    [Back to reference]
  15. Id.
    [Back to reference]
  16. Id.
    [Back to reference]
  17. See Matter of South Island Orthopaedic Group, PC v. DiNapoli, No. 510690 (N.Y. App. Div. Oct. 27, 2011).
    [Back to reference]
  18. See Michele Masucci, “Waiver of Health Care Co-Payments and Deductibles,” New York Law Journal (June 25, 2009).
    [Back to reference]
  19. Id.
    [Back to reference]
  20. For example, a co-payment may be waived when the patient is experiencing extreme financial hardship or is indigent, or when the practitioner has made reasonable collection efforts that have been unsuccessful.  See id.
    [Back to reference]

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