Maryland State Archives



Comparison of HMO In-Network and Out-of-Network Payments

Health Services Cost Review Commission

December 2001

Background

Prior to October 1, 2000, Maryland law required health maintenance organizations (HMOs) to reimburse non-contracting providers with whom they had no contract at “the rate billed or at the usual, customary and reasonable rate.” The law did not define “usual, customary and reasonable,” and testimony before the House Economic Matters Committee indicated that there was not a consensus as to this term’s definition.

During the 2000 session of the Maryland General Assembly, legislation (Senate Bill 405) was introduced to define usual, customary and reasonable as, “the amount at which 90% of all claims submitted to the health maintenance organization (HMO) in the preceding calendar year for the same service would be paid in full.” (The bill also would have allowed private contracting between physicians and patients.) This definition was opposed by the HMOs. In fact, during the hearings on Senate Bill 405 there was disagreement about the meaning of the proposed definition.

Senate Bill 405 was amended, passed by the General Assembly, and signed into law by Governor Glendening (Chapter 275 of the Acts of 2000). As amended, the Act requires HMOs to reimburse non-contracting providers at the greater of: 125% of the rate the HMO pays in the same geographic area for the same covered service to a similarly licensed provider under written contract; or the rate as of January 1, 2000, that the HMO paid in the same geographic area, for the same covered service, to a similarly licensed provider not under written contract with the HMO. This provision has a sunset date of June 30, 2002.

In addition, the Act instructed the Health Services Cost Review Commission (Commission), in consultation with the Maryland Health Care Commission, the Maryland Insurance Administration, health care providers, and health maintenance organizations to develop a methodology for ensuring the reasonable payment to health care providers not under written contract with a HMO. The Commission is to report its findings and recommendations to the House Economic Matters Committee and the Senate Finance Committee by January 2002.

It would be natural to ask what other states do in this regard. Other states do not generally have an issue on the payment out-of-network, because the providers are permitted to balance bill the patient for any portion of the charge that is not paid by the HMO. Balance billing of HMO patients is not permitted under Maryland law. Policy makers consider this prohibition an important consumer protection feature of Maryland law. Providers believe that, if they are not to be allowed to balance bill, the law must provide that they be reimbursed at an fair rate.

This paper presents two analyses of payments to non-contracting physicians prior to the new law: a) a summary of HMO payments to non-contracting providers using 1999 and first quarter 2000 data, and, b) a more detailed look at selected CPT codes using 1998 data. The paper concludes with a list of possible recommendations for the General Assembly’s consideration.

Aggregate analysis of CY 1999 and the first quarter of 2000

To assist us in performing a summary, aggregate analysis of payments to non-contracting providers[1], MHCC provided the HMO cases in the calender year 1999 data base and also the same data for the first quarter of 2000. This data was extensively edited, removing cases with negative or zero allowable amounts or allowable amounts in excess of $5,000. The mean allowable amount by CPT code was then calculated, and any cases with an allowable amount under 30% or over 300% of this amount were deleted as outliers. This left approximately 8 million records in 1999, and 2 million in 2000. The Medicare relative value unit (RVU) values for the CPT code were then assigned (the total RVU value was used). Any codes for which Medicare did not have a relative value of greater than 0 were dropped from the analysis.

The mean allowable amount per RVU was calculated for each payer, separated by whether the payment was in network or out-of-network, and whether the payment was for HMO or HMO/POS services. For some payers, there were substantial differences between the HMO results and the HMO/POS results. This is consistent with the fact that several of the major payers license their HMO/POS through their indemnity or PPO line, making HMO/POS payment for services subject to PPO requirements. In short, HMO/POS services are not subject to the same constraints as when the payer is making HMO payments. As a result, the HMO/POS cases were dropped for the subsequent analysis, leaving only HMO cases.

The 2000 data was analyzed separately from the 1999 data to provide an indication of the stability of the results. In 1999, in network mean payments per RVU by payer ranged from $32 to $53, and out-of-network from $25 to $67. Table 4 shows the out-of-network payments expressed as a percentage of the in-network payments.

| | | |

| |TABLE 1 | |

| | | |

|Payer |Out-of-network payment per RVU as a percentage of the In-Network payments per |Percentage in first quarter of 2000 |

| |RVU in CY 1999 | |

| | | |

|1 |124% |111% |

| | | |

|2 |157% |136% |

| | | |

|3 |47% |48% |

| | | |

|4 |157% |172% |

| | | |

|5 |112% |114% |

| | | |

|6 |98% |120% |

| | | |

|7 |117% |111% |

| | | |

|8 |114% |122% |

| | | |

|9 |114% |117% |

| | | |

|10 |86% |73% |

| | | |

|11 |160% |164% |

It can be seen that the requirement that the payment should be the greater of the payment as of January 1, 2000 or 125% of the in-network payment will require some payers to substantially increase their out-of-network payment rates, while others will not have to make any changes.

Analysis of CY 1998 data for selected CPT codes

Selecting the Data

To get a better understanding of payments to non-contracting physicians, we also analyzed payments for selected CPT codes. The Commission asked the MHCC to provide a frequency distribution of CPT codes from the 1998 Medical Care Database (MCDB) for private HMO fee-for-service cases in which the “in/out-of-network” field had been flagged. The cases were grouped by primary payer and in/out-of-network. The MCDB contained data on approximately 16 million private non-HMO and 8 million private HMO services.

In selecting codes for closer study, we sought CPT codes that fell into one or more of the following categories:

1. CPTs with a large number of procedures reimbursed out-of-network;

2. CPTs with low out-of-network reimbursement relative to in-network reimbursement;

3. CPTs with high amount of charges out-of-network; and

4. CPTs representing selected hospital-based physician specialties.

Based on these criteria, we selected a list of 36 CPTs for closer examination. It should be noted that there was no intent to select a representative sample of procedure codes. The procedure codes studied were deliberately selected to focus on specific areas of concern. The results reported here should not, therefore, be extrapolated to the entire population.

The MHCC then provided detailed data on payments for these CPTs by each licensed HMO in Maryland. This data base included 1.8 million procedures paid by HMOs, of which 12% were out-of-network. The Commission also compared payments for each CPT and for each payer to the Medicare Fee Schedule.

Analyzing the Data

The Commission analyzed payments in two ways: by payer and by service. First, we looked at how each HMO’s payments to out-of-network physicians compared to its payments to in-network physicians and to the Medicare Fee Schedule payments. Second, we looked at how individual services (CPTs) were reimbursed out-of-network compared to in-network and compared to the Medicare Fee Schedule.

Payer Comparison:

To summarize payment practices for each HMO, we created a weighted average of payments in and out-of-network for all 36 CPTs. Using these data, we observed that out-of-network payments ranged from 79% above in-network payments to 17% below in-network payments, with only 2 of the 13 HMOs studied reimbursing less for out-of-network than for in-network services. (In this table, as in the subsequent tables, the extreme cases involved relatively small numbers of cases, so should not be given too much weight.)

| |TABLE 2 | | |

| |Out-of-network payments|Out-of-network |Out-of-network |

| |as % of in-network |payments as % of|claims as a |

| |payments |Medicare |percentage of |

| | |payments |the total claims|

|Plan A** |142% |142% |28% |

|Plan B |109% |69% |11% |

|Plan C |83% |64% |5% |

|Plan D |102% |62% |52% |

|Plan E |125% |175% |28% |

|Plan F |103% |91% |11% |

|Plan G |91% |108% |6% |

|Plan H |105% |92% |11% |

|Plan I |127% |102% |11% |

|Plan J |112% |110% |20% |

|Plan K |109% |110% |12% |

|Plan L** |179% |162% |8% |

|Plan M |156% |130% |12% |

** The number of out-of-network claims for plans A and L was under 1,000, so these results should not be considered to be reliable.

Out-of-network payments also ranged from 75% above the Medicare Fee Schedule to 38% below the fee schedule. Five of the thirteen HMOs reimbursed at less than the Medicare Fee Schedule. Slightly under half of the payers (5 of 13) met the new legal standard of reimbursing at 125% of the in-network rate (This standard, however, was not in force in 1998, which is the time period of the data used in the analysis).

1. Service Comparison:

Table 3 summarizes the comparison of payment for out-of-network services compared to both in-network services and Medicare payments for the same services. Unlike the previous analysis, payments from all HMOs for each CPT are grouped together in this table. (We analyzed multiple emergency and office/outpatient visit CPTs, but only one of each is included in this table for simplicity’s sake.)

|TABLE 3 - Service Comparison |

|CPT code |Service Description |Out-of-network payments as|Out-of-network |Number of in |Number of |

| | |a % of in-network payments|payments as a % of |network claims |out-of-network |

| | | |Medicare payments | |claims |

| | | | | | |

|00850 |Anesthesia for C-section |162% |N/A |383 |20 |

|10040 |Acne surgery of skin abscess |111% |83% |176 |12 |

|17000 |Destroy benign/premal lesion |106% |79% |19,391 |391 |

|28285 |Repair of hammertoe |92% |84% |1,648 |113 |

|28296 |Correction of bunion |91% |137% |689 |74 |

|44950 |Appendectomy |172% |118% |41 |26 |

|52000 |Cystoscopy |163% |194% |55 |25 |

|56340 |Laproscopic cholecystectomy |77% |71% |2,725 |464 |

|71020 |Chest x-ray |86% |151% |52,340 |6,123 |

|72193 |Contrast CAT scan of pelvis |77% |32% |4,266 |488 |

|74160 |Contract CAT scan of abdomen |80% |33% |4,255 |555 |

|87081 |Bacteria culture screen |151% |141% |9,535 |209 |

|88141 |Screening - gynecological |122% |65% |4,144 |485 |

|88305 |Tissue exam by pathologist |107% |79% |28,366 |7,286 |

|90806 |Individual therapy |112% |61% |73,781 |14,615 |

|93010 |Electrocardiogram report |141% |177% |33,823 |15,558 |

|93307 |Echo exam of heart |67% |55% |15,368 |1,414 |

|93320 |Doppler echo exam, heart |79% |67% |16,466 |1,416 |

|93325 |Doppler color flow |61% |42% |16,540 |1,397 |

|97012 |Mechanical traction therapy |96% |78% |12,394 |2,856 |

|97530 |Therapeutic activities |104% |90% |44,958 |4,553 |

|98940 |Chiropractic manipulation |107% |79% |6,894 |3,806 |

|98941 |Chiropractic manipulation |103% |72% |3,336 |3,250 |

|99201 |Office/outpatient visit, new |121% |75% |5,711 |348 |

|99213 |Office/outpatient visit, est |109% |79% |604,511 |12,899 |

|99232 |Subsequent hospital care |124% |115% |39,324 |3,793 |

|99281 |Emergency department visit |130% |164% |2,664 |1,007 |

|99291 |Critical care, first hour |120% |120% |9,539 |1,593 |

|99292 |Critical care, per minute beyond 74 |96% |143% |3,617 |462 |

| |minutes | | | | |

Several services stand out as being paid low relative to both in-network payments and Medicare payments. These services include: laproscopic cholystectomies; CAT scans; mechanical traction therapy; and Doppler studies.

On the other hand, a larger number of services are paid well relative to in-network services and Medicare payments, including emergency services and hospital visits. These are important services because they are reimbursed out-of-network relatively frequently and involve a large amount of total out-of-network charges.

Finally, only five of the twenty-nine procedures identified in Table 2 were reimbursed at the new legal standard of 125% of the in-network rate on average. (That standard was not in effect in 1998, the time period of this data.)

2. Emergency Services:

During the course of our analysis, many interested parties expressed a particular interest in payments for emergency services. As a result, the Commission took a closer look at five codes for emergency services. As Table 4 illustrates, all five emergency visit codes are reimbursed, on average, out-of-network at a favorable rate compared to in-network payments and compared to Medicare payments. Two of the codes were reimbursed at more than 125% of the in-network payment amount, the standard established in the new law but not in effect at the time this data was collected.

|TABLE 4 - Emergency Services |

| |CPT Description |Out-of-network |Out-of-network |Number of |Number of |

| | |payments as % of |payments as % of |in-network claims |out-of-network |

| | |in-network payments |Medicare payments| |claims |

|99281 |ER visit - minor |130% |164% |2,664 |1,007 |

| |problem | | | | |

|99282 |ER visit - low to |120% |157% |22,585 |11,735 |

| |moderate severity | | | | |

|99283 |ER visit - moderate |118% |129% |51,441 |27,267 |

|99284 |ER visit - urgent |119% |135% |29,502 |13,043 |

|99285 |ER visit - life |127% |130% |9,568 |3,313 |

| |threatening problem | | | | |

Closer inspection of the data indicates that two of the thirteen HMOs consistently reimbursed out-of-network emergency services at a rate slightly less than the in-network rate. These HMOs were Plan D, and Plan G.

Conclusions:

In CY 1999 and the first quarter of CY 2000, the in-network payments varied greatly from one HMO to another, as do the out-of-network payments. The particular problems with low out-of-network payments appear to be concentrated in a few HMOs, and in particular types of services. Given the relatively narrow focus of this analysis, however, it is not possible to list all the procedures for which problems exist.

New Payment Options:

1. Continue the requirement that HMOs pay the greater of 125% of the in-network payment to out-of-network providers or the rate at which the service was reimbursed on January 1, 2000.

Advantages: Payers have now had one year’s experience with this standard and have presumably made the information and payment system changes necessary to comply with this standard. There should be no new administrative cost to implementing this as the permanent standard.

Disadvantages: Although there would be no additional cost relative to current law, this analysis does demonstrate that current law does represent an increase in expenditures by payers above their prior payment policies. Providers may also have a financial incentive not to contract with an HMO if they know they will be paid 25% more than the HMO’s in-network contract rate.

2. Continue the requirement that HMOs pay at least 125% of the in-network payment to out-of-network providers, but with an additional floor that the payment may not be less than the Medicare fee schedule amount for the procedure.

Advantages: On average, payers are essentially meeting this standard under current law. That is, in the payer comparison above, 125% of the average in-network reimbursement exceeds the Medicare Fee Schedule payment in all but three cases. In each of those three cases, the difference in question is small.

Disadvantages: The Medicare rate varies by region of the state, whereas most payers have a single fee schedule for the whole state. Reimbursement for a few of the selected CPT codes evaluated above would have to increase modestly in order to meet the second half of this standard. In addition, this standard would impose administrative costs on payers as they would have to make changes to their payment and information systems to comply with this standard. Providers may also have a financial incentive not to contract with an HMO if they know they will be paid 25% more than the HMO’s in-network contract rate.

3. Require that the out-of-network payment shall be at least the Medicare payment for the procedure (or some percentage above that).

Advantages: Providers are familiar with Medicare payment amounts, so they would know whether a payer was complying with this standard. This option also creates some uniformity of payment across payers. Because the relative value units of the Medicare Fee Schedule are updated annually, this proposal would provide some fairness of payment across various services. The updating of the fee schedule each year should ensure that standards are available for new services as soon as possible. By linking payment to a neutral standard, payers, physicians, and policymakers would be able to evaluate the reasonableness of the reimbursement level in an objective manner.

Disadvantages: Because Medicare is a program for the aged and disabled, there are some CPT codes with no Medicare payment rate and others for which payment may not be reasonable for a non-Medicare population. The Medicare rate varies by region of the state, whereas most payers have a single fee schedule for the entire state. The Medicare rate also fluctuates annually based on regulatory and legislative changes. Over time, the rate may rise or fall relative to private sector payments, which could create problems with the fairness of this standard in certain years. This standard would be a change from current law, so it would involve some administrative cost for payers to implement.

4. Require that the MHCC promulgate minimum payment standards on an annual basis, probably tied to the Medicare physician payment RBRVS system.

Advantages: Same advantages as #3 above. In addition, this option would provide a mechanism to address some of the disadvantages of #3. For example, MHCC could monitor the adequacy of Medicare payment levels and correct the out-of-network standard when legislative and/or regulatory changes cause Medicare payments to be out of step with private sector payments. MHCC would be the appropriate body to perform this annual review because it is the only agency in Maryland government which regularly collects and analyzes data on physician payment.

Disadvantages: Same as #3 above. By providing an annual review this option could perpetuate the conflict between payers and physicians as they debate each year’s standards. The use of a different payment rate would involve administrative complexities for the payers.

5. Permit providers to balance bill the patient for any portion of the charge that is not paid by the HMO.

Advantages/Disadvantages: Balance billing of HMO patients is not permitted under Maryland law. Policy makers consider this prohibition an important consumer protection feature of Maryland law. Providers believe that they must be reimbursed at an fair rate.

The caveats

The MHCC notes that users of these data should be aware that network participation information has not been used extensively in previous analyses of the MCDB. As stated earlier, the services selected for the analyses are not necessarily “representative” of all services in the MCDB, particularly for the analysis of 1998 data. Therefore, the payer analysis which compares a weighted average of these services to in-network payments and to the Medicare Fee Schedule may not be representative of a payer’s overall reimbursement practices.

It should be noted that the number of out-of-network claims was only 5% of the number of in-network claims in 1999 and 2000, although the percentage was much higher for hospital emergency department visits. Because of the way in which the procedure codes were selected for analysis in the 1998 data, the proportion of these cases that were paid out-of-network was higher than 5%.

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[1]Although this section of the statute uses a definition of “provider” that is broader than just physicians, this analysis looked at reimbursement for physician services only.

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