Lawsuits involving provider discount abuse are often litigated as contract disputes or unfair trade practice violations.  These suits are very difficult to defend against, as the discounts taken are often the result of a contract that the PPO or payer has breached.  In many cases, the discounts taken are based upon contracts that the payer is not even party to.  Lawsuits involving PPO stacking are generally brought as a violation of the contractual agreement between the provider and the PPO, and between the PPO and the payer.  PPO stacking may be in violation of U.S. state or local statutes and carry civil penalties.  And, whether intentionally or unintentionally, the result of these suits has been that many payers invalidate their contracts and their right to access valuable provider discounts in the future.

The most notable legal decision in favor of a medical provider in a provider discount abuse case was in 1999: HCA Health Services of Georgia, Inc. vs. Employers Health Insurance Company.  The lawsuit started as a collection case in the state court, but was subsequently moved to a federal court as an ERISA case.  The court disallowed the silent PPO arrangement of a Humana subsidiary.  The details follow:

·Steven Denton (Denton) enrolled in an employer-sponsored health plan, Employers Health Inc. (EHI), that included higher in-network benefits when care was obtained through a PHCS PPO.

·Denton needed surgery and chose an out-of-network hospital, Parkway Medical Center (Parkway). He understood and agreed that by using an out-of-network facility he would have to pay a higher co-insurance amount than if he selected a hospital within the PHCS network.

·Unknown to Denton, and initially to Parkway, EHI utilized a silent PPO arrangement in which it expected to obtain a 25% discount from the Parkway bill.  The arrangement was as follows:

• Parkway had a PPO contract with MedView Services, Inc. (MedView), a primary PPO that contracted with providers in the traditional way (i.e. logo ID card, steerage, discount).
• MedView leased its PPO network to Health Strategies, Inc. (HSI) a PPO aggregator.  HSI leased it networks to payers so that they could access the discounts that providers promised to accept as payment-in-full when they joined one of the networks that HSI contracted (e.g. MedView).
• HSI, in turn, leased to EHI the right to access the discounts in HSI’s PPO networks, including the one leased from MedView (which included Parkway as a provider), in return for a percentage of the savings EHI took from providers who participated in the MedView PPO network.

·Denton had the surgery. Parkway billed EHI $3208.80, the full retail price for the service rendered.

·ESI received the claim and MedView bill, and sent it to HSI for “re-pricing.”  HSI re-priced the claim by taking a discount of 25% ($777.00) and returned it to ESI for repayment.

·ESI sent an Explanation of Benefits to Parkway that indicated EHI applied a 25% discount ($777.00) to the amount charged ($3108.00) to arrive at the amount allowed ($2331.00).  The EOB also indicated that EHI paid 80% (the out-of-network percentage) of the amount allowed to arrive at the amount paid ($1864.80).  In a footnote on the back of the EOB, EHI stated that “payment is based on a PPO contract with the HSI network, MedView Services, Inc. or their affiliates.”  The EOB also noted that Denton’s co-payment obligation was 20% of the adjusted bill ($466.20).

·Parkway hired Network Analysis, Inc. to detect and eliminate the practice of unauthorized discounts. Months later, it uncovered the unauthorized discount and brought suit against ESI. The District Court found in favor of Parkway.  ESI was ordered to pay 80% of the full amount of the medical center’s bill for services. EHI appealed the verdict to the Eleventh Circuit and lost.

It is helpful to review the merits of the Denton case and how the courts reached their decisions as the circumstances surrounding the case are similar to those encountered by payers every day.  Indeed, it is worth noting that the appeals court went to great lengths to attack the concept of silent PPOs in its ruling.  The courts’ findings are discussed below:

Point 1:
There was no contractually binding agreement between the provider and the payer. The courts noted that Parkway contracted with MedView in exchange for the steerage of patients to an in-network hospital.  However,  Denton specifically went out-of-network under his PPO option.  By definition, EHI could not steer patients to Parkway since it was this basic contradiction that led the courts to find that there was no contractually binding agreement between Parkway and EHI for the discount.  Under the basic tenet of contract law, Parkway bargained a discount in its contract with MedView in exchange for steerage.  Since EHI downstream could not steer patients, there was no meeting of the minds, hence no-contract.

Point 2:
The payer’s attempt to access PPO discounts via its out-of network re-pricer was illegal. By claiming it was entitled to MedView’s discounted fee, EHI ignored the basic tenet of contract law that contracts are premised on a bargained-for exchange.  This basic tenet of contract law is violated when, by virtue of its brokering agreement with HSI, EHI used MedView’s provider discounts without the provider receiving the benefit it expected in return, namely, steerage and payment by the payer at the in-network benefit level.

Point 3:
The payer’s attempt to access PPO discounts via its out-of-network re-pricer was illegitimate. EHI referred to the discounts it obtained via its contract with re-pricer HSI as its “shared savings” agreement.  Under this agreement, providers received expedited payment for their services in return for discounted fees.  The courts found that the payer’s attempt to access the “shared savings” agreement was arbitrary, capricious and violated ERISA.  Here’s why.

MedView’s contract with Parkway defined a “subscriber” as “a person who, by virtue of a binding contract between Medview and any business entity, may obtain medical and/or surgical services at Preferred Hospitals.”  The courts pointed out that Denton was not a MedView subscriber nor did he obtain medical care from Parkway by virtue of a binding contract between Medview and HSI.  Similarly, neither HSI nor EHI is a business entity contracting with MedView to pay for medical services rendered by participating physicians to MedView subscribers.  And lastly, EHI and MedView never entered into a relationship that would result in EHI’s plan participants becoming MedView subscribers, and this relationship does not arise by virtue of a leasing contract like that “peddled” by HSI.

Point 4:
No provision in the payer’s plan document supports taking out-of-network provider discounts. EHI’s plan document provisions discussed fees in the context of explaining that if a participant used an in-network provider, then his co-payment percentage will be less than if he used an out-of-network provider.  Parkway argued that no provision in EHI’s plan document allowed it to base the amount it owed Parkway on a discount fee. Discounted fees are not mentioned in the context of in-network providers, and Parkway wasn’t such a provider, Parkway’s contention that the plan documents did not permit EHI to discount its charges was found by the courts to be correct.

Point 5:
Had the provider been aware of the real payer at the point of care, a contractual relationship may have been deemed to have existed and the discounts taken may have been legitimized. While the courts found that the benefits from Parkway to EHI did not travel over the three contracts based on the fact that Parkway failed to receive the benefits of a bargain and that the PPO plan participants were unaware of the discounts, the courts noted that there were no prohibitions for a PPO arrangement to travel over a series of contracts, if the benefits of the bargain also traveled between the parties and there was proper notice to the appropriate parties as to the agreements.  Thus, had Parkway been aware of EHI as a payer and had promised EHI a plan participant discounted fee that would be “an entirely different matter.”

Point 6:
Treating in- and out-of-network providers financially alike deprives plan participants of their contractual expectation upon enrolling in a PPO plan. PPO participants know that their medical care will be less costly if they obtain such care from an in-network provider because they receive a higher benefit percentage applied to a discounted provider fee.  Nonetheless, they often seek care outside of the PPO network believing that the service rendered is different, if not better, than that available from an in-network provider.  For this, they expect to pay more for out-of-network service by virtue of a lower benefit percentage applied to a non-discounted provider fee.  PPO participants seek medical care from out-of-network providers because they believe that they will receive a level of service consonant with the higher fee they expect out-of-network providers to be paid.

Understanding the above, the courts reasoned that if in- and out-of-network providers were paid the same discounted fees, over time, the result would be that all providers would provide a level of service consonant with a discounted fee regardless of whether they provided medical care to an in-network or out-of-network patient.  As such, the courts concluded that these types of payment schemes deleteriously and nonsensically impact plan participants who obtain benefits in-network at the expense of those who obtain care out-of-network.

Exacerbating this situation is the fact that to “justify” taking an in-network discount for services incurred out-of-network, many payers reimburse the out-of-network provider at (higher) in-network benefits levels.  The result is cost shifting from those plan participants who obtain care from out-of-network providers to those who obtain care from in-network providers.  This flies in the face of the intent of the PPO concept.  The courts found that essentially, this scheme works to deprive plan participants of their contractual expectation as to the level of care delivered upon enrolling in the PPO plan.

SUMMARY:
In summary, the Denton case, and others like it, provide attorneys with a solid basis upon which to attack certain forms of provider abuse using a variety of fairly bulletproof arguments.  When challenged, payers are often faced with the dooming prospect of having to defend themselves against breaches of the very same contracts that they relied upon to take the discount in the first place.