Entering the murky world of out-of-network charges

Blue Cross Blue Shield of Massachusetts is implementing an interesting method to highlight out-of-network costs and to reduce them. Here's what BCBS says in a letter sent to employers and posted online:

In an effort to deliver more affordable products, Blue Cross Blue Shield of Massachusetts is implementing a change in the way we reimburse Massachusetts based providers who do not participate in our network.

Effective October 1, 2010, we will reimburse members directly for covered services provided by most non-participating providers and it will be the member's responsibility to reimburse the provider. The payment to the member will reflect the provider's billed charge, or in some cases the usual and customary charge based on the Massachusetts indemnity fee schedule, less any applicable copayments, co-insurance, or deductibles.

In most cases, non-participating providers are reimbursed as much as three to five times more than in-network providers for the same services. By implementing this change, we seek to better manage the cost and quality of the health care our members receive through greater transparency, and by helping to ensure that they are treated by contracted, in-network providers.

We will be communicating this change to members and providers:

• Members who have used non-participating providers 2 or more times over the past 13 months will receive a notification letter informing them of the change and encouraging them to use in-network providers in the future.

Let's reflect, for a moment, on what this means. Health plans like BCBS form networks of providers (mainly doctors and hospitals). Network participants typically agree to accept discounted fees in exchange for participation. The idea is that the provider will be better off overall because they will get an increased volume of patients once they are in network. Providers have generally bought into this logic, and the major health plans in Massachusetts have very broad networks as a result. (Obviously if everyone's in network, no one is getting extra volume as a result. That's essentially the situation in Massachusetts today.)But in many cases providers that don't participate in the network are still able to bill and receive reimbursement from health plans. If we take the letter at face value, out-of-network providers are extracting four to six times as much money for the same service as in-network providers. Personally I think BCBS is exaggerating. You can tell by clauses such as "in most cases" and "as much as." Also, when they write "three to five times more than" they probably mean "three to five times as much as." Still, it's a fact that out-of-network providers can charge a lot more, and BCBS feels compelled to pay.With the change in policy, things could get interesting for out-of-network providers and their patients.Assume that a patient goes out of network and a doctor charges $1000 for a service that would be reimbursed at $200 by BCBS if it were in-network. If the patient has 20 percent co-insurance (which is not unusual) that service will cost him or her $200, which also happens to be the full amount the provider would have been paid for an in-network charge. Under the old system, the physician would be paid $800 by BCBS. Under the new system, the patient is going to receive a check for $800 and it's now up to him or her to pay the provider.What might happen under such a scenario? BCBS MA clearly hopes that patients will see how they and the insurance company are being overcharged and will stop going out of network as a result. There are probably a couple of secondary benefits they are hoping for, too: that the patient will see that BCBS is generous rather than stingy and that providers will find it harder to collect their money. Once providers find it is harder to collect from patients who've been paid by the insurance company they may try to collect more from the patient up front. If that happens it is likely to drive patients back in network.Meanwhile, there's a risk to BCBS that more providers will opt out of network once they learn BCBS is willing to reimburse so generously.