Quarterly Newsletter - fall eDItION 2013 - #9

The Clandestine World

of Silent PPOsBy Ellen Kamon, Esq.

California Hospitals can be losing crucial revenue to “Silent PPO” activity without even knowing it. A “Silent PPO” reduction is an insurance maneuver where an insurer pays a hospital’s claim that was based on standard and customary charges, by applying a reduced rate to which it is not entitled. This secret discount is unfair to the hospital because the insurer has not contracted with the hospital for the discount and has not provided additional patient business to the hospital to support use of the rate. Notably, hospitals only become aware of the Silent PPO after providing the servicesh to a patient and after the claim has been submitted for payment. If the payor does not have a contract with a hospital, the payor will hire a broker or repricer, which has leased or subleased the PPO network with an attached discounted rate structure. “Silent PPOs” are diminishing hospital profits by the millions.

California hospitals are particularly susceptible to “Silent PPO” loses because the state is popular with travelers. Visitors, who are out of network from their regular health insurance plans, often need hospital services. The insurers engaging in the “Silent PPO” game are quick to reduce costs. These insurers use their purchased PPO list for reduced rates or hire a broker to lease a PPO networks rates, and then apply the reduced rates.

Although attempts have been made, California healthcare providers have not been able to get effective legislation passed to stop this abusive practice. California Insurance Code Section 10178.3 and Cal. Health & Safety Code Section 1395.6 do not have any real teeth to stop this abusive practice. The law does not provide the private right for hospitals to seek financial penalties from insurers claiming unauthorized discounts. The law is also deficient since it does not apply to emergency care and the

successful prosecution of virtually all health care reimbursement issues.

“While I have been trying cases of all kinds for thirty years, representing the healthcare provider community is by far the most fulfilling work I have ever done,” said Richard Lovich. “In addition, having the opportunity to work with SAC, the preeminent healthcare litigation firm; learning from and working alongside Joy, George, and Vince, each one an institution in healthcare law, has been an immeasurable honor.”

Mr. Sullivan has practiced law for 25 years and specializes in all phases of complex business litigation. Prior to joining Stephenson, Acquisto & Colman in 2005, Mr. Sullivan worked in various AmLaw 100 firms culminating with an eleven year stay at Sheppard, Mullin, Richter & Hampton in Los Angeles.

Mr. Sullivan currently heads Stephenson, Acquisto & Colman’s Litigation Department. In that capacity he spearheads the firm’s strategic and tactical efforts at the trial court and appellate levels on behalf of California’s health care provider community. During his career, Mr. Sullivan has represented such varied institutional clients as The Gillette Company, State Compensation Insurance Fund, ARCO Products Company, and Chicago Bridge & Iron Co. and, of course, most of California’s leading hospitals. At Stephenson, Acquisto & Colman, Mr. Sullivan has assembled an enviable record at the appellate level, including such cases as Marin General Hospital v. Modesto & Empire Traction Co., 581 F.3rd941 (9thCir. 2009), Catholic Healthcare West Bay Area v. Seafarers Health & Benefits Plan, No. 07-15281, 2008 WL 4951648 (9thCir. Nov. 18, 2008), and Cedars-Sinai Medical Center v. National League of Postmasters of the United States, 497 F.3rd972 (9thCir. 2007).

“I am honored being named a partner at Stephenson, Acquisto & Colman. Joy, Vince, and George welcomed me eight years ago with open arms, and gave me a great place to practice complex business litigation,” said Barry Sullivan.” My hope is that this new phase in my career will be one which reinforces Stephenson, Acquisto & Colman’s reputation as the preeminent law firm for health care providers in their disputes with health plans.”

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By Joy Stephenson-Laws, Esq.

The Law Offices of Stephenson, Acquisto and Colman (SAC), has named Barry Sullivan, head of SAC’s Litigation Department, and Richard Lovich, Managing Litigation Attorney, partners in the firm. Mr. Sullivan and Mr. Lovich each have been with SAC for over 8 years and have been practicing law for a combined total of over 50 years.

Mr. Sullivan and Mr. Lovich have both demonstrated exceptional abilities in the area of health care litigation and have contributed greatly to the growth and success of the firm and will play a key role in helping to shape the firm’s future.

Mr. Sullivan and Mr. Lovich will undertake expanded managerial roles at the firm,while overseeing expansion of the firm and ensuring that SAC’s clients continue to benefit from the firm’s rich experience in health care law.

Mr. Lovich has been a trial lawyer for 29 years. Since 1995, he has held a Preeminent A-V rating, the highest possible peer review rating, granted by Martindale-Hubbell, the prestigious national legal directory. He has been named a “Southern California Super Lawyer” and was listed as a “Top Rated Lawyer-Healthcare” in the October 2012 issues of Corporate Counsel and The American Lawyer magazines. He is a Certified National Institute of Trial Advocates (NITA) instructor, and is certified by the California state bar as a provider of continuing legal education programs. Finally, he has served as a superior court-appointed arbitrator on more than 150 judicial arbitrations. He joined SAC in 2005 as senior trial counsel and is currently the Managing Litigation Attorney. While with SAC, he has tried or arbitrated well over 100 cases and has been involved in the

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Left to right: George Colman, Joy Stephenson-Laws, Barry Sullivan and Richard Lovich

SAC Names Barry Sullivan and

Richard Lovich Partners

What are your favorite foods? Colors? Other favorites?

While it is tough to settle on a favorite food, I was recently in Texas and went to some incredible BBQ restaurants. If BBQ is done right, you can’t beat it.

CHRISTOPHER HAPAK

This quarter’s Spotlight is on attorney, Christopher Hapak

Spotlight Q&AWhat is your area of expertise within SAC?

As an attorney in the litigation department, I represent our clients in arbitrations and civil cases. The cases I typically handle involve a payor that has failed to properly pay a hospital for the care rendered to its beneficiaries. While that part of the equation may seem straight forward, there are many variables that must be addressed on a case-by-case basis. For example, our approach to a particular case will depend on the type of payor involved, the factual circumstances surrounding the verification of benefits and authorization process, the applicable contractual language, the clinical merits, the relevant statutory provisions, etc. The wealth of expertise at SAC from both a legal and clinical perspective in this very nuanced area of law allows us to represent our clients in a uniquely effective way.

What one piece of sage advice can you offer to our clients that can help them in the future?

Recently we have been seeing more lawsuits against hospitals by payors for alleged overpayments. These lawsuits are often predicated upon self-serving ‘take-back provisions’ that the payors include in their contract with hospitals. A particularly egregious example of a contractual ‘take-back provision’ we recently encountered mandated that the hospital automatically refund a claim if it failed to formally respond to the refund request within 30 days, regardless of the underlying merit of the take-back request. This type of language can serve as a backdoor method for payors to shortchange hospitals. For this reason, it is important that hospitals negotiate a fair process in dealing with the issue of potential overpayments. Can you talk about a recent success story of yours? What was the challenge and how were you able to overcome it?

I recently had a case in which an out-of-state payor adamantly refused payment on a claim contending there was no authorization to treat the patient at issue. After aggressively presenting our position

By Karlene J. Rogers-Aberman, Esq.

It seems that the public outcry over hospital pricing has reached fever pitch. It might now be considered outside the norm to pick up a daily newspaper or magazine, or turn on the radio, and not be bombarded with reports of outrageous pricing discovered by a hapless consumer at her local hospital. These reports are of course often anecdotal, and feature only the most extreme examples of sticker shock after a life-saving surgery, or of the negotiation of a hospital invoice down to a fraction of what was originally billed.

In February of 2013, Time Magazine ran a cover story entitled: “Bitter Pill—Why Medical Bills Are Killing Us.” The 28 page feature was an acerbic indictment of the business of healthcare, with example after example of patients who were charged “outrageous” prices, double and triple billed, or billed for treatment they didn’t actually need. The article concluded with recommendations that included the tightening of anti-trust laws to prevent hospitals from acquiring too much leverage when negotiating with insurance companies; taxing hospital profits at 75%; and outlawing the chargemaster altogether. Not surprisingly, no part of the lengthy article presented the hospital’s side of the story, or attempted to offer an explanation as to “why” hospitals often have to charge the way they do.

Such “exposés” have become so ubiquitous, that counsel representing the insurance companies now routinely ask judges and arbitrators to “take judicial notice” of such news stories. For example, in a recent “reasonable and customary” litigation, defense counsel asked the court to consider an L.A. Times article that quoted the CEO of a prominent hospital stating that hospitals’ billed charges were inaccurate and unreliable.* Of course, the quote was taken wholly out of context—it was meant to address the charges in the recently publicized “Medicare Provider Charge Data” for hospitals nationwide—i.e., to show that Medicare actually only paid a fraction of those charges. The journalist

to our opponent at the outset of the case, we were able to elicit a settlement for the full amount owed without the necessity of prolonged litigation. It is particularly satisfying anytime we favorably resolve a case and in doing so avoid the costs and burdens of litigation on our client.

Do you have any hobbies or interests outside of work?

I make the most of living in Southern California by spending most of my downtime in the summer at the beach playing volleyball with friends. Also, I have been an avid rugby player since college and still play with a local rugby club. Outside of those activities, I enjoy snowboarding and surfing when I can find time. Do you have any charitable causes that interest you and events you have participated in recently?

I am involved in an organization called Renew L.A. that provides free tutoring services to underprivileged middle-school students. As a tutor, it is inspiring to see the dedication of the kids who come in every Saturday morning so that they can get ahead academically and have a better future.

Do you have family and/or pets you’d like to tell us about?

Most of my family lives in Northern California, but still I manage to see them multiple times a year. Each August we have a family reunion in Tahoe, which is always one of the highlights of my summer. This year we rented a cabin on the water and I brought up my three year old dog, Bruno. We spent most of our time just relaxing around the lake and enjoying the beautiful weather.

Do you have any guilty pleasure television shows, movies or other activities to tell us about?

I am a die-hard college football fan and religiously watch every Notre Dame game. I never miss an episode of Mad Men or Homeland so not to be totally ostracized from lunchtime conversations with my colleagues at SAC. I am always interested in hearing new music and try to make it out to as many concerts as possible.

The War on Hospital Pricing

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had limited interest in putting the quote in its proper context, as it would have reduced its shock value. Instead, the statement was explained briefly in a different part of the article, well after it had already had its intended impact. Similarly, the attorneys who were attempting to sway judicial opinion against the hospital with the use of the quote had even less of an incentive to present the full story; their insurer client was an integral part of the chorus of voices raised in the war against hospitals. (*As an aside, the judge declined to consider the article—but given that he likely read the article before ruling on it, can such a bell truly be unrung?)

Hospitals need better P.R. The onslaught of negative publicity is gleefully supported by the insurance companies because it takes scrutiny away from the fact that they are the ones actually reaping enormous profits. The provocative news stories routinely conceal that most hospitals are in fact not wildly profitable enterprises. Statistics show that a significant percentage of American hospitals are actually losing money. Often, even the smallest across-the-board chargemaster decrease would put many hospitals in the red. The harsh economic realities hospitals face stem from the fact that almost half of hospital revenues come from government sponsored health programs such as Medicare and Medicaid, which fall far short of covering hospital costs. Moreover, given that the number of uninsured or underinsured patients have been steadily on the rise; and that many hospitals provide significant charity care, essential services, or mission-based services that don’t turn a profit, the need for hospitals to cost-shift in order to sustain profitability is inevitable.

Compounding the problem are the large insurers with the power to negotiate low rates in exchange for directing their insureds to in-network hospitals. Many hospitals are caught between a rock and a hard place in either refusing the rates offered and losing a large potential customer base, or accepting rates that only barely allow them to keep their doors open. Hospitals with more leverage can of course allow for certain steep discounts on some services because they make up for it in other areas of their contracts. This however, often creates another problem: When a non-contracted payor faced with paying full billed charges becomes privy to those low negotiated rates (typically by way of a court order), they will invariably argue that such low rates are what hospitals “should” be charging to all payors for the services—contracted or not. They contend those rates represent the “fair market value” of the services provided. Hospitals are then placed on the defensive by having to demonstrate that their billed charges, not the discounted rates, do in fact represent the fair market value of the services.

What we have observed over years of litigating the ever-increasing claims of “unreasonable” hospital charges, is that in most instances, a hospital’s full-billed charges are in fact, defensible—usually for the cost-shifting reasons already stated above, as well as for any number of additional considerations unique to a particular hospital. Unfortunately, the public isn’t aware of this, and the information isn’t being provided in the media. While hospitals are in the business of providing care and helping the sick get well again, it seems that now might be the time to get into the public relations business as well.

No one disputes that healthcare economics is a complex and troublesome area with no easy answers. But while the debate rages over how best to fix it, hospitals need to push back against the intensifying attempts to erode the trust placed in hospitals and the high regard with which are have long been held in their communities.

By Christopher Hapak, Esq.

In our modern healthcare system, providers may wear several different hats. Along with providing medical care to patients, a provider may also choose to take on responsibility for administering care to a group of members in exchange for a “per-member-per month” fee through a capitation agreement with a health plan. Capitation arrangements can come in different forms. The two most common variations are “global capitation” and “partial capitation.” Under global capitation, a hospital and physician group band together to receive single fixed monthly payments for enrolled health plan members. Under a partial capitation model, a monthly payment is made to cover certain services rendered to the capitated patient population while other services are paid for on a fee-for-service basis. In any model of capitation, a provider is assuming a degree of risk which may include payment for medical services provided to its capitated members at other facilities.

In the instance in which one of the provider’s capitated members is treated at another facility, the provider may bear payment responsibility depending on the applicable division of financial responsibility (“DOFR”) with the health plan. However, what if the claim submitted to the capitated provider by the other facility is not eligible for payment?

This could be the case for any of the following reasons: i) the claim was already paid (i.e. duplicate claim); ii) the claim was submitted by an Out of Area facility; iii) the claim was not timely submitted; iv) the claim was for services that were not authorized; v) the claim involved ineligible members, etc.

If the capitated provider rightly denies payment for one of the aforementioned reasons, the treating facility may request payment directly from the health plan. If the health plan decides to pay the claim, it will then in all likelihood deduct payment from the next capitation payment to the provider in what is commonly referred to as a “capitation deduction.”

To avoid this unfair process which cuts into the capitated providers bottom line, the provider must insist on safeguards in the capitation agreement. First, the provider should require that the health plan take on the burden of proof in establishing the legitimacy of a capitation deduction request. In that case it would be the health plan, not the provider, with the burden of filing legal action and proving up their case as to why the capitation deduction request is appropriate. Second, the provider should insist on a sufficient time period to process and respond to any capitation deduction request notices. We have recently come across one case in which a health plan expected a provider to respond to its capitation deduction notices in as little as 15 days after which point its rights to appeal would waived. Obviously such a rigid and one-sided capitation deduction process puts the provider at a disadvantage and may undermine the financial underpinnings of the entire arrangement. It is key that capitation deduction safeguards be set forth in writing within the capitation agreement otherwise providers risk being subject to one-sided systems set in place by the plan.

Don’t Get Victimized

By Unfair Cap Deducts

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The Bili Project Foundation is dedicated to advance research to better detect and treat the complex family of cancers affecting the Hepatobiliary system, including cholangiocarcinoma, gallbladder cancer, and hepatocellular carcinoma (HCC). To find out more about the foundation, visit:

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UPCOMING EVENTS

October 18, 2013 - AAHAM Annual National Institute (ANI) - New Orleans, LA

QUARTERLY NEWSLETTERFALL EDITION ENCLOSED

303 North Glenoaks BoulevardSuite 700Burbank, California 91502

George Colman and Chuck Acquisto will be speaking at this years event. Session entitled: Solving the Mysteries of Managed Care Contracting.

Join us for a day of fun and networking as we raise funds for The Bili Project Foundation.

October 4, 2013 - 2nd Annual Vince Acquisto Memorial Golf TournamentWente Vineyards - Livermore, CARegister at www.hfma-nca.org

Silent PPOs- CONT’D

A post-round reception and dinner with a silent and live auction will take place right after the golf tournament to help raise awareness and funds for The Bili Project Foundation.

definition of payors is vague, ambiguous and confused. However, there appears to be one solution that works in all states. It is effective contracting. In fact, California has accepted this approach by enacting an additional section to the Knox-Keene Act which specifies that provider discounts are a matter of private contracting.

There is currently pending, in the United States District Court for the District of Hawaii, a case against Kaiser Foundation Health Plan, Inc., by the Queens Medical Center. The gravamen of the dispute relates to the Hospital’s accusation that HMO operator Kaiser Foundation Health Plan created a “Silent PPO” arrangement that allowed it to wrongly claim discounts under another insurance company contract. Regardless of the outcome of this action, it is clear that hospitals and physicians must be more vigilant in entering into PPO Network Contracts.

Hospitals can take some prophylactic measures to detect a “Silent PPO”. First, Review your PPO Contracts. Note contract provisions that permit the PPO to sell, rent or allow other payors access to the Hospital’s discounted rates. Make sure you request a list of the PPO’s other payors. Second, Review EOB’s carefully. If your contract does not permit “Silent PPO” activity, challenge the discount to the payor. Third, Check EOBs against the Hospital’s PPO contracts. Verify that the discounting entity has legal legitimate access to the Hospital’s discounted rates. Fourth, Appeal all unauthorized discounts that have been unjustly applied. Most importantly, exercise caution prior to executing any managed care agreements. Be aware that signing a single agreement can have far reaching unintended consequences for the Hospital.