Provider Law Likely Heading Back to Court

by Mark Friedman  on Monday, May. 5, 2008 12:00 am  

Lynn Weaks, CEO of Arkansas Surgical Hospital in North Little Rock, says the 41-bed facility won't be able to survive long term without higher reimbursement rates.

After a 10-year battle in the federal court system, the "any willing provider" law appeared to be settled in 2005 when it went into effect.

But now AWP, or the Patient Protection Act of 1995, is on track to return to court, and one state senator is planning to hold hearings over the rates insurance companies pay hospitals.

The current debate over the intentions of AWP started in early 2007 when the Arkansas Surgical Hospital in North Little Rock complained to the Arkansas Insurance Department that it was being paid less for the same procedures than full-service hospitals in Little Rock.

The disparity is believed to have cost the surgical hospital millions of dollars, said Sam Perroni, a North Little Rock attorney who is an investor in the Arkansas Surgical Hospital. And its CEO, Lynn Weaks, said the 41-bed facility won't be able to survive long term without the higher reimbursement rates.

The Patient Protection Act cracked open the preferred provider networks in Arkansas to medical providers that had previously been excluded even though they were willing to accept the same reimbursement rates as in-network providers. Arkansas Surgical believes that, under the law, insurance companies should have some uniform methodology for setting the reimbursement price for a procedure.

"There is no methodology," Perroni said. "And that's been our complaint all along. We never said we should be paid the exact same amount. We just said under the law, they are required to pay us the exact same way."

Arkansas Insurance Commissioner Julie Benafield Bowman ruled in December that AWP doesn't "require identical payment to hospitals for similarly performed services." She also added that a health insurance company could take into account a hospital's services, patient population and the number of beds when determining reimbursement rates.

Arkansas Surgical, along with the Surgical Hospital of Jonesboro and HealthPark Hospital in Hot Springs, appealed that ruling and last month had another hearing before Bowman. She is expected to rule again in June.

Arkansas State Sen. Steve Faris, D-Malvern, who sponsored AWP legislation in 2005, said he wanted to testify about what legislators intended when they approved AWP, but Bowman wouldn't let him.

"My intent was for [Bowman] to be fair and equal" when she applied the law, he told Arkansas Business. "I never intended for her to take the existing statutes regarding insurance law and use them as a way to thwart the intent of this act. ... For some reason she appears to be very closed minded and unjustly punitive in the implementation of this law. And no, I did not intend for her to be that way."

Bowman told Arkansas Business last week that the state Supreme Court has ruled legislators' testimony is inadmissible as evidence.

Still, Faris couldn't stomach being shut out of the Insurance Department hearing.

"We're going to have follow-ups to her hearing, except we're going to have them back over at the Capitol," he said. "And I'll see if she's got the guts to come back over there and explain" her position.

"I felt like she was very unfair toward those who were trying to participate in the hearings and leaned heavily toward the large insurance companies," Faris said.

(In 2006, Faris received a $2,000 campaign contribution from the Arkansas Medical Society, which wanted to testify during the hearings but wasn't allowed to.)

Faris said last week he was working out the details for holding a hearing.

He also said he was upset that Bowman didn't follow the advice of her chief counsel, Booth Rand.

While AWP allows insurance companies to vary pay rates to hospitals for cost and quality concerns, Rand couldn't find any evidence that the payments varied for those reasons.

Bowman told Arkansas Business last week that Rand didn't give her advice. She said Rand was the market examiner in the case, "and I agreed with some of his findings and disagreed with others."

Insurance carriers say health insurance premiums will rise if all hospitals are paid the same for the same procedures.

"One of our jobs as a payer is that when employers pay us money and buy insurance from us, they want us to help them to keep medical costs as low as possible," said Mike Stock, CEO and president of QualChoice/QCA of Little Rock. "And you don't do that by paying everybody in the market the highest number possible."

Faris said he doesn't believe the insurance companies when they say reimbursement parity would cause health insurance premiums to rise.

"They said if we pass tort reform, which I voted for, that insurance rates would go down and they haven't," he said. "I think they're taking this situation and using it as an opportunity to try and raise rates."


On Jan. 29, 2007, Lynn Weaks sent Bowman a letter saying he was concerned about the reimbursement rates Arkansas Surgical Hospital was being paid.

"After our first year 'in network,' we have noticed a considerable reduction in our reimbursement per case," Weaks wrote.

He said he thought that AWP "requires that insurers offer the same rates, discounts and/or methods of reimbursement to providers of the same class."

Weaks also said that he learned that the payments were not the same as other hospitals in the area.

"We believe that the 'AWP Law' is not being fully complied with and that we and many, if not most, other providers are being paid in a discriminatory manner," Weaks said. "We believe that Arkansas consumers are at risk to have their choices limited because of these discriminatory payments practices."

Weaks said the letter was a formal complaint against QualChoice, Arkansas Blue Cross & Blue Shield and United HealthCare of Arkansas, the three largest health insurance carriers operating in Arkansas.

ABCBS spokeswoman Max Heuer said any willing provider didn't have anything to do with rates.

"The any willing provider law was passed to deal with network access, not payment rates," she said.

Heuer said it's up to the hospitals to decide if they want to take the rates offered by the insurance companies.

"Our position is we want to try and keep costs affordable for our members," she said.

Other states with AWP laws also don't think the law has anything to do with rates.

"We don't consider rates or payment methodology as part of any willing provider," said Ronda Sloan, a spokeswoman for the Kentucky Office of Insurance. In April 2003, Kentucky's AWP got a seal of approval from the U.S. Supreme Court, paving the way for Arkansas' AWP law to go into effect.

Sloan said Kentucky insurance regulators occasionally do, however, receive complaints from hospitals regarding reimbursement rates.

"In those cases, hospitals are told that is a contractual issue between the facility and the insurer," she said.

In determining a price, several factors are taken into account, QualChoice's Stock said.

"All the contracts that we have - not only specialty hospitals but all other hospitals and all provider types - are all negotiated contracts that each party gives and takes," he said. "It was not a take-it-or-leave-it kind of deal."

The Arkansas Hospital Association told Arkansas Business that hospitals have long negotiated rates based on several factors.

"Our position is we would like to maintain that negotiation power and not have everybody getting exactly the same [rates] all the time," said Paul Cunningham, the senior vice president of the hospital association. The three surgical hospitals are members of the hospital association.

Cunningham agreed with the insurance carriers: Insurance premiums could rise if all the hospitals were paid the same.


After Bowman handed down her ruling, Arkansas Surgical Hospital, the Surgical Hospital of Jonesboro and HealthPark Hospital appealed. The surgical hospitals wanted to get their hands on the contracts between some full-service hospitals and the insurance carriers.

The hospitals balked at the request.

St. Vincent Health System's attorney, Stephen Jones, said during an April 4 preliminary hearing in front of Bowman that releasing the contracts would give Arkansas Surgical Hospital a competitive advantage.

Bowman agreed with Jones and didn't release the contracts. St. Vincent's President and CEO Peter Banko said he was pleased with the ruling.

"The information requested by these attorneys was not relevant in the hearing conducted by the Commissioner regarding the right of insurance companies to consider differences in the scope of services when negotiating payment rates with individual hospitals," he said in a statement to Arkansas Business.

Jones said the reimbursement rates are partly calculated to offset the cost of charity care, of which St. Vincent provides more than a physician-owned specialty hospital.

The surgical hospitals said they needed the contracts to prove they were being paid less than full-service hospitals in the same town.

The surgical hospitals also said the low reimbursement rates could lead to a reduction in patient choice.

James Bowen, an attorney for Arkansas Surgical, said at the April 4 hearing that if the surgical hospital was paid $1 less for a knee operation than the full-service hospitals, then there would be no effect on patient choice.

But - in the extreme case - if the surgical hospital was paid $3 for a procedure and the full-service hospitals were paid $20,000 for the same procedure, "I think it's equally clear in that situation that you would have an impact on patient choice," Bowen said. "Quite obviously, we'd have to turn away patients."

Nate Miller, CEO of the Surgical Hospital of Jonesboro, said it's difficult to determine how many dollars his hospital has lost as a result of being paid less than the full-service St. Bernards Medical Center in Jonesboro. He believes the total during the five years the Surgical Hospital has been open is "several million."

Miller said the Surgical Hospital wanted to accept a contract with UnitedHealth but the rates it proposed were lower than the cost to do the procedures.

"When it's below your costs, there's not opportunity to make up for it in volume," Miller said. "The more you do, the more you lose."

He said the hospital isn't in danger of closing, but it continues to lose money.

The Surgical Hospital reported losing $687,000 on patient revenue of $53.3 million for 2006, the most recent numbers available to Arkansas Business.

"If we were just paid consistently with other facilities, we would be making money and have a very secure financial future," Miller said.

HealthPark Hospital also reported losing $1.7 million on patient revenue of $66.4 million in 2006.

Arkansas Surgical Hospital in North Little Rock is considering severing its ties with ABCBS, QualChoice and United, Weaks said in a statement to Arkansas Business.

If that happens, patients will have to pay the higher "out-of-network" fees to be treated at Arkansas Surgical, and that will limit patient choice, he said. He also said that Arkansas Surgical Hospital can't survive long-term under the current reimbursement system.

"Arkansas Surgical Hospital is basically on [a] fixed income, at less-than-cost in some cases," Weaks said. "As our expenses rise, there will come a point in time when we will lose money consistently, not jut intermittently."

For the fiscal year that ended in 2006, Arkansas Surgical reported net income of $1.6 million on patient revenue of $84.2 million. The 2007 numbers weren't available.

"That is not what the Legislature had in mind when they opened up patient choice in Arkansas," Weaks said.

Turned Away

Like Faris, the Arkansas Medical Society wanted to testify on the issue, but wasn't allowed to.

Bowman said the issue in front of her dealt with hospitals, not doctors. But David Wroten, executive vice president of the physician association, said her ruling could affect doctors.

He said approximately 20 provider groups are listed under the AWP statute and each one of those groups is a class.

"In [Bowman's] ruling, it basically said that ... carriers can break those groups down into however many classes they want to," Wroten said.

If the insurance companies did that, he said, one rate could be paid for an office visit to the family practitioner and a different rate for a visit to the urologist. Bowman "made the point that we weren't going to be affected by her ruling, and that's just not correct," Wroten said. "Physicians will be affected by her ruling because her interpretations of those definitions apply to everybody."

Perroni, Arkansas Surgical's attorney, said the AWP issue will more than likely end up in circuit court after Bowman makes her ruling.

"I know we are in it for the long haul," he said. "We feel very strongly about this and we don't feel that it's fair, not only for us but for other small hospitals around the state. And we're going to keep pushing."



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