Gasline Newsletter July 2006

Volume 8, No. 2

Dear CSA Members,

On Tuesday, July 25, Governor Arnold Schwarzenegger issued an executive order that calls for the Department of Managed Health Care to undertake several activities to address the practice of billing of HMO patients for balances resulting from emergency care provided by noncontracted physicians whose fees are underpaid by their health plans. Among other things, the DMHC is to develop an independent dispute resolution process for balance billing disputes. It includes directives aimed at removing the patient from financial responsibility in these situations.

The practical effect of the Governor's order is uncertain. Current law, which has been upheld in the courts, clearly allows balance billing by noncontracted physicians. At this time a case is pending before the California Supreme Court that addresses the issue. The Prospect case has been decided favorably for physicians in the lower courts and, if consistent with previous rulings, stands a good chance of being maintained by the Supreme Court.

An important point to be noted is that the executive order deals only with emergency services, presumably those which carriers are required to pay for pursuant to the Knox-Keene Act, regulating health plans, and the 2005 decision in Bell v. Blue Cross, which stated that health plans must pay a "reasonable amount" to emergency room physicians who provide services to a plan's enrollees but did not have a contract with the plan. The Governor's order refers specifically to balance billing for emergency services by noncontracted providers but also has broad language that refers to the practice of balance billing in general. There are also multiple references to ensuring payment of fair, reasonable and customary value of physician services. How that is proposed to be determined will be a central issue. Until regulations are proposed, we will not know whether the regulations will be aimed at physicians, or whether they will require carriers to step up and pay the reasonable fees of noncontracted physicians.

The California Medical Association is taking the lead in representing the House of Medicine on this issue. The CSA is working closely with the CMA and will take whatever steps are necessary to maintain the right of physicians to negotiate and receive fair payments and to seek full payment for their services if health plans and insurers fail to negotiate in good faith.

The applicable portion of the press release and the order itself is below.

Mark A. Singleton, M.D., CSA President

Governor Schwarzenegger Issues Directive to Protect Patients from Disputed Out-of-Pocket Emergency Medical Costs

Governor Arnold Schwarzenegger today signed Executive Order S-13-06 to protect insured Californians from being charged for medical expenses that they do not owe. The executive order guards against "balance billing," a practice that makes patients—not providers or health plans—responsible for paying the disputed difference between their provider's bill and their health plan's coverage. In most cases, this dispute arises when a patient receives emergency care from a provider that does not have an agreement with the patient's health plan.

"I am protecting Californians who have done the right thing, bought insurance, and now are being charged for something they do not owe because of a dispute between the provider and the health plan," said Governor Schwarzenegger. "The state will try to provide extra tools to help ensure fair and fast payment—but leave the unwitting consumer out of it."

Balance billing impacts health care affordability by placing disputed costs squarely on the consumer's shoulders. For example: If a patient's doctor charges $2,000 for a medical service, but their health plan says the "reasonable and customary value" of this service is $1,500, balance billing leaves the patient with a $500 bill.

Beyond out-of-pocket expenses, this practice makes consumers vulnerable to aggressive collection agencies and can harm their credit ratings. As a result, Californians in need of critical care may forego the emergency room altogether, fearing financial harm.

The Governor previously took action on this issue by directing the Department of Managed Health Care (DMHC) to create a Provider Complaint Unit to address reimbursement problems. In addition, DMHC has started to develop a dispute resolution process modeled on the Independent Medical Review System.

For decades, the Department of Health Services has protected Medi-Cal beneficiaries from balance billing.

The Executive Order protects consumers by stating the Governor's support for protecting Californians from balance billing, and directs DMHC to:

  • Take all necessary steps to protect Californians from balance billing, including fully enforcing existing regulations and developing new regulations if necessary.

  • Increase efforts to enforce the Knox-Keene Health Care Service Plan Act of 1975.

  • Review the criteria used by health plans to determine the value of non-contracted medical services, to make sure that providers are fairly reimbursed.

  • Implement a fair, fast, inexpensive and independent dispute resolution process for providers that will resolve reimbursement disagreements and ensure that providers are reimbursed for their services.

Today's action follows Governor Schwarzenegger's Summit on Health Care Affordability, a forum for representatives from all sides of this issue—including consumer, business, labor, government, public health, provider and research communities—to discuss meaningful reforms that are necessary to ensure that all Californians have access to affordable health care.

Full text of the executive order:


WHEREAS the stability of California's emergency health care system is paramount in providing fundamental health care services to Californians; and

WHEREAS critical emergency care providers are entitled to be paid fairly and promptly for the lifesaving services rendered whenever and wherever needed; and

WHEREAS the cost of emergency services can be extraordinarily high, and Californians who prudently purchase the financial protections of health care coverage should be able to trust that their health plans will fairly and promptly reimburse medical providers who provide them care when they are seriously ill and in need of emergency care; and

WHEREAS health plans are legally responsible for paying emergency care providers for services rendered to their enrollees under the Knox-Keene Health Care Service Plan Act of 1975; and

WHEREAS emergency care providers have expressed concerns regarding the level of reimbursement that they receive from health plans with whom they do not contract, and this concern has led to the practice of non-contracted emergency care providers seeking reimbursement directly from health plan enrollees rather than the health plans; and

WHEREAS when a bill for emergency care is sent to an enrollee, often the enrollee does not know that his/her health plan is responsible for paying non-contracted emergency care providers, and mistakenly assumes that he/she is required to pay the provider's bill; and

WHEREAS health plan enrollees have suffered great economic harm due to billing practices that include aggressive collection activities, and the destruction of the enrollee's credit; and

WHEREAS aggressive collection activities or the fear of substantial financial liability may cause an enrollee to forego emergency care in the event of life-threatening illness or injury; and

WHEREAS the Department of Managed Health Care, which regulates health plans, has consistently maintained that the enrollee should not be billed for services that are the financial responsibility of the health plan; and

WHEREAS in response to my strong commitment to resolve payment disputes between health plans and non-contracted providers, I directed the Department of Managed Health Care to establish a Provider Complaint Unit to specifically address systemic reimbursement issues and to ensure that providers of emergency care are fairly and promptly paid; and

WHEREAS the Department of Managed Health Care has begun to work on an additional avenue for non-contracted providers to use in resolving payment disputes with health plans by developing a fair, fast, and inexpensive Independent Dispute Resolution Process modeled after the successful Independent Medical Review System; and

WHEREAS it is because of the Department of Managed Health Care's significant efforts to address these payment issues that I believe it is now appropriate to remove the enrollee as a bargaining chip in payment disputes and require the health plans and non-contracted providers to work together through the Department of Managed Health Care's administrative remedies to resolve these matters.

NOW, THEREFORE, I, Arnold Schwarzenegger, Governor of the State of California, by virtue of the power and authority vested in me by the Constitution and statutes of the State of California, do hereby issue this Order and direct as follows:

The Director of the Department of Managed Health Care shall do the following:

  1. Take all steps necessary to protect Californians from balance billing, including the full and complete enforcement of existing regulations and the promulgation of additional regulations to further protect Californians from balance billing, if necessary.

  2. Re-double efforts to enforce the Knox-Keene Health Care Service Plan Act of 1975's provisions relating to the fair and prompt payment of non-contracted provider claims.

  3. Conduct a review of the current criteria used to determine the reasonable and customary value of non-contracted emergency services to ensure that it results in fair reimbursement for the provider, while not adversely affecting the financial viability of California's health care delivery system.

  4. Expeditiously implement a fair, fast, and inexpensive Independent Dispute Resolution Process to avoid placing enrollees in the middle of payment disputes between health plans and providers and to ensure that non-contracted providers who deliver critical services without regard to a patient's financial ability to pay are paid the reasonable and customary value for their services.

I FURTHER DIRECT that as soon as hereafter possible, this Order be filed in the Office of the Secretary of State and that widespread publicity and notice be given to this Order.

IN WITNESS WHEREOF I have hereunto set my hand and caused the Great Seal of the State of California to be affixed this 25th day of July 2006.

Arnold Schwarzenegger, Governor