Medical finance driving major changes in health care marketplace

Pain in their feet last summer led Brian and Emily Kahn into a little-known wrinkle in medical finance that has been driving big changes in the health care marketplace.

Brian was referred by his doctor to St. Vincent Physical Therapy Clinic, an office inside a two-story medical office building in Zionsville.

Emily was referred by her doctor to physical therapists at a facility run by Methodist Sports Medicine, an independently owned physician practice.

Brian Kahn

Anthem Blue Cross and Blue Shield reimbursed Methodist Sports Medicine $91.13 per visit for Emily’s treatment. Anthem told Emily to pay a $40 per-visit co-pay.

But Anthem reimbursed St. Vincent $181.92 per visit for Brian’s therapy, and required Brian to pay $176.42 per visit.

St. Vincent’s twofold higher charge was not disclosed to Brian Kahn by the hospital before he was asked to sign a document obligating him to pay it. And it was not

communicated accurately by Anthem, even though Kahn checked with his insurer before going in for therapy.

Emily Kahn

“It’s fraudulent that they can be a hospital facility,” Kahn said of the St. Vincent physical therapy clinic. “It’s legal, but it’s fishy to me.”

In spite of numerous requests for St. Vincent to change its fee—including a complaint to the Attorney General’s Office—St. Vincent wouldn’t budge.

Now that more and more doctors and health care providers are employed by hospitals, more and more patients are feeling Brian Kahn’s pain.

And it’s not just in physical therapy. Private insurers like Anthem, Cigna Corp. and even the federal Medicare program pay hospital-owned physician practices as much as 10 times more for so-called ancillary services, such as imaging and blood tests.

For example, Indiana University Health Arnett Hospital in Lafayette charged Cigna $60.35 for a hemoglobin A1C test, according to 2012 data from Purdue University, which contracts with Cigna to secure discounted rates for its workers.

But for the exact same test conducted by independent lab companies, Cigna pays no more than $7.09.

For a urinalysis test at an IU Health Arnett facility, Cigna paid $17.85, according to Purdue. For the same test conducted by the lab companies, it paid no more than $2.32.

The extra amount hospitals can bill for ancillary services has been a financial boon to hospitals in Indianapolis and across the country as they have acquired large numbers of physician practices over the past five years.

The main reasons for those acquisitions have been to secure patient referrals that keep hospital beds and operating rooms full, and to help coordinate care for patients. But the higher payments for ancillary fees have been icing on the cake.

Some hospitals have even acquired only the ancillary-services part of physician practices, just to receive higher reimbursement, according to a report by VMG Health LLC, a Texas-based company that performs valuations of physician practices.

Pervasive practice

The practice has become so common now that the staff of the Medicare Payment Advisory Commission, a federal agency that advises Congress on the federal health insurance program for seniors, has generated six reports on the issue since November 2011.

The MedPAC staff has now identified $2.3 billion in annual spending by Medicare that could be cut by narrowing or equalizing payment rates between doctors and hospitals.

“The result of services shifting to OPDs [outpatient departments] is higher program spending and beneficiary cost-sharing,” Ariel Winter, a principal policy analyst at MedPAC, said during a March 7 meeting of the commission. “Meanwhile, there may be no significant changes in patient care.”

MedPAC’s reports and recommendations are not binding on Congress, but with lawmakers on Capitol Hill looking for budget savings, the cuts stand a decent chance of becoming law.

If they do, it’s highly likely that private insurers like Anthem, a subsidiary of Indianapolis-based WellPoint Inc., will try to follow suit.

Already, Anthem tries to steer patients to physician-owned imaging facilities because the bills there—for both Anthem and its customers—are so much lower. And hospital representatives say the insurer has been cracking down on the high charges for ancillary services.

Anthem declined to respond to questions for this story.

Hospital groups are already pushing back against the proposed changes by Medicare.

“The cuts continue to hammer the same types of hospitals over and over—teaching hospitals, safety-net hospitals, the public hospitals and rural hospitals,” said Joanna Kim, vice president of payment policy at the American Hospital Association, after MedPAC discussed its latest round of proposed cuts to ancillary fees, on March 7.

The 2010 Patient Protection and Affordable Care Act called for $155 billion in cuts to hospital reimbursement. Then the fiscal-cliff deal on Jan. 1 this year chopped out another $15 billion. And the budget sequester, which hit March 1, looked ready to sap another $10 billion.

But doctors’ groups feel like the problem is something Medicare and private health insurers have brought on themselves.

The Centers for Medicare & Medicaid Services, the federal agency that runs the Medicare program, was especially eager to curb doctors’ use of their own imaging and lab facilities. In 2008, it issued a rule that chopped reimbursement to physicians, especially on ancillary services.

In response, physicians started selling their practices to hospitals with abandon. From 2003 to 2011, the portion of physicians employed by hospitals rose 55 percent, according to a MedPac analysis of survey data from the American Hospital Association.

In Indianapolis, Indiana University Health has built up a physician practice with more than 1,000 doctors. St. Vincent Health employs nearly 800 and Community Health Network employs roughly 600.

When hospitals employ doctors, the doctors are exempt from federal laws that prevent patient referrals to health care facilities in which the physicians have a financial interest.

And local hospitals have structured contracts with those newly employed physicians that penalize them for making too many referrals outside their hospital network.

All of that makes it more likely that patients’ doctors will refer them for diagnostic and ancillary services at facilities owned by their hospital employer. And those facilities can bill at the higher hospital rates.

Rude surprise

Brian Kahn knew nothing about these trends in health care when his podiatrist referred him for physical therapy in September 2012.

But as a trained lawyer and manager of the Floors to Your Home flooring store in Indianapolis, he knew he should get a clear price quote before agreeing to pay it.

He was soon to find that getting a clear price in health care is nearly impossible.

Before Kahn ever made a visit to the St. Vincent Physical Therapy Clinic at 10801 N. Michigan Road, he phoned Anthem and asked what the therapy would cost.

He was told it would cost $40 per visit. And that seemed right, because that’s what Kahn had paid for physical therapy on his shoulder just a year before. And that’s the same amount his wife had been charged when she received therapy on her foot one month before Brian Kahn went in for therapy.

But that information ended up being wrong, because the St. Vincent clinic bills as a hospital and not as an office practice.

What that means is that St. Vincent bills for two payments from Anthem—first, for the actual work done by its therapists, and, second, for the use of its “hospital facility”—even though that facility is no different from a medical office and is nowhere near a hospital campus.

Independent physicians get to bill for just their services, not for the use of any facility.

On a form that Kahn later signed, the St. Vincent staff verified the $40 fee for physical therapy in an office.

But lower down on the form, it declares, “We bill through St. Vincent as a HOSPITAL FACILITY (not as an office visit).”

That form was sufficient disclosure, according to Chad Wilson, an attorney who represents St. Vincent. In a response to Kahn’s later complaint to the Attorney General’s Office, Wilson said the St. Vincent Physical Therapy Clinic made it clear that it billed as a hospital facility.

“The clinic goes to great lengths to notify patients that services provided in the clinic are outpatient hospital services,” Wilson wrote, citing the bills and signage at the St. Vincent Physical Therapy Clinic.

St. Vincent spokesman Johnny Smith declined to comment on Kahn’s complaint.

Kahn acknowledges that St. Vincent’s actions are legal. The Medicare program and the Indiana State Department of Health allow hospitals to label any of their facilities “hospital facilities” as long as they are within a 35-mile radius of an actual hospital.

What Kahn objects to is St. Vincent’s “misrepresentation” of itself—and what he describes as terrible customer service in response.

He said he made six calls to St. Vincent’s customer service department without receiving any return call.

After he complained to the Attorney General’s Office, a customer service manager named Liz Salas forwarded Wilson’s response to Kahn. But on the same day, Feb. 27, St. Vincent’s collection department referred Kahn’s account to a collection agency.

“We believe that we have given you every chance to pay this account and at this point in time you leave us with no other alternatives,” the collection department notice stated.

After that, Kahn paid his $1,234.96 bill for his seven physical therapy sessions. But he said he will try to avoid ever setting foot in a St. Vincent facility again.

“If I’m having a heart attack on West 86th Street, I’ll go to St. Vincent,” Kahn said. “But otherwise, I will never, ever again deal with St. Vincent.”•