Court Allows Provider to Proceed With Claim That Plan Violated Cost-Sharing Limit

A federal district court has denied a self-insured group health plan’s motion to dismiss an out-of-network hospital’s claim that the plan violated health care reform’s cost-sharing limit by underpaying the billed charges for medical care that the hospital provided to plan participants. As background, non-grandfathered health plans must comply with an overall limitation on cost-sharing (see our article), which requires plans to establish an annual out-of-pocket maximum for essential health benefits (e.g., emergency services, hospitalization) covered under the plan. Deductibles, coinsurance, copayments, and certain other required expenditures count toward the cost-sharing limit, but, if the plan uses a provider network, it is not required to count charges in excess of the plan’s allowed amount for non-network providers against the limit.

The court held that the hospital was a non-network provider for purposes of applying the cost-sharing limit, agreeing with the conclusion in another case the hospital had brought against a different health plan. In that case, the hospital had contended that although it was not in the plan’s network, it should not be considered an out-of-network provider because the plan did not have any in-network hospitals—so plan participants did not have an in-network option for the services the hospital provided (see our Checkpoint article). The court rejected this argument—even while conceding that plans could circumvent the cost-sharing rule by excluding only providers of high-cost services from their networks. The court was more receptive to the hospital’s argument that the plan violated FAQ guidance (see our Checkpoint article) that requires plans using reference-based pricing to ensure that participants have access to an adequate number of providers that accept the reference price. The hospital asserted that the plan essentially established a reference price when it reimbursed all of the hospital’s services at 140% of Medicare’s allowed charge. Because the plan’s network did not include any hospitals or otherwise ensure access to hospitals that would accept the reference price, the hospital contended that the plan was required to count out-of-pocket expenses for charges over the reference price toward the maximum annual cost-sharing limit (and would have to pay the hospital’s charges for the 50–100 plan participants who allegedly reached that limit). Noting that the hospital’s reference price theory is not completely implausible, as a matter of law, the court denied the health plan’s motion to dismiss and allowed the claim to proceed.

EBIA Comment: The court pointed out that the allegations in this case are “very dense,” and it remains to be seen whether the hospital will actually prevail on the reference price theory. Insurers, employers, and advisors should monitor the developments in this case (and any related challenges) on the application of the cost-sharing limit. For more information, see EBIA’s Health Care Reform manual at Section IX.B (“Cost-Sharing Limits”) and EBIA’s Self-Insured Health Plans manual at Section XV.D.4 (“Out-of-Pocket Maximums and Health Care Reform’s Overall Cost-Sharing Limit”).

Contributing Editors: EBIA Staff.