A hidden numbers game is socking thousands of New Yorkers with outrageously high surprise medical bills — and it’s getting worse.
More insurance companies are quietly switching the way they calculate the cost of medical procedures — which lowers how much they reimburse patients for out-of-network treatment.
A report last week by the state Department of Financial Services found this coverage has been reduced “significantly” in the last three years.
The result: bills much higher than patients expected.
Jane Collen — whose son needed jaw surgery for a painful cross-bite — experienced this bait-and-switch when the insurer suddenly changed its fee calculation.
The Westchester County lawyer says before the surgery, Aetna agreed in writing that the market rate for the procedure was $47,685. It would reimburse 70%, leaving her with $15,707 in out-of-pocket costs.
A year after the surgery, she got a call from the oral surgeon threatening to sue her because Aetna hadn’t paid what it agreed.
“I was shocked and mortified,” said Collen. “It wasn’t until I started reading up on this that I learned our coverage had changed. But they never even told me.”
She complained to the state, which discovered Aetna changed its method of calculating the market rate, ratcheting up Collen’s portion of the bill to $42,820.
Pressured by the state, the insurer paid up most of what it had promised, although Collen is still contesting a $2,000 balance.
Collen’s complaint was one of 8,339 that Financial Services has received about inadequate out-of-network reimbursement in four years.
“They’re going to lower the reimbursement to the point where it’s unaffordable for most people to go out of network,” said Dr. Andrew Kleinman, treasurer of the Medical Society of New York.
Kleinman, a Westchester plastic surgeon, said patients pay for policies that promise out-of-network coverage, then discover “the benefit is so low that most middle class people can’t afford to go out of network.”
The shift began in 2009, when Gov. Cuomo, then the attorney general, found conflicts of interest in the way insurers calculated out-of-network costs.
Insurers typically reimburse 70% of what they determine is market rate for a treatment — so the lower the market rate, the less the insurer pays. Health-care providers may not agree with the insurer’s idea of market rate and charge much more.
To ensure the calculation was objective, Cuomo created an independent database called FAIR Health, which collects billing data and provides estimated costs based on doctors’ zip codes.
A growing number of insurers are sidestepping FAIR Health by using another reimbursement formula: 140% or more of what Medicare would pay.
That sounds like it would be a good deal for patients, but Financial Services Superintendent Benjamin Lawsky says it’s not, because Medicare’s version of market rate is drastically lower than FAIR Health’s.
Take the cost of laproscopic gallbladder removal.
FAIR Health says it should cost an average of $7,025 in Manhattan. If the insurance company pays 70%, the patient would have to pay the $2,107 balance.
The Medicare rate for the same surgery is only $848. Even if the insurer agreed to reimburse 250% of that, it would only pay $2,121 — and the patient owes $5,541.
And that’s conservative. Most insurers reimburse at 140% of Medicare, in which case the patient would have to pay $6,266 for a gall bladder removal.
In the last four years, the percentage of insurers using FAIR Health’s method has dropped from 80% to an expected low of 23% by the end of 2012.
A bill by Assemblyman Richard Gottfried (D-Manhattan) and Sen. Kemp Hannon (R-Long Island) would require insurers to use FAIR Health standards.
It passed the Assembly last year but got jammed up in the Senate and may come up for a vote in the coming weeks.
Doctors say FAIR Health estimates reduce potential out-of-pocket expenses, but insurers hate it because they claim the “fair costs” are wildly inflated by doctors who submit outlandish bills that pad the averages.
“The problem is that the FAIR Health database assumes that doctors should be reimbursed what they bill,” Dr. Scott Breitbardt of Empire Blue Cross Blue Shield said.
“We get crazy numbers like $26,579 for just one spine surgery code.”
Breitbardt said the bill does not bar doctors from billing patients anyway if they feel compensation is inadequate.
“Doctors are incentivized to submit higher and higher bills” to drive up the FAIR Health data, he said.
Both sides agree mandating use of FAIR Health will likely raise insurance premiums, but they disagree on how much.
Kleinman said they should go up by 1% to 3%, while the Health Plan Association estimates a 9% to 11% rate spike.
gsmith@nydailynews.com
