Small surgeries, huge markups

By Chad Terhune

Jan. 31, 2013 2:08 PM PT

A Southern California surgery center charged teacher Lynne Nielsen $87,500 for a routine, 20-minute knee operation that normally costs about $3,000.

Despite the huge markup, the Long Beach Unified School District and its insurer, Blue Shield of California, paid virtually all of the bill from Advanced Surgical Partners in Costa Mesa. Blue Shield mailed the $84,800 check to the high school Spanish teacher last month and told her to sign it over to the surgery center.

Nielsen said she was outraged and refused to send the check. Instead, she asked the California attorney general’s office to investigate the matter. “This is insane,” she said.

The 61-year-old is the latest patient caught up in a growing battle nationwide over billing by outpatient surgery centers. Industry experts say some of these surgery centers seek out well-insured patients such as Nielsen, sometimes by waiving their copays and deductibles, and then bill their insurers exorbitant amounts for out-of-network care.

All too often, critics say, insurers pay these large sums and then cite high medical bills for why insurance premiums keep rising for businesses and consumers.

“This bill is so outrageous it almost takes my breath away,” said Gerald Kominski, director of the UCLA Center for Health Policy Research. “This is an example of what’s wrong with our healthcare system, and employees and taxpayers of the school district are paying the price here.”

In response to questions from The Times, Blue Shield defended its $84,800 payment as proper. Advanced Surgical Partners, through its lawyer, said the bill was excessive. Amid the scrutiny, the two sides agreed to a lower amount this week.

Nationwide, some insurers have begun to challenge these bills from outpatient centers. Last year, a unit of insurance giant Aetna Inc. sued several surgery centers in Northern California and accused them of overbilling the insurer more than $20 million. It has pursued similar actions against providers in New Jersey and Texas. Other insurers such as UnitedHealth Group Inc. have filed similar suits in California.

In one instance, Aetna said, a California surgery center charged $73,536 for a kidney stone procedure when the average in-network charge was $7,612. Aetna said it paid some of these bills before disputing them in court.

Doctors and surgery centers say the criticism is unjustified. Surgery centers say they have helped reduce healthcare costs by offering convenient care at a fraction of what hospitals charge for colonoscopies, cataract surgeries and other outpatient procedures. These facilities now handle up to 40% of all outpatient surgeries, according to the Ambulatory Surgery Center Assn.

Nielsen went to Advanced Surgical Partners in November at the recommendation of her surgeon even though it was out of her insurance network. She checked beforehand with the facility and it assured her they would accept whatever Blue Shield offered to pay.

The surgery center’s $87,500 bill was just for use of its facility and supplies. Nielsen’s orthopedic surgeon and anesthesiologist billed separately and were paid about $1,200 combined.

Henry Fenton, an attorney for the surgery center, said this bill “was excessive and not correct. I’m sure they will be more careful in the future.”

Blue Shield said its typical rate for this arthroscopic knee procedure in Southern California is about $3,000 among in-network providers.

“This surgery center is charging 30 times the average by remaining out of network to advance this outrageous and anti-consumer practice,” said Blue Shield spokesman Steve Shivinsky. “This is a national problem.”

Yet the company said it was obligated to pay nearly all of Advanced Surgical’s bill because it is bound by the health plan rules set by the teacher’s employer, the Long Beach school district. The school system is self-insured, meaning it pays its own medical bills and uses Blue Shield to administer its benefits and process claims.

In other situations involving out-of-network care, it’s common for insurers to pay only about 60% of what’s deemed to be “usual and customary” charges or some percentage of Medicare rates. Insurers and out-of-network medical providers routinely spar over what constitutes a reasonable amount.

Kominski, the UCLA professor, said he faulted both Blue Shield and the school district for “dropping the ball on this. There were lots of opportunities for red flags to go off on such an outlandish bill.”

After defending its handling of the claim, Blue Shield reversed course this week and stopped payment on its $84,800 check. It told Nielsen that the surgery center had agreed to accept $15,000 instead.

“We are very pleased that Advanced Surgical Partners agreed to accept a more competitive rate,” Shivinsky said.

Overall, Blue Shield said, it expects to have new measures in place by next month to better address these out-of-network billing issues for certain employer health plans. It also said employers should do more to encourage workers to use in-network facilities that are paid negotiated rates.

The Long Beach school district expressed frustration at the teacher’s bill, but it echoed Blue Shield’s explanation that it will incur additional costs at times because it has promised employees out-of-network benefits.

“This out-of-network issue regarding surgery centers is one that we want to explore with our employee groups in the next bargaining cycle,” said Chris Eftychiou, a district spokesman.

Joe Boyd, executive director of the Teachers Assn. of Long Beach, said there is nothing in the employee contract to prevent the school district and Blue Shield from rejecting inflated medical bills.

“That’s absurd. It isn’t a requirement of the contract to pay fees that are five or 10 times what’s customary,” Boyd said. “We don’t want the school district or our members ripped off.”

Nielsen said she remains angry that Blue Shield declined to do anything when she first complained about the situation in December. She plans to continue pursuing the matter with the attorney general’s office, which records show has begun an inquiry.

“Our insurance premiums wouldn’t keep increasing,” she said, “if they paid a fair amount for these procedures.”

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