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Highmark won't pay hospital rates for care in physician offices

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Wednesday, Feb. 26, 2014, 10:45 p.m.

Health systems across the country are buying out private doctor practices and reclassifying them as hospital-outpatient departments — a move that critics say allows hospitals to bill higher rates without providing more sophisticated care.

The problem has been particularly widespread with oncology practices, according to Highmark Inc., the largest health insurer in Pennsylvania, which on Wednesday fired the first shot in what's expected to be a major battle between insurers and hospitals over the controversial practice.

Starting April 1, Highmark will stop reimbursing health systems at higher hospital-outpatient rates for cancer treatment performed in physician offices. The move may also cause a domino effect in the industry, observers said.

The Blue Cross Blue Shield company said the change won't affect patients' access to treatment and will save them money by reducing out-of-pocket costs. UPMC, which runs the largest network of cancer centers in Western Pennsylvania, called the action “an egregious contract violation.”

What remains unclear, is whether patients will be on the hook for charges that are rejected by the insurer. UPMC spokesman Paul Wood said the hospital network expects to be reimbursed for the full amount. Highmark said patients won't be affected.

Highmark is the first insurer to take a public stand against the common practice that has been denounced for adding unnecessary costs to the health-care system and come under scrutiny by Medicare and Medicaid, said Alwyn Cassil, a health policy expert and consultant with Policy Translation, in Silver Spring, Md.

“This practice has been going for a long time,” Cassil said. “I think what is notable is why has it taken private insurers so long to stand up to the practice.”

Medicare, the federal government's health insurance program for seniors, is paying 80 percent more for a patient visit in a doctor office designated as a hospital's outpatient facility than the program would for the same visit in a freestanding physician office, the Medicare Payment Advisory Commission wrote in a 2012 report.

“This payment difference creates a financial incentive for hospitals to purchase freestanding physicians' offices and convert them to OPDs (outpatient departments) without changing their location or patient mix,” the commission said in its recommendation that Medicare equalize payments between the two settings.

In some cases, Highmark was billed $32,000 for cancer-drug infusions that had previously cost $10,000, Highmark's chief medical officer, Donald Fischer said. And members' cost-sharing for those treatments also more than tripled, from $1,000 to $3,200, he said.

“For this particular type of problem, the biggest hitter is oncology care,” he said. “It's particularly disturbing for patients” to experience those cost increases.

The company expects to reduce its claims by $200 million a year through the change, he said.

Highmark's hospital system, Allegheny Health Network, is already taking steps to reduce added charges, Highmark spokesman Aaron Billger said. The network in January signed a partnership Johns Hopkins in Baltimore for cancer treatment, training and research.

UPMC expects “we will be reimbursed for our services provided per the contractual arrangements until it expires at the end of the year,” Wood said.

Highmark's reimbursement contract with UPMC ends Dec. 31, which will make most UPMC hospitals and doctors out-of-network for the insurer's members.

Several specialty and rural hospitals, along with some unique cancer services, will remain in-network after this year.

Fischer said Highmark is working to end the practice of charging higher fees and rates in doctors offices in all types of treatments and physician practices, not just oncology. That is primarily occurring through adding provisions when it negotiates reimbursement contracts with hospitals, he said.

“I think everyone is watching this,” Fischer said. “I think this is the beginning of more accountability.”

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or

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