Let’s say you belong to a PPO (preferred provider organization).  You need surgery and decide to do some checking on which of the surgeons “on the panel” you want to use.  Your regular doctor has made an appointment for you with an orthopedist but you have three friends who in the recent past have had a horrible experience with this particular surgeon and you want no part of this guy.  You are wondering why “your doctor” recommended you to this particular orthopedist.

Two other orthopedists are in “the network.”  Both it turns out have horrible reputations in the community.  Both are also employees of a big hospital and as a loyal reader of this blog you know that means that if a conflict presents itself between what’s best for you versus what’s best for the surgeon’s boss…well..you know how that’s going to go.  And if the surgeons could work for themselves, why would they work for someone else?

Everyone you know that has had surgery at a particular surgery center you know about is thrilled with the care and the service they received there.  You decide that’s where you want to go and begin to seek a surgeon that operates at that facility.  You make an appointment with your regular doctor to let them know where you stand and to seek his assistance.  

“You can’t go there!”  “I sent you to an excellent surgeon!”  “None of those guys over there are in your network!”  “It will cost you a fortune!”  This guy was your doctor long before he went to work for the hospital, but now you are seeing that he too, is compromised.  

You call one of the “out of network” orthopedists that work at the surgery center about whom you have heard so many great things.  You know within seconds of meeting this guy that you have made the right decision.  (“Why isn’t he in my network,” you ask yourself?) Once he has indeed confirmed that you need surgery, you let him know that your preference would be to have your surgery at the surgery center.  ”That’s great.”  ”That’s where I had my surgery recently,” said the surgeon. “It’s obviously my preference, too.” 

“My regular doctor told me that you and the surgery center were ‘out of network’ and that this was going to cost a fortune.”  

“We’ll see about that.”  Those guys are usually good about pricing and giving you cost estimates.”  

Now the math.

Your deductible is $1500 if you stay in your network.  Your deductible is $3000 if you go out of your network.  Your insurance company has actually acted in violation of state law by acting as if these deductibles don’t “cross apply.”  That means that if you have met your “in network” deductible of $1500, and you go “out of network,” you start over at dollar 1.  You don’t start at $1501.

OK.  Your PPO pays 80/20 if you stay “in network.”  It pays 60/40 if you go “out of network.”  This means that the insurance company will pay 80% of the “allowable bill,” and you pay 20% of the same “allowable” amount, if you stay in network.  It means that your insurance company will pay 60% of the “allowable bill” if you go “out of network” and you pay 40% of the same “allowable” amount.   Still with me?

No surgery centers are “in network” with your insurance company….only “not for profit” hospitals are “in network.”  The allowable amount for your surgical procedure at the “in network” hospitals is much more  than the allowable amount for your surgery were it to be done at an outpatient facility (get that?…actually a completely different number!).  Let’s keep going.  

Allowable amount at the “in network” hospital = $25,000.  After you pay your deductible ($1500), you owe 20% of ($25,000-1500), or $4700.  Your total “out of pocket” expense is ($4700 + $1500), or $6200.  If you have already met your deductible for the year, your “out of pocket” expense is the $4700 figure.  

Allowable amount at the “out of network” surgery center = $2650.  Your “out of network” deductible remember is $3000.  Your deductible is more than the insurance company allows for payment for the entire procedure at the surgery center!  You are better off paying for the entire surgery “out of pocket” at the surgery center, insurance not being involved at all, than staying “in the network.”  If you have met any of your “out of network” deductible at all, this decision becomes even more apparent.  

Your PPO representative says “Wait!  That’s not fair!  ’Out of network’ providers can charge whatever they want and aren’t constrained by our fee schedule!”  Wrong.  Your insurance company is going to pay an “out of network provider” from a fee schedule, not based on any charges the facility generates.  Furthermore, the “out of network” provider is boxed in by the “in network” fee schedule for this reason: should the charges “out of network” be too high, the price pressure difference will push patients back into their restrictive network.  

The numbers I have used above are from an actual case.  I would like to tell you that the above situation is unusual.  It is not.  Patients many times are financially better off to go outside of their network.  Insurance companies spend a lot of time and resources spreading fear about “out of network” experiences.  Some are sending letters to patients telling them (falsely) that they spent too much money for their care because they went “out of the network.”  Physicians are receiving threats from insurance companies for having operated on patients at facilities outside of the network.

Questions.  Did you notice how much the insurance company paid out of their pocket for the above surgery?  Zero.  You would think they would be thrilled!  What’s eating at them?  Why are they threatening physicians and lying to patients?  What on earth would make them want to change this arrangement?  You would think that their profits would soar the more patients exercised the “out of network” option, wouldn’t you?  After all, aren’t their profits just the premiums collected minus the claims paid?

Obviously there’s more to it.  If you have followed this blog you have an understanding of the “PPO repricing fee” scam and how that works. This is the bizarre situation created by insurers receiving fees for reducing exorbitant hospital bills, an activity that perversely leads insurers to seek out the most expensive providers.  ”Leakage” out of the network also threatens the continuation of certain “discounts” offered to the insurance companies by the big hospitals for various services.

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Try to keep this in mind if you are discouraged from venturing outside of “your network.”

G. Keith Smith, M.D.