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Blue Cross Blue Shield battles N.C. hospitals and health care providers over ‘wasteful’ radiology charges

By Joseph Neff and Ames Alexander
jneff@newsobserver.com

More Information

  • State waited too long to set up health insurance marketplace
  • Breaking down a bill

    $1,746: average allowed price of an outpatient MRI in North Carolina. This breaks down into two parts: professional and technical.

    $235: The professional component pays the doctor to interpret the image.

    $1,511: The technical component pays the cost of equipment and staff, including the time for the technician to set up the procedure.

    Sources: Blue Cross and Blue Shield of North Carolina;

    Centers for Medicare & Medicaid Services



It’s called the “technical component” of an MRI or an ultrasound, and parts of it are familiar to many patients: A medical technician greets them, guides them to the exam room, fills out consent forms, provides a gown, sets up any IV fluids and prepares the room.

Then the technician might take several images of the patient’s stomach or lung or liver, often getting the patient to roll on his side or back to get different views.

This routine process has sparked a high-stakes fight between the state’s largest health insurer and hospitals, doctors and other medical professionals. Blue Cross and Blue Shield of North Carolina says the providers are charging an identical fee for each image taken during the radiology session, even though the setup is performed only once.

Blue Cross says the providers are overcharging patients and their insurers by $16 million a year.

“It’s unfair for our members to pay more than once for items only supplied one time,” said Barbara Morales Burke, vice president of Health Policy for Blue Cross. “We are reducing wasteful spending.”

The lobbyists for hospitals and doctors are fighting Blue Cross’ effort to cut back on reimbursement, saying the insurance company is unilaterally trying to rewrite an active contract.

The radiology dispute is a small but revealing example of how arcane billing practices can drive up health care costs, which have been rising faster than inflation, even during the recession. Seeking to maximize revenue from procedures, hospitals and other providers often bill in ways that don’t accurately reflect the work that’s done.

A recent investigation by the Observer and (Raleigh) News & Observer found that major urban hospitals in North Carolina have made record profits in recent years, raising their prices each year and exerting growing market power to negotiate higher payments from insurance companies.

The procedures outlined in the Blue Cross petition are expensive. The insurer says its average allowed cost for each separate image taken during an MRI in an outpatient facility, for example, is $1,746. Of that, $235 goes to the radiologist for interpreting the image.

The rest, $1,511, goes for the technical component, which covers the use of the expensive machine and the setup. That charge is the same for each image, meaning no discount for the setup work that’s only done prior to the first image.

“This is a windfall to the provider, out of consumers’ pockets,” Blue Cross stated in a filing to the N.C. Department of Insurance.

Adam Linker, a patient advocate for the N.C. Health Access Coalition, finds such billing practices ludicrous.

“Providers shouldn’t maximize the billing for every little procedure and service,” Linker said. “We want insurers and providers to do what will most benefit average people. Too often, when Blue Cross and hospitals start throwing punches, it’s consumers who take it on the chin.”

Providers cry foul

The struggle over radiology fees began in June 2011, when Blue Cross sent a memo to hospitals and doctor practices that provide radiology services such as MRIs, CT scans and ultrasounds. The notice said the technical component fee for second and subsequent images “will be subject to a fee reduction” of 50 percent. Doctors would continue to be paid 100 percent for each image they analyze and interpret.

The proposed policy is similar to how Medicare reimburses for radiology procedures.

The hospitals and doctors cried foul. Fee schedules are set during contract negotiations between the insurers and health care providers. The providers accused Blue Cross of unilaterally changing reimbursement terms set by contract.

Blue Cross withdrew the memo and sent a second one that labeled the reduced reimbursement as an “allowance.”

“We absolutely disagree with that view that it is in violation of our contracts,” said Burke, the Blue Cross vice president. “This is a change to our reimbursement policy, not the fee schedule.”

The N.C. Hospital Association and the N.C. Medical Society protested the new policy to the state Department of Insurance.

Whether it’s a fee or allowance, the changed reimbursement violated a 2009 law pushed by doctors and hospitals, the health care providers argued.

Under that law, if a provider objects to a proposed contract amendment, the amendment cannot go into effect. The insurer’s only remedy is to terminate the entire contract with 60 days written notice.

In December, the Department of Insurance sided with the hospitals and doctors. Blue Cross appealed the decision, and the issue has generated work for lawyers and reams of paperwork.

Multiple bills, one service

Blue Cross drummed up support from the State Employees Association, the N.C. Association of Educators, the Farm Bureau, Aetna, BB&T Insurance Services and Durham County. Blue Cross dominates North Carolina, with 75 percent of the health insurance market.

The opposing side has the backing of a long list of medical specialists: radiologists, dermatologists, oncologists, psychiatrists, gynecologists, anesthesiologists and more.

The hospital association sees a slippery slope ahead if Blue Cross prevails.

“If an insurer can change the reimbursement terms of a provider contract whenever it wants, what is the point of having a contract?” the N.C. Hospital Association said in a statement. “What is the point of negotiating? There is no end to an insurer’s ability to unravel the reimbursement terms that it has agreed to if it can adopt ‘policies’ whenever it wants to change those terms.”

Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance, called the radiology billing method a classic example of “unbundling,” a widespread practice in which hospitals and other medical providers bill multiple times for a service that in reality is provided only once.

Another example: Doing a single test for multiple substances in a blood or urine sample and then billing as though multiple tests had been conducted.

The uninsured and underinsured are the patients hurt worst by the practice, Anderson said.

“If you don’t have someone negotiating on your behalf, they’re going to unbundle to the maximum extent possible,” he said.

Beth Morgan, a Connecticut medical auditor, agrees. Examining bills from hospitals in North Carolina and other states, she routinely sees what she considers duplicative billing.

“Hospitals are trying to figure out ways to squeeze more money out of insurance companies and also ways to get more bang for the buck,” she said.

Hospital defends practice

Blue Cross officials declined to label the practice unbundling, a term that can sometimes connote fraud.

The state’s two biggest hospital systems, Carolinas HealthCare System and Novant Health, declined to comment on the case, though a CHS spokeswoman said the system endorses the hospital association’s statement.

Karen McCall, a spokeswoman for UNC Hospital and Rex Hospital, acknowledged the hospitals bill in the manner that Blue Cross is trying to stop.

McCall said the hospital charges for every image completed.

“Each X-ray has a specific code, and we charge because there are different procedures for each,” she said. “Blue Cross has an opportunity when they negotiate contracts with hospitals to work out most of these issues … That’s normally how these things are handled.”

Lew Borman, a Blue Cross spokesman, pointed out that the insurance company negotiates multiyear contracts. Changing the reimbursement contract by contract would take time.

“It would probably take five years to get it across the board with all our providers,” Borman said.

Neff: 919-829-4516
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