Court to health plan: Say how you determine physician reimbursement

A Georgia appeals court ruling is a first step in lifting the veil of secrecy on how insurers set physician pay.

Editorial. Aug. 7, 2000.

It may be the beginning of the end for business as usual (or one might say, customary) for insurers if the decision of a Georgia appeals court stands regarding physician reimbursement. The potential gain for doctors is treatment by health plans that will be a lot more reasonable.

A more traditional reading of what's "usual, customary and reasonable" -- the standard typically applied by insurers for physician fee-for-service payments -- is at the heart of this case. The Georgia Court of Appeals, in what well may be the first ruling of its type in the nation, ordered that an insurer must disclose its full payment schedule and methodology for determining how it pays physicians who have contracts with its PPO plan. The suit that prompted the ruling was brought by the Medical Assn. of Georgia, on behalf of four doctors. Joining in the suit was the AMA/State Medical Societies Litigation Center.

Usual, customary and reasonable is, from the start, a deck stacked by health plans against physicians. It guarantees that the doctor will be paid the lower amount between usual and customary charges (higher "reasonable" payments are reserved for unusual circumstances). Compounding the problem for physicians is that health plans, whose market clout often makes them a must to sign up with, typically won't tell the doctors what they can expect to be paid until after a contract is signed. Plans are also often vague or silent about how payment amounts are determined. It's a system designed to help insurers by keeping doctors in the dark, unaware of whether they are being treated fairly or not.

This case, Medical Assn. of Georgia v. Blue Cross & Blue Shield of Georgia Inc., is such a situation and is drawn in extremes. The Georgia Blues have enormous market presence -- the PPO plan involved with the case has 450,000 members and 95% of practicing physicians in the state signed up. When the plan changed its PPO contract, it held on to the triad of "usual, customary and reasonable" language but with a major change -- it switched the basis from fees charged to payments received. Because payments received are lower than fees charged, the predictable result would be lower pay, which is exactly what the doctors involved with the suit say happened to them.

Meanwhile, the plan says the details of its payment methodology are a business secret. The discovery process of this litigation established that the plan had made use of Medicare's resource-based relative value scale -- a fact unknown to the physicians involved with the suit -- further bringing into question how doctors could ever make sense of how their reimbursement was set.

This case is certain to be appealed -- the court rendered a split decision with which both sides are expected to take issue -- and would directly apply only in Georgia. But if upheld, lawyers in other jurisdictions, litigating similar cases, would be virtually certain to cite it in breaking down the walls of insurer secrecy. The AMA is also party to a lawsuit in New York exploring the accuracy of data used to determine usual, customary and reasonable payments.

The Georgia court sided with doctors on the key issue of disclosure, but ruled on the side of insurers regarding contract changes. It upheld the health plan's right to unilaterally change its reimbursement methodology and other payment matters, based on the fact that its contract specifically allowed such changes. The lesson: Sign a contract and you can expect to have to live with the consequences. At least this ruling also sows the seeds of a doctor being able to make a more informed decision before the contract is signed.