SCOPING MEMORANDUM ON MEDICAL BALANCE-BILLING
January 23, 2009
“Medical balance-billing” is one of the many health issues facing New Jerseyans.
Along with problems like unavailable or unaffordable health insurance, barriers to
enrolling or staying enrolled in publicly funded health plans, the closure of urban and
community hospitals, and coverage disputes with health insurers, New Jersey residents
receive an unknown number of “balance-bills,” roughly defined as a bill from a medical
provider for an amount that exceeds the deductible, coinsurance, copay or other cost-
sharing that the plan demands from the patient.
After a careful review of the relevant law and factual materials, we have
determined that the available information about the frequency and severity of balance-
billing is inconclusive.
The balance-billing that does occur is limited by both governmental regulation
and private enforcement. This memo reviews both the regulations and the major
enforcement measures so far taken in the State. It then briefly assesses various ways of
attacking the balance-billing problem.
Definition of balance-billing
For purposes of this paper, we define balance-billing as a bill from a provider to
an insured patient (or the person financially responsible for the patient) for covered
medical services or products in an amount that exceeds both what the applicable health
insurance plan will cover and what the health plan obligates the patient to pay (e.g.,
copayments, deductibles, or coinsurance).
The scope and extent of balance-billing in terms of the number of people who
pay medical bills they are not legally obligated to pay or in terms of the
number of dollars involved
The scope of the problem is uncertain. According to one oft-cited article,
“economists and patient advocates estimate that consumers pay $1 billion or more a
year for which they’re not responsible.” 1 The source of this number is unclear. If the
number is accurate, the per capita cost of improper balance-billing in the United States
is about $3 per year.
A California study estimated that of its insured population (21 million people),
some 1.76 million were sent $528 million in balance bills for emergency room visits over
a two-year period (an average of $300 each); 56 percent of them paid the bills. 2 Because
the California study was commissioned by an association of health plans, there may be
some source bias: the health plans have an interest in tagging providers with the
responsibility for high health care costs charged to consumers.
The Agostino v. Quest Diagnostics class action case, discussed below, refers to
“thousands” of Quest customers nationally who received an improper bill from Quest.
Dollar amounts and more precise numbers are unavailable.
McCoy v. Health Net, Inc., also discussed below, was settled for $215 million,
representing an insurer’s multiyear underpayment of reasonable reimbursement sums
to providers, which is thought to contribute to the problem of balance billing.
Statistics for New Jersey are also elusive. The Horizon BCBS v. Vanguard
litigation, discussed below, refers to approximately 8,000 balance bills totaling $4.3
million sent to customers by an anesthesia provider over a course of three to four years.
The DOBI v. Aetna Insurance case, discussed below, speaks of 3,099 claims for
services rendered by out-of-network providers that Aetna improperly handled. It is not
clear whether any or all of these claims resulted in an actual balance bill, whether any
such bills were paid, or during what period these claims were made.
An issue related to balance billing occurred when a North Jersey hospital
recently declared bankruptcy and its accounts receivable were sold to a collection firm.
“Hundreds” of patients received bills. It is not clear how many of these bills were
balance-bills or even how many were legitimate bills at all. It seems that an overly
aggressive collections firm relied on old, inaccurately maintained, hospital records.3
After an inquiry from DPA, the Consumer Complaint Unit in the Division of
Consumer Affairs advised that “they do not receive many balance billing complaints, if
any.” The Board of Medical Examiners reported “anecdotally that this may be an issue
on the rise as it relates to the provision of anesthesia in a hospital.” A DOBI official
reported that they have “received a few cases from insureds complaining that providers
are asking for additional payment beyond what the insurance company covered, but he
thinks the majority of cases go to either Consumer Affairs in Law and Public Safety or
3 See December 12, 2008 email from Christine Stearns to Wali Abdul-Salaam, on file.
The New Jersey Association of Health Plans (AHP) stated to DPA that “balance
billing remains our top member complaint.” It is unclear whether “members” refers to
the insurers that are members of this association, or whether it refers to insureds. AHP
also informed us that one New Jersey Medicaid plan reported that between 2006 and
2008, 36% to 46% of total complaints were “related to balance billing”; however, the
total number of complaints was not stated. As AHP is a health insurer association, the
same caution about source bias noted above for the California insurer association,
Health Plans in New Jersey
New Jersey law makes many different classifications of health insurance plans.
As we understand it, those classifications include health service corporations, medical
service corporations, hospital service corporations, health maintenance organizations,
dental service corporations, dental plan organizations, prepaid prescription services,
and organized delivery systems. 4 In addition to these categories, there are other forms
of insurance for medical care, including the statutorily-created Individual Health
Coverage Program and Small Employer Health Benefits Program, and the coverage for
medical care arising from automobile accidents (Personal Injury Protection). Next are
insurance programs with a federal component (e.g., Medicare (for elderly Americans),
Medicaid and SCHIP (for working-class families), TRICARE/CHAMPUS (active duty
military, military retirees under age 65 and qualified dependents) and the federal
civilian employees’ health plans). Lastly, there are health insurance plans self-funded
by employers (usually large employers), which are generally beyond the scope of state
regulation because of the preemptive effect of the Employee Retirement Income and
Security Act (ERISA). 5
According to DOBI statistics as of 2005, of 8.725 million New Jerseyans,
approximately 1.324 million (15 percent) were uninsured; 2.146 million (or 25 percent)
had insurance under federal insurance programs; 747,000 (or 9 percent) were enrolled in
the State Health Benefits Plan; 2.3 million (or 26 percent) held insurance under a
employer self-funded plan; and 2.212 million (or 25 percent) were insured under the
“commercial [insurance] market” subject to DOBI regulations. We were unable to
ascertain how many of these individuals were insured under the different classifications
of health plans as outlined above.
4 See, e.g., N.J.A.C. § 11:22-1.1(b); 11:24B-1.1; see also N.J.S.A. 17:48-1 to 17:48H-35; N.J.S.A. 26:2J-1 to -47.
5 See generally http://www.ebri.org/pdf/briefspdf/EBRI_IB_02a-20082.pdf.
Regulatory Proscriptions on Balance-Billing in New Jersey
This memorandum does not purport to reflect every law and regulation
pertinent to balance-billing in New Jersey. Instead, it reflects a review of the
regulations that DOBI cited to us, that courts or litigants have cited, or that we
uncovered in a non-exhaustive set of searches. 6
The regulations proscribing balance-billing are in the Insurance Code. They
differ slightly depending on the type of health plan at issue. The definitions of the
various health plans are convoluted enough that we would need further consultation
with DOBI to sort them out.
Some generalizations are possible nevertheless. The regulatory proscriptions
operate through health care contracts. That is, the regulations demand contract
provisions that require health care providers, health care insurers, or both to hold
patients harmless for the cost of medical services and supplies beyond the coinsurance,
copays, and deductibles in their health plans. The regulations do not directly govern
health providers except through their contracts with insurers. 7 Regulations that pertain
to coverage for out-of-network services govern only the insurer and not the out-of-
network provider, who by definition is not under contract with the insurer.
In-network rules. In virtually all kinds of health care plans regulated by DOBI,
the regulations demand contract clauses that prohibit balance-billing for hospitalization
(including anesthesia and radiology services) in a network hospital. NJAC 11:22-5.6(b).
The prohibition holds whether the admitting physician is an in-network or out-of-
network provider. The obligation to hold the patient harmless obligates the insurer
rather than any individual providers at the hospital who may, or may not, be under
contract with the insurer.
In virtually all kinds of health care plans regulated by DOBI, the regulations
demand contract clauses that prohibit balance-billing for in-network health services and
supplies. NJAC 11:24-15.2(b)(7), 11:24-9.1(d)(9) (health maintenance organizations);
NJAC 11:24B-5.2(a)(12) (organized delivery systems); NJAC 11:4-37.3(b)(1) (health
6 For a more complete discussion of the regulations, see Appendix A.
7 The one exception to this rule that we found is in NJAC 11:3-29.5, which states that a provider treating a
person injured in an automotive accident and subject to PIP may not “demand or request any payment
from any person in excess of those permitted by the medical fee schedules and this subchapter, nor shall
any person be liable to any health care provider for any amount of money that results from the charging
of fees in excess of those permitted by the medical fee schedules and this subchapter.”
benefit plans that use selective contracting arrangements); NJAC 11:24A-4.15(b)
(extending the proscriptions of NJAC 11:4-37 to all “provider contracts”).
Out-of-network rules. Health maintenance organizations (HMOs) follow special
rules in reimbursing out-of-network services. When they refer patients to out-of-
network providers, the HMO is responsible for all costs beyond the patient’s
coinsurance, deductible, and copay. NJAC 11:24-5.1; see also NJAC 11:24-9.1(d)(9).
This rule binds the HMO, not the out-of-network provider. Likewise, the HMO is
required to pay for “out-of-service area” emergency care, NJAC 11:24-5.3(b)(3), but this
provision does not directly regulate the “out-of-service area” emergency provider.
Health plans that rely on “selective contracting arrangements” must also provide
that “the cost sharing applied to the covered person for emergency care shall be the
same regardless of whether the services were rendered by network or out-of-network
providers.” NJAC 11:4-37.3(b)(2). Thus, the insurer is liable for out-of-network
Medicare and Medicaid. Providers of health services under Medicare and
Medicare supplemental coverage must agree not to bill patients for any part of the cost
of any covered service. 42 USC § 1395cc(a)(1)(A); NJAC 11:4-23.8(c)(12)(iii), (13)(iii),
(g)(3)(iii). Federal Medicaid regulations also demand that participating providers agree
to “accept, as payment in full, the amounts paid by the agency plus any deductible,
coinsurance or copayment required by the plan to be paid by the individual.” 42 CFR
From the foregoing, we can make the following conclusions about how existing
regulations deter balance-billing:
• Because health plans are divided up into several classifications, it is not an
easy task to determine what rules apply to a given circumstance and
whether a particular balance-bill is proper or not.
• The regulations generally mandate that insurers have certain anti-balance-
billing clauses in their contracts with providers. Insurers can be punished
by regulators with fines and penalties for violating these requirements.
Assuming arguendo that a private right of action applies for such
violations, insurers may also be deterred from violations by the threat of
litigation from patients, including class-action litigation.
• Providers who balance-bill their patients improperly risk discipline by
their insurer, but are, except in the case of PIP services, beyond the
jurisdiction of insurance regulators. 8 Providers, however, may be subject
to civil suits and other forms of liability, discussed below.
• The regulations generally reach policies issued or delivered in New Jersey.
Unless the relevant policy was issued or delivered in New Jersey, State
residents who work in other states or receive medical treatment in other
states, and out-of-state residents who work here or receive medical here,
may fall into a regulatory gap.
Litigation in New Jersey
The litigation brought so far in New Jersey represents a range of strategies for
attacking balance-billing. 9
In Radiological Society of New Jersey v. Sheeran, 175 N.J. Super. 367 (App. Div.
1980), five professional radiological corporations and nineteen radiologists brought suit
against DOBI, Blue Cross, and Blue Shield, seeking a declaration that the radiologists
had the right to balance-bill Blue Cross subscribers for in-hospital radiological services.
The Appellate Division held in DOBI’s favor. The opinion rests on a still-valid statutory
proscription on balance-billing by providers in “hospital service plans” (like Blue Cross)
that must issue contracts “providing complete prepayment or postpayment of eligible
health care services and supplies for a given period to persons covered under such
contracts.” NJSA § 17:48-1 (emphasis added). The court read this statute to prohibit
balance-billing “since reimbursements by Blue Cross [and other hospital service plans]
constitute payment in full for services rendered.” 175 N.J. Super. at 375. Based on long
and complex reasoning, the court rejected the radiologists’ contention that their services
8 California recently adopted new insurance regulations that directly target providers. The Department
of Managed Health Care rules, in effect Oct. 15, 2008, prohibit physicians and hospitals from billing
patients for outstanding out-of-network emergency care costs not covered by health plans. Physicians
and hospitals have challenged insurance regulators’ authority to promulgate the new rules, arguing that
“[t]he [DMHC’s] job is to protect enrollees from HMOs. But instead of doing that by regulating HMOs,
[the department] is trying to regulate physicians.” The case is pending.
9Cases in other states and in the federal courts also address balance-billing. We have not fully canvassed
this case law, though we note that the California Supreme Court recently held that, under state law,
“billing disputes over emergency medical care must be resolved solely between the emergency room
doctors, who are entitled to a reasonable payment for their services, and the HMO, which is obligated to
make that payment. A patient who is a member of an HMO may not be injected into the dispute.
Emergency room doctors may not bill the patient for the disputed amount.” Prospect Medical Group,
Inc., et al. v. Northridge Emergency Medical Group, et al., 45 Cal. 4th 497, 502 (Cal. 2009).
were instead governed by their contracts with Blue Shield, which operated a medical
service plan (as opposed to the Blue Cross hospital service plan). The court read the
statute defining medical service plans to permit balance-billing because, under such
plans, “‘the expense of medical services to subscribers . . . is paid in whole or in part,’”
allowing participating providers to bill patients for the remaining portion. Id. (quoting
NJSA § 17:48A-1).
Although the legal distinction between hospital service plans and medical
service plans remains today, it is not clear that in practice, insurers actually issue plans
that are distinguished in this manner. Nevertheless, the case is still viable for the
general proposition that regulatory controls on insurers about balance-billing can bind
the actions of providers.
In Valley Hosp. v. Kroll, 368 N.J. Super. 601 (Law Div. 2003), the hospital sought
to collect more than $250,000 in medical bills from an eighty-year-old widow for
services rendered to her late husband. “The purported debt represents the difference
between the hospital’s so-called ‘standard’ charges and the benefits paid to it by
decedent’s Medicare Part A and supplement insurance coverage, otherwise known as
‘Medigap’ insurance.” Id. at 604. The court relied on the Commissioner of Banking and
Insurance’s interpretation of the relevant state regulation (NJAC 11:4-23.8(g)(3)(iii)) to
hold that the hospital was bound to accept Medigap coverage as full payment for the
decedent’s hospitalization and could not bill the estate for the balance. The court
viewed this interpretation of the regulation as in keeping with the purpose of Medigap
insurance to protect the “elderly or their estates” from “liability for the amount that a
hospital’s rate exceeds the Medicare-approved rate.” The state regulation was not
preempted by federal law because federal law was “silent as to whether a hospital may
balance-bill for post-Medicare Part A services.” Id. at 625. In addition, the court held
that the contract the patient had signed upon his admission to the hospital, in which he
agreed “to pay the Hospital . . . the full and entire amount due for all services received
by me,” was “unenforceable as a contract of adhesion.” Id. at 625-26. 10
The specific holding of this case applies only to Medigap policies, and as a Law
Division case, it does not constitute a binding statewide precedent. However, the case
can be cited for the general proposition that a provider may not collect a balance-bill in
excess of the amounts allowed by regulations, even where a patient has executed an
agreement stating otherwise.
10 New Jersey recognizes that contracts of adhesion are unenforceable, and it also follows the Restatement
view that contracts that are inconsistent with public policy are unenforceable to the extent of such
inconsistency. In similar cases, we think that the public policy defense could also prove fruitful to
Agostino v. Quest Diagnostics, No. 04-4362 (D.N.J. filed March 31, 2005), is a
federal class action alleging that Quest has balance-billed, double-billed, and otherwise
overbilled its customers throughout the United States. The facts stated in the complaint
rely on the named plaintiffs’ interactions with Quest, complaints about Quest filed with
public officials across the country, and the New York Attorney General’s 2003
investigation of Quest’s billing practices that resulted in an “Assurance of
Discontinuance” agreement. The complaint alleges “thousands” of people across the
United States having received wrongful bills from Quest. The complaint pleads causes
of action under RICO, the Fair Debt Collection Practices Act, ERISA, the New Jersey
Consumer Fraud Act, the consumer protection laws of other states, breach of contract,
common law unjust enrichment, and common law fraud. Motion practice is ongoing
before Judge Stanley Chesler. 11
In Horizon Blue Cross Blue Shield v. Vanguard Anesthesia Assocs., No. MRS-C-
174-06 (N.J. Super. Ct. Ch. Div. 2007), Horizon BCBS sued Vanguard for balance-billing
Horizon subscribers. The complaint relied on prohibitions on balance-billing in the
contracts between Horizon and Vanguard, as well as on NJAC 11:22-5.6, which limits a
covered person’s liability for services provided in a network hospital (explicitly
including anesthesia services) to “the co-payment, deductible and/or coinsurance
applicable to network services.” The complaint represents that Vanguard balance-
billed Horizon subscribers for 8000 claims for services rendered between 2003 and 2006.
(As noted above, one source has indicated that the total amount of all the bills was $4.3
million). In January 2007, the Chancery Division entered a preliminary injunction
against Vanguard that
• prohibited it from balance-billing Horizon’s New Jersey subscribers,
• required it to notify all patients it had billed that collection was stayed and
• required it to reimburse all patients who had paid balance-bills,
• required it to notify all collection agencies to discontinue collection efforts,
• required it to notify all credit reporting groups to delete “any negative
information relating to these claims,” and
• required reporting on all of the foregoing activities.
In March 2007, the parties settled the case and a consent order was entered. The
consent order makes the preliminary injunction permanent, extends it to all Horizon
subscribers inside and outside New Jersey, and awards retrospective attorneys’ fees as
well as prospective fees for any future violations of the injunction.
11 The court denied class certification by order dated Feb. 11, 2009.
This complaint is a good example of an insurer taking decisive action against
providers who are breaching their contract with the insurer and issuing balance-bills to
patients. Indeed, the exhibits to the complaint further demonstrate how an insurer can
educate providers about the wrongfulness of balance-billing, which could bolster claims
that some providers’ actions are knowingly wrongful.
McCoy v. Health Net, Inc., 569 F. Supp. 2d 448 (D.N.J. 2008), is not a balance-
billing case, but it is related to the overarching problem of patients’ overpaying for
health care. In McCoy, a class of enrollees sued their health insurer alleging that it
systematically underestimated the “usual, customary, and reasonable charges” that it
would reimburse for out-of-network services. Health Net relied on the databases of a
third-party vendor, Ingenix, to estimate these costs. The class argued that “each time
Health Net determined an [out-of-network] reimbursement in reliance upon an Ingenix
database, Health Net failed to pay all the benefits due to its insureds and thereby
violated ERISA.” Id. at 451. After seven years of litigation and mediation, the case
settled. The court characterizes the settlement as “among the largest ERISA health
insurance settlements on record.” Id. at 452. Health Net agreed to pay $215 million,
divided among three purposes: $40 million went to reimburse class members who had
paid balance-bills to out-of-network providers after Health Net had reimbursed these
providers at an artificially low rate; $160 million went into a fund to be distributed on a
pro rata basis to class members to reimburse them for claims subject to an erroneous
out-of-network determination; $15 million went to DOBI to reimburse members of the
subclass of New Jersey small employer plans. Health Net also agreed to change its
business practices. Among other things, it would:
• stop using the Ingenix databases,
• develop new methodology to determine coverage for out-of-network
claims and disclose this methodology in new plans,
• in the interim, pay out-of-network claims at the Ingenix rate plus 14.5%,
• institute an appeals process for enrollees who still have large outstanding
balances even after the 14.5% increase,
• develop a “cost-estimator process” so that enrollees have a way to know
in advance how much they will be reimbursed for non-urgent out-of-
• train employees and ensure transparency.
Id. at 453-54. 12
12 On January 12, 2009, the New York Attorney General announced an industry-wide solution to the
problem that was litigated in the McCoy matter. Specifically, the database compiled by Ingenix and used
by health insurers nationwide to set the usual and customary fees paid to providers would be overhauled
with a new, more accurate database, to be run by a university instead of a company wholly owned by a
Administrative Action in New Jersey
In re Violations of the Laws of New Jersey by Aetna Health, Inc., Order No. A07-
59 (DOBI July 2007). DOBI brought this enforcement action against Aetna Health, an
HMO, to prevent it from underpaying out-of-network providers, risking that those
providers would balance-bill patients. The evidence revealed that Aetna had written to
130 out-of-network providers (mainly hospital-based physicians and ambulance
services), informing them that it would reimburse them at what it considered to be a
“fair” rate, which it set at 125% of the Medicare-allowable amount for most services but
at 75% of the Medicare-allowable amount for lab services and durable medical
equipment. These providers, in turn, submitted 3,099 claims to Aetna (during what
time period remains unclear). Reciting the regulations that require HMOs to hold
patients harmless for the cost of in-network hospitalizations, NJAC 11:22-5.6(b), out-of-
network emergency care, NJAC 11:24-5.3(b), referrals for out-of-network services, NJAC
11:24-5.1(a)(1), and balance-bills for covered services in general, NJAC 11:24-9.1(d)(9),
DOBI concluded that “Aetna must pay the non-participating provider a benefit large
enough to insure that the non-participating provider does not balance bill the member
for the difference between his billed charges and the Aetna payment, even if it means
that Aetna must pay the provider’s billed charges less the member’s network
copayment, coinsurance or deductible.” Id. at 3. Accordingly, DOBI ordered Aetna:
• to stop using set percentages of the Medicare allowable amount to determine
• to reprocess all underpaid claims and to pay the providers their “billed charges,
less the cost sharing of the covered person for network services,” id. at 4,
• to send notices to all providers who had received the offending letter of Aetna’s
obligation to pay them an amount sufficient to prevent balance-billing, and
• to pay a fine of $9,457,500 to the State for violations of the regulations.
health insurer. According to the NYAG, inaccuracies in the database resulted in out-of-network doctors
being underpaid by as much as 28 percent. These underpayments are the cause of much of the balance-
bills sent to patients.
The settlement does not address past underpayments, but these issues are apparently being litigated in
various class action suits including American Medical Ass’n v. United Healthcare Corp., as set forth in a
Fourth Amended Complaint dated July 10, 2007, No. 00 Civ. 2800 (S.D.N.Y.). Also see AMA v. Aetna,
We do not know whether Aetna filed an administrative appeal. 13 Comment [a1]: Check with DOBI.
Existing laws and regulations suggest that patients (or those financially
responsible for them) have a wide variety of remedies available to them to defend
against improper balance-billing – both prior to court action and in court.
Generally, the first line of defense for a patient who has received an improper
balance-bill is communicating with his or her insurer. As noted above, provider-insurer
contracts are generally required to contain clauses that protect patients from balance-
The second line of defense lies with DOBI. As the Aetna Health case makes
clear, for the 25% of New Jerseyans insured under a plan where DOBI has jurisdiction,
the agency can and will respond to potential or actual balance-billing.
In court, a wide variety of defenses are available to a person targeted with an
improper balance-bill. Depending on the circumstances, the array of state regulations
that limit balance-billing equip a patient to assert defenses of public policy, duress, or
adhesion against providers for improper balance-bills.
Finally, patients may sue providers whom they have paid pursuant to an
improper balance-bill. The Agostino case is directly illustrative of this remedy: there,
class action attorneys brought claims on behalf of patients against a large national
laboratory. The McCoy case is indirectly illustrative of this; there, a health insurer
which reimbursed providers at improperly low rates (which can be a cause of balance-
billing by providers) settled by contributing millions of dollars to a fund to reimburse
patients. In addition, it is not inconceivable that where government dollars are used to
pay providers, yet providers have engaged in balance-billing practices contrary to their
contracts or regulations, patients may have whistleblower claims under the False
Claims Act, 31 U.S.C. § 3729, and its state analogue.
13 In another administrative enforcement action, the Georgia Insurance Commissioner recently ordered
Blue Cross Blue Shield of Georgia to pay $12 million for services rendered that were improperly
reimbursed. Blue Cross made inconsistent payments for comparable ambulance services and refused to
increase reimbursement rates. The Commissioner cited the threat of excessive balance-billing as a reason
for Blue Cross to make this payment. Staff Reports, Georgia Orders Blue Cross Blue Shield to reimburse
$12 million, Columbus Ledger-Enquirer, December 4, 2008.
Possible strategies for further control of improper balance-billing
I. Improved data collection from patients and those responsible for
paying for services rendered to them. Our research suggests that a significant
percentage of improper balance-billing probably goes unnoticed and undeterred. If
insurers or regulators were required to collect information from patients in greater
detail about health care bills they paid (for example, through periodic surveys by an
insurer or a regulator to selected samples of patients), more instances of improper
billing would be discovered. This, in turn, could lead to the appropriate insurer
enforcing anti-balance-billing provisions in its provider contracts. It could also lead to
the appropriate regulator (whether it be DOBI, a federal Medicare regulator, or
someone else) enforcing anti-balance-billing provisions in its regulations governing
II. Regulatory reform.
DOBI regulations generally reach policies issued or delivered in New Jersey.
Unless the relevant policy was issued or delivered in New Jersey, State residents who
work in other states or receive medical treatment in other states, and out-of-state
residents who work here or receive medical care here, may fall into a regulatory gap.
Regulatory reforms might also add a more targeted requirement for insurers to
educate providers about avoiding improper balance-bills.
Finally, regulatory reforms could impose upon insurers the duty and cost of
educating patients about how to avoid balance-billing practices (discussed in further
III. Legislative reform.
With few exceptions, express prohibitions on balance-billing exist only in
regulations that prescribe the terms of insurer-provider or insurer-insured contracts.
While the existing array of remedies that flow from such regulations (e.g., regulator
enforcement, contractual enforcement by providers, voidability defenses in collection
suits, and class-action cases) is substantial, there is a more direct way: New Jersey might
enact a statute:
• making it unlawful for providers to balance-bill in a manner that is inconsistent
with their contracts with insurers, or with regulations of general applicability,
• providing a private right of action, and
• ensuring meaningful consequences for violations.
Such a law would give patients direct recourse against providers who improperly
balance-bill them, and it would apply to patients insured by DOBI-regulated plans as
well as other plans (such as Medicaid and Medicare plans) that contract with providers
to hold patients harmless for balance-bills.
Such legislation might also expressly provide that violations of anti-balance-
billing regulations or contractual provisions are cognizable defenses to a collections
suit. This would have the effect of codifying the Valley Hosp. v. Kroll decision which
acknowledges that anti-balance-billing regulations can be a cognizable defense to a suit
for unpaid medical bills, while at the same expanding this holding beyond the facts of
the case to ensure it can be applied to balance-bills prohibited by regulation or contract
in a non-Medigap situation.
IV. Encourage enforcement actions by regulators against insurers. When
insurers underpay providers, balance-billing is more likely to occur. More aggressive
administrative enforcement, such as DOBI’s action against Aetna, to identify, punish,
and deter such underpayment, has great potential to prevent balance-billing.
V. Encourage enforcement actions by insurers against providers. The
Horizon v. Vanguard case discussed above is a good example of an insurer taking
decisive action against providers who are breaching their contract with the insurer and
issuing balance-bills to patients. Presently, however, there is no incentive for insurers
to bring these actions, other than the possibility of being held to account by regulators
for inattention to anti-balance-billing provisions of regulations. However, a greater
investment in the regulatory process might lead to more of these enforcement actions.
VI. Encourage the use of class action suits against providers engaged in
wrongful balance-billing. The Agostino v. Quest Diagnostics case, if it is ultimately
successful (it has been pending for four years already) illustrates one way that patients
can recover for past wrongful balance-bills, and deter future ones. The Department
could participate in such a case if the right facts came to our attention and we had or
could enlist the necessary resources. In addition, laws that create a statutory cause of
action against providers where they engage in wrongful balance-billing (point III
above) could encourage additional cases.
VII. Educating patients and those responsible for paying for their services.
The complexity of both the regulatory system and the terms of contracts with insureds
makes it difficult for patients to determine accurately whether any particular bill they
receive is properly due or not. This complexity also makes patient education
challenging. Moreover, except in extreme cases, the sum of balance-bills directed to any
single insured seems to be relatively low, reducing the consumer’s incentive to invest
the energy required to understand whether a charge is proscribed and to fight it. These
combined concerns pose serious obstacles to the patient-education route. We may
nevertheless want to explore whether it is possible for insurers or regulators to develop
plain-language materials to educate patients about the propriety of bills they receive
from health care providers and their methods of recourse if they question a bill
(whether it be contacting an insurer, a regulator, or some other ombudsman to resolve
such disputes). One key part of this education would be to educate the patient about
who is the correct regulator to contact in the event of a dispute. Likewise, such
education should provide at least general information about the rights of someone
alleged to owe a debt, as provided by the federal Fair Debt Collections Practices Act.
Regulatory Proscriptions on Balance-Billing in New Jersey
Health Maintenance Organizations (HMOs)
An HMO is “any individual or entity that undertakes to provide or arrange for
basic comprehensive health care services through an organized system that combines
the delivery and financing of health care on a prepaid basis to members.” NJAC 11:24-
1.2. While this definition is opaque, it seems that HMOs cover only in-network services,
referrals for out-of-network services, and emergency care whether in or out of network.
When an HMO contracts with a health care provider, the contract must contain
“[a] provision whereby the provider shall hold the covered person harmless for the cost
of any service or supply for which the carrier provides benefits, whether or not the
provider believes its compensation for the service or supply from the carrier (directly or
through a secondary contractor) is made in accordance with the reimbursement
provision of the provider agreement, or is otherwise inadequate.” NJAC 11:24-
15.2(b)(7). By virtue of this provision, providers in HMO networks are contractually
bound not to balance-bill patients.
Moreover, “[i]f the HMO refers a member out of network, the service or supply
shall be covered as an in-network service or supply, such that the HMO is fully
responsible for payment to the provider and the member is only responsible for any
applicable in-network level copay, coinsurance or deductible for the service or supply.”
NJAC 11:24-5.1. This provision makes the HMO liable for the cost of out-of-network
referrals but does not directly bind out-of-network providers.
Likewise, HMOs are required to cover “out-of-service area medical care when
medically necessary for urgent or emergency conditions where the member cannot
reasonably access in-network services,” NJAC 11:24-5.3(b)(3), but this provision does
not directly regulate the “out-of-service area” emergency providers.
Each of these provisions is reinforced by a regulation requiring HMOs to advise
members of their rights, including their right “[t]o be free from balance billing by
providers for medically necessary services that were authorized or covered by the HMO
except as permitted for copayments, coinsurance and deductibles by contract.” NJAC
Other Network-Based Plans
Regulations governing other network-based health plans also demand that
contract provisions prohibit balance-billing. Though the definitions of these other
network-based plans (recited below) are often abstruse, it seems that most of these
plans cover both in-network services and out-of-network services. Typically, out-of-
network services are covered at a lower level, with the patient responsible for more of
Organized delivery systems
An “organized delivery system” is “an entity with defined governance that
contracts with a carrier to provide or arrange for the provision of one or more types of
health care services to covered persons under a carrier’s health benefits plan(s), whether
under the base policy or a rider thereto, or that provides services that effect the delivery
of one or more types of health care services, the quality or quantity of one or more types
of health care services delivered, or the payment of benefits under a carrier’s health
benefits plan for one or more types of health care services received.” NJAC 11:24B-1.2.
When an organized delivery system enters into a “provider agreement for the
delivery of one or more health care services to a covered person,” NJAC 11:24B-5.1, the
provider agreement must contain “[a] provision prohibiting providers from billing or
otherwise pursuing payment from a carrier’s covered person for the costs of services or
supplies rendered in-network that are covered, or for which benefits are payable, under
the covered person’s health benefits plan, except for copayment, coinsurance or
deductible amounts set forth in the health benefits plan, regardless of whether the
provider agrees with the amount paid or to be paid, for the services or supplies
rendered.” NJAC 11:24B-5.2(a)(12). Thus providers that contract with organized
delivery systems are contractually bound not to balance-bill their patients for in-
“Health benefits plans” that use “selective contracting arrangements”
A “health benefits plan” is “a policy, contract or evidence of coverage delivered
or issued for delivery in this State that pays benefits and/or arranges for the provision
of covered healthcare services and supplies.” NJAC 11:4-37.2. The term seems to apply
to the contract between the insurer and the patient, the contract between the insurer and
the provider, or both.
A “selective contracting arrangement” is “an arrangement for the payment of
predetermined fees or reimbursement levels for covered services by the carrier to
network providers, HMOs,” and other “organized delivery systems” for providing
health care. NJAC 11:4-37.2.
“The health benefits plan utilizing a selective contracting arrangement shall
provide that covered persons shall not be financially liable for payments to network
providers for any sums, other than required co-payments, coinsurance or deductibles,
owed for covered services, if the carrier fails to pay for the covered services for any
reason.” NJAC 11:4-37.3(b)(1). It is unclear whether the resulting contractual obligation
to hold the enrollee harmless for in-network bill balances lies with the insurer, the
network provider, or both. No comparable regulation pertains to out-of-network
services, except that “[t]he health benefits plan shall provide that the cost sharing
applied to the covered person for emergency care shall be the same regardless of
whether the services were rendered by network or out-of-network providers.” NJAC
Incorporation into all health plans
The regulations implementing the Health Care Quality Act 14 incorporate these
protections into all health benefits plans 15 (not just those that use “selective contracting
arrangements”). NJAC 11:24A-4.15(b) (requiring compliance with NJAC 11:4-37 in all
“provider contracts”). Thus, it seems that virtually all insured patients have contractual
rights (at least as third-party beneficiaries) against balance-billing for in-network and
Contracts issued by virtually all network-based plans must contain clauses
prohibiting balance billing for hospitalization in a network hospital:
All contracts issued by health maintenance organizations and health service
corporations, and all SCA [selective contracting arrangement] policies issued by
insurance companies, shall provide the following:
1. That a covered person’s liability for services rendered during a hospitalization
in a network hospital, including, but not limited to, anesthesia and radiology, where the
admitting physician is a network provider and the covered person and/or provider has
complied with all required preauthorization or notice requirements, shall be limited to
the copayment, deductible and/or coinsurance applicable to network services; and
14 The Health Care Quality Act, N.J.S.A. 26:2S-1 to -25.
15NJAC 11:24A-1.2 sets forth broad definitions of “carrier” and “health benefits plan” with relatively few
2. That a covered person’s liability for services rendered during a hospitalization
in a network hospital, including, but not limited to, anesthesia and radiology, where the
admitting physician is an out-of-network provider, shall be limited to the copayment,
deductible and/or coinsurance applicable to network services.
Medicare and Medicare Supplemental Coverage
Federal law requires Medicare providers to file agreements with the Secretary of
Health and Human Services “not to charge . . . any individual or any other person for
items or services for which such individual is entitled to have payment made under this
title (or for which he would be so entitled if such provider of services had complied
with the procedural and other requirements under or pursuant to this or for which such
provider is paid pursuant to the provisions of section 1814(e)).” 42 USC §
1395cc(a)(1)(A). Likewise, federal Medicaid regulations demand that “[a] State plan
must provide that the Medicaid agency must limit participation in the Medicaid
program to providers who accept, as payment in full, the amounts paid by the agency
plus any deductible, coinsurance or copayment required by the plan to be paid by the
individual.” 42 CFR 447.15.
State regulations demand that standard Medicare supplement benefit plans
(which cover otherwise eligible patients for services beyond what Medicare covers)
include language stating that, when a patient is hospitalized, “[t]he provider shall
accept the carrier’s payment as payment in full and may not bill the insured for any
balance.” NJAC 11:4-23.8(c)(12)(iii), (13)(iii), (g)(3)(iii); see also Valley Hosp. v. Kroll,
368 N.J. Super. 601 (Law Div. 2003) (holding that regulations prohibited balance-billing
for services rendered under supplemental “Medigap” insurance after the exhaustion of
Medicare coverage for hospitalization).