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Phia Group Media


The U&C Gap Keeps Rearing Its Ugly Head

By: Jon Jablon, Esq.

There’s no question that most health plans can’t remain viable without a stop-loss policy in place. The plan and stop-loss carrier share a common goal, which of course is cost-containment. Since the two types of coverage provided are so different, however, the brand of cost-containment that each uses is often vastly different – and when two companies are trying to contain costs on the same claims, things can get ugly if they say different things.

Many stop-loss carriers have antiquated notions of what should constitute U&C. Common definitions include the old “usual charge in the area” language or some variation thereof, but many carriers have taken their policies into the modern age and use multiples of Medicare for their allowable amounts. In theory, this makes sense; just like a plan needs to determine what amounts are reasonable for it to pay for claims, so does a stop-loss carrier. However, plans should consider that their carrier’s idea of what is reasonable may not align with their own.

Admittedly, this is not the first time we have brought up this topic of so-called “gaps” in U&C language between a plan and a stop-loss carrier. That’s because this issue continues to be relevant, and what’s worse, payors are often surprised by stop-loss denials when they didn’t think they had any reason to worry.

The best example is when the plan is subject to a PPO contract, which most still are. The plan is contractually bound to pay the network rate, and cannot limit its payment based on a percent of Medicare or other factors; instead, it must pay providers the established contractual network rate. The stop-loss policy, however, doesn’t reference the PPO rate, instead saying that it will pay the lesser of (a) 200% of Medicare or (b) the usual charge in the area. Again – no mention of the PPO rate.

As is generally the case, and as is the impetus for the reference-based pricing boom, PPO discounts or DRG rates are far higher than what is considered reasonable by most payors, and are almost always higher than 200% of Medicare. The fact remains, however, that a plan subject to an applicable PPO agreement may be bound to pay those network rates, however unreasonable they may be considered. The carrier is not subject to the PPO agreement, however, and is free to disregard its terms – hence capping its own allowable based on Medicare or other factors.

So, what happens? The plan pays the network rate – billed charges less a meager percentage, usually – and the carrier adjudicates the claim without regard to the terms of the network contract, and allows its claim at 200% of Medicare. That leaves a hefty gap between what the carrier will reimburse and what the plan has paid – and in some instances the carrier’s opinion of the plan’s allowable amount may not even rise to the level of the specific deductible, rendering the claim denied in full since it hasn’t met the attachment point.

If this has never happened to you, good – but The Phia Group is in a prime position to have seen these issues pop up over and over again. In fact, one group even sued The Phia Group because the group’s stop-loss carrier denied a claim for this exact reason! It could be funny if it weren’t so sad.

Moral of the story? As we so often implore… read your contracts. Make sure you understand what your carrier is going to pay, and not pay, and how that aligns with the allowances in the SPD. It might surprise you what you find.

Feel free to contact us at PGCReferral@phiagroup.com if you’d like some assistance.