Caveat doctor! Medical discount cards could burn you

They give cash patients a break, but they're sometimes mistaken for insurance. And discounts may stem from a PPO deal that's news to you.

By Robert Lowes
Midwest Editor

What on earth is this?"

Staffers at a three-doctor ob/gyn group in Kansas City, MO, reacted this way recently when a pregnant woman brandished her "medical discount card." The fine print stated that she was a cash-paying patient entitled to the same discount that the doctors had given to one of their preferred provider organizations.

In other words, she shouldn't pay the group's usual obstetrical fee of $2,400, but instead $1,600—33 percent less.

There's a good chance you'll encounter such cards soon, if you haven't already. A growing number of companies—invariably found on the Internet—advertise that by forking over $100 to $500 per year, cash-paying customers can receive discounts from participating doctors, hospitals, pharmacies, and other health care providers.

But the doctors at Myers, Fitch, Kalbac Women's Clinic had no idea that they were "participating doctors." They'd never heard of Care Entrée, the company that issued the card. And they were unaware that Private Healthcare Systems, a PPO, had rented its physician list and fee schedule to this discount outfit. Is that legal, they wondered? Are we now obligated to grant our PPO discount to Care Entrée's customers? What's going on here?

Somebody saw a way to make money, that's what. In theory, medical discount cards look like a godsend to millions of Americans who either lack health insurance or have high-deductible policies that make them essentially self-payers. They also appeal to employers who are too strapped or tight-fisted to provide full health coverage. Doctors stand to benefit too, the discount firms claim, because with most cards, the patient pays on the spot, circumventing the time and expense of billing. And doctors receive no less than what insurers would pay.

The reality of medical discount cards is more devilish. If you don't want to be caught off guard by them, this article's for you.

How discount card companies operate

Discount cards for health care cover the waterfront. ProCare HealthPlans in Boca Raton, FL, sells a card for $5.95 a month that gives an entire family price breaks on prescription drugs as well as vision and hearing care. For $15.95 per month, the customer gets all that plus discounts from physicians, dentists, and even lawyers. Care Entrée in Arlington, TX, charges $40 per month for a card offering similar benefits. Discount companies target their sales pitches at the uninsured, the underinsured, Medicare recipients, and individuals with medical savings accounts. They also market cards to businesses, which distribute them to employees as a benefit.

At least half the country's 606,000 physicians in patient care belong to national PPO networks used by medical discount companies. Waltham, MA-based Private Healthcare Systems, the PPO affiliated with Care Entrée, boasts 330,000 doctors. Beech Street Corp., an Irvine, CA-based PPO, claims roughly the same physician head count. And those are just two examples. The typical discount is 15 to 30 percent. Web sites for medical discount companies feature search engines that allow customers to find participating doctors in their area.

A discount card affiliated with a PPO may make it safer for doctors to lower prices for uninsured patients and stay in the good graces of other payers. Practitioners worry that if they charge an uninsured patient $100 for a procedure, but tell insurers their usual fee is $200, they could be accused of predatory pricing. An insurer might even base its own discounts on the $100 fee as opposed to the $200 figure. "But if the doctor's discount is specified by a PPO contract, he has more protection," says Michael LaPenna, a practice management consultant in Kentwood, MI.

Can your PPO give its fee schedule to discounters?

While all discount cards require cash payment for services, terms vary. For example, Plano, TX, discounter Randolph Healthcare has cardholders pay its PPO, which then pays providers. In this scenario, doctors may gain new patients, but they don't avoid billing and do miss out on immediate payment.

Most cards instruct cardholders to pay at the time of service. But that doesn't always mean cash on the barrelhead. What if a patient forgets to bring his checkbook or wallet? What if he ignores the bills you send him afterward?

For Robert Bonney, executive director of the physician-hospital organization at Saint Luke's Shawnee Mission Health System in Kansas City, KS, the fact that patients may not pay up is just one issue. The larger question: Is it cricket that a discount company can buy access to a PPO network and its fee schedule?

"Self-pay patients claiming a PPO discount represent a bigger risk than the doctor bargained for when he signed his PPO contract," says Bonney. "He's expecting an insurance company to pay him."

The transfer of a PPO fee schedule to a discount company—unbeknownst to network doctors—makes some people suspect that a "silent PPO" is at work. In the classic silent-PPO scenario, an insurer extracts a discount from a doctor that the latter never granted. Say a general surgeon repaired a hernia and billed an indemnity insurer his full-freight charge of $1,000. To trim that bill, the insurer retroactively strikes a deal with a PPO that the surgeon had joined in hopes of gaining more patients. His PPO contract sets the fee for hernia surgery at $500. The indemnity insurer cuts the doctor a check for that figure.

Such actions have put the PPO industry on the hot seat. Some health care providers, including at least one physician, have filed class-action suits against auto insurers and PPOs, charging that they illegally transferred discounts. According to the suits, a doctor who treated an auto-accident patient would receive less than expected from the auto insurance company, because the insurer contracted with the doctor's PPO to access its fee schedule. Beech Street Corp., which supplies a physician network to discounter Randolph Healthcare, pops up as a defendant in two suits.

Nicole Shepard, who oversees managed care for the Midwest region of VHA, a nonprofit hospital consortium, says discount cards represent the latest twist on silent PPOs. "Hospitals and doctors don't know they've signed up for these cards," says Shepard. "Discounts are being taken that weren't agreed to."

Marla Durben Hirsch, a Potomac, MD, attorney who edits a newsletter called "Managed Care Contracting & Reimbursement Advisor," says agreements between PPOs and discount companies may hold up in court, though. With their provider search engines, card companies arguably steer new patients to PPO doctors, which isn't the case in a true silent-PPO scam, says Hirsch. The fact that doctors don't know their PPOs are contracting with discounters shouldn't suggest illegality, either, she says. PPOs usually don't notify doctors when they contract with any new payer—much less ask permission to do so.

There's still the question of whether a PPO discount normally granted to payers such as health plans can be applied to self-pay patients. "It all depends on the definition of payer in the PPO contract," says Chicago health care attorney Doug Elden. Some definitions in older contracts are broad enough—or vague enough—to include patients. Elden says PPOs are rewriting their contracts to remove any doubt on this point.

Discounter Care Entrée is leaving itself some wiggle room. "If a doctor doesn't want to give our cardholders a discount, we'll remove him from the network," says John Luther, the company's vice president of sales. "But most doctors are happy to get the new business we provide."

States target deceptive practices

While discount companies trumpet themselves as good news for the uninsured, they've acquired a less-than-savory reputation with state governments.

"The card has a PPO logo, so the doctor's office processes it like an insurance card," says PHO executive Robert Bonney. "They bill the PPO, and a form comes back saying the patient is responsible for the entire amount." Accordingly, Arkansas, Georgia, Idaho, and Kansas have passed laws requiring discount cards to state in prominent type that the card doesn't constitute insurance. State pharmacy associations, which lobbied for the laws more than anyone, complain that the discounters refer customers to pharmacies that haven't agreed to accept their cards.

These laws also require the discounters to have separate contracts with the providers. In Kansas, the state's attorney general's office is mulling over whether a contract between a doctor and a PPO satisfies this provision. Kathy Greenlee, general counsel with the Kansas Insurance Department, believes a mere PPO contract may do the trick, if it states that the doctor has essentially given the PPO permission to grant discounts on his behalf.

State governments worry that some medical discounters entice the elderly with promises of huge savings, tap into their bank accounts through automatic withdrawals, then fail to give them their money's worth. The Iowa attorney general's office sued one card company in 1999, alleging that discounts were exaggerated or unavailable, and that when consumers wanted to quit, the company was slow to refund money. California and Washington have taken more drastic action: Discount companies can't operate in these states unless they're licensed as insurance companies, which requires them to meet certain financial standards. California regulators sent cease-and-desist letters to nearly 50 companies in late 1999, claiming that some misled consumers about the extent of discounts and the providers who'd grant them.

Two discount programs that offer no surprises

Amid these controversies, a small cadre of physicians enthusiastically promotes discount cards as a way to achieve health care justice. The doctors belong to two physician-founded programs, HealthAccess and SimpleCare, that have built provider networks from scratch without plugging into a PPO.

HealthAccess, created in 1995 by Fort Lauderdale radiologist Claudio Smuclovisky, offers discounts for prescription drugs, dentistry, chiropractic, and eye care nationwide, but price breaks on physician and hospital bills are now available only in southern Florida. The company has enlisted 800 Florida physicians.

"We tell them, 'If you discount your fees, our membership will visit you,' " says HealthAccess President Carlos Herrera. The company plans to create a nationwide physician network by marketing itself through medical societies.

So far, 25,000 Floridians are paying $100 a year to take advantage of physician and hospital discounts. Cardholders, says Herrera, range from the working poor to millionaires who can't get health coverage due to pre-existing conditions.

Physician discounts in HealthAccess exceed 20 percent and sometimes go as high as 80 percent, says Herrera. HealthAccess collects an administrative fee from patients—$5 for an office visit, or $2,500 for an open-heart surgery that might involve $25,000 in physician and hospital bills and require intense case management. Patients pay HealthAccess before they're treated, and the company pays providers. If surgery or hospitalization is envisioned, the estimated fee is considered a deposit, and HealthAccess charges the patient for any unforeseen services.

HealthAccess garners high praise from Fort Lauderdale gastroenterologist Stephen Sackel, who continually refers self-pay patients to the program, especially when they're facing major surgery. "This is a win-win situation for doctors and patients," says Sackel. "I receive almost as much as I would from Medicare."

The other doctor-sponsored discounter, SimpleCare, is a program of the Renton, WA-based American Association of Patients and Providers. To participate, patients must join AAPP—at $20 per individual or $35 per family per year. Physicians pay annual dues of $50. So far, 11,000 patients and 600 doctors have signed up.

FP Vern Cherewatenko, founder and CEO of AAPP, says SimpleCare doctors are free to set their own fees, but SimpleCare suggests they charge for office visits depending on their length. In Cherewatenko's practice, a short visit runs $35; a medium visit, $65; and a long visit, $95.

Cherewatenko says doctors can lower their usual fees by 30 to 50 percent for SimpleCare patients and still earn more than if they were billing an insurer. "My normal fee for a 15-minute office visit—CPT code 99213—is $79, but Blue Shield pays me only $43," he says. "When I subtract overhead and the cost of billing, I actually lose $7. But when I charge a SimpleCare patient $35 for the same visit, I turn a profit, because my costs are lower."

Patients and businesses benefit, too, he says. "Major-medical covers catastrophes and patients take care of the small stuff through SimpleCare," Cherewatenko notes. "This combination is a real option for businesses that otherwise can't afford to offer their employees regular health insurance."

How to play your hand when a patient deals you a medical discount card

Here's how to make sure your patients use discount cards properly:

• Post a sign asking them to state whether they intend to use a discount card.

• Carefully read any benefit card presented by patients, looking for statements such as "This is not an insurance program," or "Collect the network fee from patient at time of service."

• If a discount card lists the affiliated PPO, make sure you still belong to it. Verify that it has contracted with the discounter.

• If you decide to accept the card, collect your fee during the visit. Most discount cards require immediate payment, so stress to patients that they could lose their discount if they pay later.

• If you object to honoring the cards but they keep turning up, consult a health care attorney to determine whether your PPO contract allows the PPO to transfer its fee schedule to a discounter. Also, ask your state insurance department whether it's legal to sell the card where you live.

• If the card is legal, if the PPO contract is binding, and if you still don't wish to reduce your fee, tell the discount company you want to drop out of its program. Some discounters may exempt you for the sake of good public relations.

 

Robert Lowes. Caveat doctor! Medical discount cards could burn you. Medical Economics 2001;4:120.