Blue Promise: Are Rural Hospitals a Target for Pass-Through Billing?

Something called “pass-through billing” is driving up the cost of your health care. In this edition of Blue Promise, we describe pass-through billing, identify efforts to address the problem and share how you can make a difference. If you suspect fraudulent behavior, report it to our Fraud Hotline at 1-800-543-0867. Diane Carr, Manager of Network Management, Rick Haddock, VP of Network Management, and co-host Ross Blackstone, Director of Strategic Influence, join Dr. McCoy for this discussion. 

You can also listen to this discussion in podcast form on Apple Podcasts   and SoundCloud 

Blue Promise is a podcast and online video blog that aims to address complicated health issues with candid conversations from subject matter experts. New editions are published regularly and are hosted by Dr. Dan McCoy, President of Blue Cross and Blue Shield of Texas, and his co-host, Ross Blackstone, Director of Strategic Influence. 

Show Transcript

DAN:Health care management companies, venture capitalists, and third parties are targeting some struggling rural hospitals. They're using a scheme called pass-through billing to make hospitals more money but what does it mean for the price of healthcare? Thanks for joining us today for this edition of Blue Promise.

DAN:I'm Dr. Dan McCoy and I'm the President of Blue Cross and Blue Shield of Texas. I'm here with my cohost, Ross Blackstone. 

ROSS: Thank you Dr. McCoy and we have Rick Haddock and Diane Carr, they're both part of our network management team at Blue Cross and Blue Shield of Texas.  So guys it sounds like there are some businesses that are really exploiting hospitals and rural communities across Texas. What's this about?  What's happening?  What is pass-through billing?

DIANE:That's a great question Ross. So pass-through billing is when you have a hospital who's performing tests and the member has never set foot in that hospital, they may not even know of that hospital but their testing is being run through that hospital so they're a non-patient. What we call a non-patient.

DAN: So Diane, walk me through an example.

DIANE:Absolutely, so in some sense, your situation which you may see is a member in the Dallas area, will have the lab who performs a test but the actual billing is sent to a rural hospital in West Texas.

DAN:So if I'm.. if I'm the patient, right, and so I go to a lab in Dallas and I got my lab results back from my local doctor, would the bill say West Texas on it?

DIANE:Yes, in several instances there will be several hospitals referenced on the paperwork that the member will see.

RICK:And Dan that's a key identifier that the members need to pay attention to, is they need to look at the explanation of benefits and if they see that they had a service performed by a particular provider but then they get a bill from a different provider, it should raise a red flag because the member obviously knows that if the service was performed in Dallas that there's no way that the member actually was also in West Texas at the same time, getting that service performed.

DAN: Okay so I go to my doctor in Dallas and I get ordered a test.  I go to the lab, but getting my results my doctor gets results I get my care delivered and then a few weeks later I get a bill from West Texas and it's sent to my insurance company and it's covered under my benefits.  No offense but, why do I care?

DIANE: Well you care because we as a company, for our members, are paying more for that service and in turn that that cost gets passed down to our employer groups and down to the members themselves.

DAN:So this is a scheme. An organized scheme to generate higher costs for services that should be lower because of those negotiated rates in Dallas.

DIANE: Correct, so a contracted hospital, a great example would be a contracted hospital, has set rates. A contracted lab, freestanding lab has set rates so if I'm a member and my doctor is going to order testing for me my first question primary question should be, what tests are you ordering because we frequently also see extensive testing that may not be necessary, so that'd be my first question…  is, what tests are you ordering? Where are you sending me to? And can I go to someplace else? Because we can call, you can call the number on the back of a card, right and you can ask for a contracted lab.  If you put numbers to that those tests performed by a contracted lab.. freestanding.. for one year, would be about three hundred thousand dollars. The same tests run through one of our rural hospital contracts comes to over a million dollars.

DAN: Wow so almost three over three times more...

DIANE: Absolutely. overall cost.

DIANE: Right.

RICK: Dan, what we're seeing is that this type of billing practice, there's… there's a lot of entrepreneurs in the healthcare industry, most some of them work for good but there's also some that are out there that are for evil and so what ends up happening is as they look for revenue, enhancements, opportunities, what they're gonna do is target those entities that could benefit most from developing and deploying something similar to what what's happening under pass-through billing to where they can get revenue and it gets harder and harder for insurance companies unless you've got the capabilities like Blue Cross does to be able to identify these and put the appropriate processes and policies and procedures in place to try to mitigate it from happening in the future.

ROSS: Just to make sure I understand, it's the labs that are trying to optimize their revenue. Why do the hospitals even get involved?

DIANE: Well because of the hospitals are usually struggling financially so when they're approached by these companies, its pitched to them that this can help you stay open, this can help you remain in that community and by doing that, they kind of throw them a lifeline, right?  The hospital is you know is struggling. They have nothing to lose, so they engage in this situation where a cut of it will go to that marketing company and a cut will go to the hospital and a cut will go to the labs.

RICK: Yes, so Ross most of the time hospitals, they don't make their money on outpatient services like lab, that's usually a commoditized service that is a very small piece of their total revenue. What happens in these outlying markets where you don't have a lot of acute care admissions, where patients go to the hospital when they're really sick and they get admitted to the hospital, they utilize the outpatient services so these hospitals have figured out a way through these other third-party companies where they take these commoditized services that are much more expensive at a hospital than in a non- hospital setting and try to drive volume to allow that hospital to be able to bill for those services so that hospital can generate additional revenue that they otherwise wouldn't have.

ROSS:So, the hospitals have a bargaining chip because they had‚ they get a higher reimbursement rate than the lab. How much higher are we talking?

RICK: Almost four times.

ROSS: Four times more.

DAN: So basically that's four times increase the cost but in reality for no improvement in quality or anything.

DIANE: Correct.

DAN: In fact, it's just a sham bill.

DIANE: Absolutely‚ absolutely, because that member is never seen at that hospital. The member, you know, has probably never heard of that hospital.

DAN: Okay so back to my example. So, if that were to happen to me and let's say that I wanted to be a stalwart and I wanted to make sure that this didn't happen.  How would I tell? What's the indication to me as a patient that this scheme is going on?

DIANE: So, in some instances, what's happened is members have received those explanation of benefits and it stated that your testing was done at a hospital in West Texas and we've had them call our lines and say you know I don't know this hospital. I've never heard of them what happened here? That's someone who's really, really paying attention to their care and to their explanation of benefits and when they call us that's great because then that helps us address that situation because that's what we want to do. We want to keep the rural hospitals open but we want to do it appropriately and provide you know value-based care for our members.

DAN: Gotcha.

ROSS: I think if I could just to your question Dr. McCoy, we do have a fraud hotline that our members can call so I'd like to just share that number.  It's 1-800-543-0867…1-800-543-0867. We also have a section explaining this whole pass-through billing concept on the provider section of our website if people wanted to get more information.  So there are things that our members can do because ultimately it does affect them because you know they might get the bill..the care might be covered but at the end of the day, it's driving up everybody's costs.

RICK: Yeah and Ross one thing I did want to note too.  it's not unique to Blue Cross, we're not only seeing this in the state of Texas but it's happening nationally and in fact there was an expose that recently was aired on CBS News during primetime that talked exactly about this topic.  It talked about lab pass-through billing and the schemes that were occurring around the country.

DAN: So in reality it's not.. I'm gonna make sure we are clear that, we've used a term pass-through billing but it's not simply passing through billing, right? It's stacking on, additional cost on top of the bill. There's a reason why it's being passed-through and the only reason really is to generate bigger revenue.  Is this a new problem?

DIANE: No, absolutely not, this has been going on for years.  I think what's happening is as more rural hospitals are struggling and the marketing company is becoming more aggressive, I think that's how it's happening. They've become very savvy and in terms of looking at local news reports you know a lot of these rural hospitals will be in their local news about their situation. I think a lot of it is the hospital have nothing to lose when that person walks in the door and says hey I can make you a million dollars in a year, they seize on that.

DAN: Okay so I'm gonna kind of‚ I'm gonna stretch a little bit. So that you said lab and when most patients think of lab they think a blood test so it's a blood test. Is it limited to just that or pathology included?  And other kinds of expenses that might occur?

DIANE It's.. so for labs, it's generally… it can be blood draws, it can be urine screens, those types of items for labs.

RICK: But we're also seeing it spread to other service lines as well, Dan. We're seeing it where we've got some entities that are pass-through billing sleep services when they're not providing the sleep study themselves and so what we're trying, what we're starting to identify is that it started with lab but now it's starting to expand into other service lines as well and so at least at Blue Cross we've got a keen eye on making sure that we're watching all outpatient services and how facilities around the entire state, not just isolated to rural areas but how they're handling and billing for services and what we do is we look for spikes in billing patterns so that if all of a sudden you saw that you were paying a hospital over the last 12 months you were paying $500,000 for a particular service and then it spikes to 12 million dollars then that's obviously a red flag that lets you know that something's going on and it's not just an increase in the volume that's related to‚ isolated to the market that they're in that there's something else underlying that's pervasive that's occurring that we need to address and look into to.

DAN: Let's make clear, so that I think there's‚ what you're also saying is is that we're appropriately paying the provider that performs the service, that's okay right ?

DIANE: Our goal is to appropriately reimburse those providers and to kind of‚ this is completely's completely against our policies and procedures so our goal is to make it a less attractive situation for those providers.

DAN:Okay so Diane, let me ask you a question, Is this fraud?

DIANE: Well I think we have to look at that in a case-by-case basis in some instances absolutely,

ROSS: You mentioned case-by-case.  I have a graphic that I pull from some of the research that you guys sent us.  Dr. McCoy.. this, these red boxes are these businesses in these labs that are sending lab tests to all these blue hospitals and look at‚ I mean look it's a complicated web you know.  So Rick when you talk about finding spikes, it's not like… it's just you just go and find one there are things are interconnected.  It's hard to tell because there might be you know, sharing of services and sharing of expenses and this is really complicated.

RICK: It is and it started with hospitals but there again it's‚ I call it predatory in nature that these third party companies are also looking at other institutions beyond just your acute care rural hospital to try to have a very similar scheme for either the same or different services where that entity doesn't provide the service but they bill for it because it's just a way to maximize revenue.

DAN: Well Diane, Rick, I've learned a lot about pass-through billing and I've learned, what as consumers, what you need to be on the lookout for, so thanks for being here and thanks for joining us for this episode of Blue Promise.


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