This articles is one in a continuing series about medical billing for patient balances.


Can you balance bill for more than the contracted rate?

Can a healthcare provider bill for more than the agreed upon contracted rate with an insurance company?  Let’s say for example there is flat rate with an HMO and the provider wants to collect something from the patient.  A provider cannot bill the patient for any amount that exceeds the total contracted amount.  This means a physician can only bill a patient for the difference between the insurance payment and the contracted rate.  If the full contracted rate is received from the insurance company, nothing may be billed to the patient.  Or if there is an automobile accident claim or workers compensation claim coincident, the hospital for example can still not go after additional funds.  This has been held with numerous cases including:

  • Watts v. Promina Gwinnett Hospital System
  • Satsky v. United States of America
  • Dorr v. Sacred Heart Hospital
  • Nahom v. Scottsdale Memorial Hospital


Must you balance billing full for contracted commercial claims?

There are so many state laws governing medical billing, that it would be nearly impossible to list all of them here and discuss their impact.  Most of these laws relate only to HMOs, e.g. Tex. Ins. Code § 843.361, or billing out of network.  Additional complexity comes if the doctor or facility is located in one state and the patient resides in another.  There is little dispute that providers are entitled to balance bill patients for the full contracted amount, since this is stated in the payer contracts.


“Case Law” are rulings that become de facto laws by virtue of having a legal precedent set by a legal case being adjudicated and usually upheld at appeal.  It has been upheld via case law in Smilecare Dental Group v. Delta Dental Plan of California, among others.  Specifically it ruled that a dentist who waived a patient’s copayment without accurately reflecting the waiver on the insurance claim, violated statutory provisions prohibiting insurance fraud and unfair competition.


It may in some circumstances be legal to routinely waive patient balances if your state does not forbid it and the contract you have with the insurance company does not require collection of these balances.  How do you know if it is in contract?  You have to read it in detail and consult your attorney.


Even if it is legal in your state and your payer contract does not require it, the market norm in medical billing is for everyone to collect balances due under contract, so you are unlikely to gain competitive advantage by not going after patients for this.  And you would lose the revenue from those patient payments.  We have never had a client NOT go after patients for their balances when they are contracted.


If you are really interested in this topic, there are other agencies that also regulate these, including State Departments of Insurance, Departments of Managed Healthcare, and State Attorneys General.  For example, the California AG in 1981 said that the routine waiver of copays was legal.  Since there was no statute preventing this and no case law, this was effectively the law of the land until a case proved otherwise (see above).


Out of network?

Here is where it gets fascinating.  There are many opposing forces in medical billing when it comes to OoN billing for patient balances.  The patients and many lawmakers seem to be interested in protecting patients and have passed or considered a great many laws designed to prevent balance billing when providers are out of network.  Payers have tried to force providers to balance bill in full.  Providers sometimes want to balance bill in full and sometimes want to write off the entire balance.  Why so many opposing directions?


Let’s back up.  What is “balance billing”, why does balance billing exist, and why are balances written off proactively by providers sometimes and not at other times?


An explanation of balance billing

Defining a few times will help:

“Fee Schedule” is the provider’s total charge for a particular procedure code.

“Allowed Amount” is the price that the payer will pay, which should be but is not always the Usual and Customer Rate (UCR).

“Usual and Customary Rate” is supposed to be the average rate charged by physicians of a similar specialty in the same geography for a particular service.  UCR is not regulated well, therefore it has morphed over time and become many different things because it is internally calculated and analyzed by insurance companies, who have a vested interest in manipulating this figure.

“Insurance Payment” is the amount that is paid by the insurance company after subtracting the patient responsible portion.


When medical billing is done for an out of network healthcare provider, the Fee Schedule is submitted to the payer.  The payer determines it Allowed Rate and sends that back with the ERA/EOB.  The payer then pays the Allowed Rate minus the patient responsible portion – any deductible, coinsurance, and copay.

The difference between the ‘Insurance Payment’ and the ‘Fee Schedule’ is the “Patient Balance”.

An example may help to illustrate this:


Fee Schedule                                     $3,000

Allowed Amount                              $1,500

Unmet Deductible                           $500

Coinsurance (40%)                          $600

Copay                                                   $0

Insurance Payment                         $400

Patient Balance                                 $2,600


Why Some Providers Are Out of Network

Some providers would like nothing better than to contract and are not permitted to do so by an insurance company.  Many payers prevent providers from being able to contract because their goal is to reduce utilization of services by patients and one of their strategies for doing this is to reduce the number of providers available.  Most physicians who are GPs, family practice, and other providers that have patients come directly to them seek to be contracted because most patients will only go to a in network provider.


Some providers choose to be out of network because they believe it will improve their revenue.  There are two reasons this might be the case, improving revenue from payers and revenue from patients.  In theory a doctor should receive higher average reimbursement billing OoN.  The reason is this.  If the average rate for services in a particular geography is X, then payers offer a discounted rate in exchange for contracting and getting higher volume, e.g. 70% of X.  Therefore, OoN you would receive lower volume of patients but a higher reimbursement per patient and in network a higher volume of patients at a lower rate.  (In a subsequent article we will discuss how this has been playing out for the last several years as the battle between providers and payers has escalated.)  One can in theory then also bill the patient for the balance that was not paid by the payer, which can be much higher than if it is in network.


The question of whether to contract then primarily comes down to whether the trade off of lower rate of reimbursement is worth the higher volume of patients for being in network.


Why providers sometimes balance bill and other times don’t

The major determinant of whether a healthcare provider wants to balance bill in full or write off balances is referrals.  Healthcare providers, like any other business, are looking to maximize (compliant) revenue.  There are two competing forces in maximizing revenue when it comes to balance billing patients.  Charging the patient and collecting as much as possible of the balance owed by a patient obviously increases revenue per claim.  An offsetting force against revenue, however, is the downward pressure on referrals based on balance billing.


If a patient receives services from a non-contracted provider to whom they were referred, and they receive an exorbitant bill from them, they are likely to complain to the referring provider and the source of referrals may dry up.  Therefore, most referral-based providers cannot balance bill large sums to patients on a regular basis, or they risk losing their flow of patients.


Facility based providers like Emergency Room physicians are the classic case of where referrals don’t matter.  An ER doc is going to see the same number of patients regardless of whether they are contracted or OoN because EMTALA require that they see the patient regardless of insurance or ability to pay.  Therefore, dropping contracts in order to make more money make financial sense.  Balance billing the patient in full also made financial sense on a per patient revenue basis.  And since there was no risk that referrals would dry up, patients started getting large bills on a regular basis from many providers.  Other healthcare providers that are not dependent on referrals where a patient could opt for another in-network provider include anesthesiology billing, radiology billing, pathology billing, hospitalist billing, and a few other specialties.  These physicians determined that they would also benefit financially from going out of network and balance billing patients.


Some providers who cannot get contracted like some laboratories or imaging centers, are completely dependent upon referrals and therefore cannot balance bill patients for risk that they will complain to the referrals source.  These providers often write off the entire balance proactively where legally allowed or treat the patients as if they are “in-network” and bill a very reasonable patient statement that would be similar to what the patient paid if they had gone to a contracted provider.


The rise of large balance billing by some providers and increasing rates of bankruptcy as a result of healthcare bills is what has led to the increase in laws protecting patients.  At the opposite end, the writing off of balances has led payers to try and get statutory laws set to require providers to bill patients the full balance of their bill, or failing that, they have sought course cases in order to create case law to support their position.


The state laws, court cases, and other topics concerning patient balance billing will be discussed in subsequent articles.


A top medical billing company should be knowledgeable on the things that impact on clients’ financials.  Apache is sharing this information in order to help maximize compliant revenue.  Apache Health does not offer legal advice and we encourage you to work with your healthcare attorney in order to ensure that you are legally compliant and fully understand all of the legal implications.  If you do not have a good healthcare attorney that is knowledgeable in this arena, we can recommend one to you.


About Apache Health

Apache Health is a revenue cycle management (RCM) analytics, benchmarking, and auditing company. The founders of Apache formerly ran a large RCM company that was acquired by a private equity group in a rollup. Apache’s predictive analytics will benchmark billing performance and project exactly how much more revenue you should earn from your existing volume of patients.  Using many factors and a blend of artificial intelligence and specialty specific benchmarks, the model projects whether changing the billing process would improve collections for your particular mix of procedures and payers. Apache Health can help you evaluate whether to outsource the billing, determine which billing company to select to maximize performance, or track inhouse billing performance improvement over time. For more information contact:

Sean McSweeney

Apache Health


Legal disclaimer: Apache Health is engaged in the business of healthcare revenue cycle management analytics.  We offer information about regulations, rules, and industry practices relating to compliance.  Apache has researched that subject and has set forth the results of that research herein.  Apache Health is not a law firm and we do not offer legal advice.  Apache does not guarantee the completeness nor the accuracy of its research.  You should consult with your qualified healthcare attorney.