Billing out-of-network can be extremely complex, especially with respect to patient balance billing.  Apache Health often gets questions from providers on whether they can balance bill patients in full or waive patient balances.

As part of our ongoing series that provides information on the rules, regulations, and laws surrounding patient balance billing, following is information about patient balance billing case law or lawsuits.

Why should you care? For the simple reason that, not only is  out‑of‑network (OoN) balance billing a contentious issue that affects all stakeholders in the health care industry, it may also have legal implications for your facility if it’s not done right.

Patient Balance Billing

In some of our previous posts, we covered both out-of-network billing and patient balance billing in depth. To briefly recap, OoN balance billing refers to the practice whereby out-of-network providers, not bound by contractual, in-network rate agreements, have the ability to bill patients for the difference between the provider’s fee schedule and what the insurance company paid.

Balance billing exists for two main reasons; first, insurers are constantly narrowing networks and keeping out providers who would like to contract and be in network. As a result, there are fewer numbers of in-network providers available to patients. The ultimate goal of this strategy it seems, is to reduce the number of providers available and thus reduce utilization of their services, which of course translates into less money paid out in claims. When providers cannot get in network, they must bill OoN and insurance companies rarely if ever pay the full fee schedule of for example the ambulatory surgery center billing, which means there is a balance left over that is legally owed by the patient.

The second reason is insurers have been reducing the rates at which in-network providers are reimbursed. They claim that this it is necessary to keep costs under control, although most providers realize this is simply meant to increase their profits. As a result of these reductions, many service providers have been forced to drop contracts in order to stem the losses from low reimbursement rates.  As a result, rate reductions more out-of-network ASC billing, diagnostic imaging billing, and even ER billing, as providers struggle to maintain revenues.

A Medical Billing Company’s Role

Collectively, these factors mean that physicians, hospitals, and other health care service providers like laboratories, radiology diagnostic imaging centers, and ambulatory surgery centers remain out of network and are reimbursed at significantly less than their billed rates.  A top medical billing company will assist your practice or facility and have an appropriate strategy to ensure that your revenues are strong. And that strategy should be compliant when it comes to patient balance billing.

Regulatory Efforts

Although this article is about case law and more information is available in our other articles about statutory law, it is worth a brief note on recent regulatory effects to stop balance billing.  There have been many recent laws passed to prevent so-called ‘surprise medical billing.’ Some states have banned it, while others have enacted mediation and independent review processes. At least 24 states have laws that protect consumers from out-of-network ER billing, and more states are proposing independent dispute resolution initiatives to enable providers and insurers to settle balance billing disputes without involving the patient. In a few rare cases, regulators have directly resorted to litigation, such as the California case in which a physician was sentenced to five days in jail and ordered to $562,500 for balance billing emergency patients.

Indications are that more states will introduce new regulatory measures to prevent out-of-network ancillary physicians who perform services at an in-network facilities by in-network physicians. Does your medical billing company keep track of these developments? It should. That’s the only way it can help you stay compliant, so you don’t run foul of regulations.


However, since we are not aware of any recent regulations or laws designed to prevent providers from WAIVING patient balances in part or in full, insurance companies have sought to make this practice illegal by suing and establishing case law.  Remember that insurance companies do not want providers to be able to waive balances, because of their concern over increased utilization of healthcare services.  Therefore, they want to make it effectively illegal to waive balances.

The cases are being watched closely as they unfold, because this issue interests all actors in the medical field, including those that provide medical billing services.

The main argument advanced by insurance companies like Aetna and CIGNA is that providers are committing fraud by billing high fees without the intention of collecting the total amount due from the patient. Providers, on the other hand, have argued that this is not fraud, is not illegal under state statutes, and that insurance companies are routinely and egregiously underpaying their claims.

Payer Lawsuits

Aetna has been the leading litigant when it comes to these out-of-network balance billing cases, pursuing its cases with a tenacity that demonstrates an intention to set a precedent through case law. It has sued several out‑of‑network providers in numerous states, and recently won a significant case against an out‑of‑network provider. In that case, Aetna v Humble Surgical Center, the court found that Humble Surgical Hospital employed a fraudulent scheme in which it gave kickbacks to physicians as inducement to refer patients to its facility, an out-of-network provider. Humble also waived or significantly discounted patients’ financial obligations and then submitted grossly inflated claims to Aetna. In awarding a $41.4 million judgment to Aetna, the judge issued a scathing rebuke of Humble, describing it as being “filthy up to the elbows from lies and corrupt bargains.” The Humble lawsuit was an extreme case of medical billing, however, so we should exercise caution in extrapolating the decision to other cases involving out-of-network balance billing. The case is being appealed.

Interestingly, CIGNA, another insurer, had sued Humble in 2016 over similar issues, alleging that Humble’s fee-forgiving practice towards patients caused CIGNA to pay more than its required share. CIGNA received a crushing defeat, and the judge awarded $13.1 million to Humble for CIGNA’s “failure to pay benefits to covered patients” agreeing that CIGNA “abused its discretion by obstinately denying provider’s claims.”

It is worth noting the significance here.  The exact same ambulatory surgery center billing practices were deemed to be fraud by one judge and the insurance company billing was deemed excessive and a large judgment was aware to one insurer, while another judge in another case found the exact opposite for the same ASC billing and not only negated the claim by the insurance company, but actually awarded damages to the ambulatory surgery center for underpayments by the insurance company!

In another successful claim for Aetna, the insurer sued Bay Area Surgical Management (BASM) for $37.4 million. The facts of that case are similar to the Humble case, and Aetna alleged fraud, interference with contractual relations between Aetna and its members and in-network providers, as well as providing financial incentives to physicians for referring their patients to out‑of-network facilities. BASM indicated that it will appeal that judgment, and in doing so, raised some rather interesting points regarding the rights of each party in the whole out‑of‑network billing issue. BASM asserts that Aetna members have the option to go out of network if they choose, and that the higher fees billed to Aetna was simply a consequence of the fact that Aetna failed to do its due diligence and negotiate prices that were lower than  what BASM typically bills for surgeries. This is a rather intriguing argument for all involved in the medical sphere, including medical billing services providers and it would be interesting to see what the courts make of that.

Aetna has also received some notable defeats. In a suit filed against a physician for what Aetna termed “excessive fees” by an out‑of‑network physician, the jury found for the physician, awarding him approximately $2 million dollars. The court held that the physician “is an out-of-network provider who may, within the bounds of ethics, charge a rate he believes is commensurate with the quality of his service.” Prior to that, Aetna had been issued a $9.475 million fine by a New Jersey regulatory body for refusing to appropriately cover certain services provided by out-of-network health care providers – including emergency treatment – in violation of New Jersey rules and regulations.

Provider Lawsuits

Providers are also litigating, and the ongoing case of North Cypress Medical Center Operating Company, Limited v. CIGNA is one such example. North Cypress alleged over $40 million in damages when CIGNA underpaid it for usual, customary and reasonable denials under the Employee Retirement Income Security Act of 1974 (ERISA).  CIGNA counterclaimed and alleged North Cypress defrauded CIGNA as part of an ongoing fee forgiveness scheme, because North Cypress waived certain payments for out-of-network patients.  The District court initially granted summary judgment to CIGNA on North Cypress’s ERISA and breach of contract claims, but the Court of Appeals for the Fifth Circuit ruled against CIGNA and vacated the grants of summary judgment with regard to those claims and remanded the case to the lower court for further proceedings.

In West Florida Regional Medical Center, Inc. et al., v. Aetna Life Insurance Company, a group of hospitals, managed by HCA Health, submitted claims to Aetna for patients treated in emergency rooms.  Florida emergency departments (EDs) are bound by the federal law, Emergency Medical Treatment and Active Labor Act (EMTALA), as well as similar state laws requiring the emergency departments treat any patient who arrives with an emergency condition regardless of the individual’s ability to pay or his/her insurance coverage.

According to the complaint, Aetna reimbursed at “a greatly reduced rate that does not reflect the fair value of the services that the Hospitals provided.”  The hospitals allege they billed Aetna more than $21 million in services provided to patients covered by Aetna, but Aetna reimbursed less than $3.6 million.  The hospitals sued to recover $16.4 million. This case has not contributed much clarity to the issue of out‑of‑network balance billing however, as West Florida voluntarily dismissed the lawsuit soon after the case was moved to Federal court.

Other providers, like Prime Healthcare are suing multiple insurers, alleging that they grosly underpay claims, and the provider-insurer relationship is so onerous and one-sided that Prime has been forced to become an out-of-network provider. It accuses insurers of drastically underpaying by using “flawed methodologies” to determine usual, customary and reasonable rates. That, Prime argues, forces the hospitals to balance bill patients for the remaining amounts that are due.


We can expect out‑of‑network balance billing to continue to be litigated over the coming years, and states to take a stronger stance through legislation.  Stay on top of ongoing developments and modify your policies as needed.

Top medical billing companies offer services that help you navigate tricky areas like any compliance issues you may encounter, especially with out-of-network medical billing.  You should consult your healthcare attorneys, or let us know if you would like a reference to a good healthcare law firm that can assist you with finding, interpreting, and implementing compliance within your business.

Want to keep your lab ahead of the curve and well informed to increase profitability? Subscribe to The Apache Health Blog! 

Subscribe to the Apache Health Blog

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.