Weekly Health Tech Reads | 1/5/2025

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PAYOR PROVIDER NEGOTIATIONS

Aetna sues Radiology Partners over billing shenanigans in Florida

Aetna filed a lawsuit in Florida against NEA-backed radiology provider Radiology Partners (RP), alleging that RP has implemented a fraudulent scheme that has inflated the cost of radiology services in Florida by tens of millions of dollars.

The case argues that RP affiliated with a number of radiology providers in Florida over the last several years in a complicated transaction structure that functioned like an acquisition but left the providers in control of their own practices. RP identified a provider with a particularly attractive in-network contract — Mori, Brooks, and Bean (MBB) — and began billing for claims for other providers under the MBB contract with Aetna. After several years, Aetna discovered it was overpaying providers by millions of dollars under its contract with MBB as opposed to the contract terms with the other practices, as MBB went from billing for ~50 providers in its practice to over 1,000 providers after affiliating with RP. Aetna subsequently terminated the contract with MBB, leaving the in-network contracts with other RP practices in place.

After Aetna terminated its MBB contract in 2022 leaving MBB as an out-of-network provider, RP began flooding a process created by the No Surprises Act (NSA) to resolve disputes between payors and providers over payment for out-of-network services. Aetna suggests that RP is abusing this process because the radiology providers at practices other than MBB still have in-network contracts with Aetna, and so those claims should be submitted via those in-network contracts.

Regardless of the legality of all these behaviors and whether Aetna ultimately collects any damages, it seems pretty clear from the case that RP is doing exactly what Aetna is alleging here in quietly acquiring providers and moving them to a more favorable contract.

Bob Herman of STAT provided nice coverage of the case as well here that is worth checking out. It’s a complicated topic and I think is worth spending some time with to understand.

Read the STAT News coverage
Read the Aetna lawsuit
Read the Radiology Partners’ statement
Read Ben White’s coverage of Radiology Partners (UHG lawsuit, RP’s 2024 financing, RP’s profit-sharing plan, etc)

✍️ Going Deeper

I have a number of different reactions and questions that rumble through my head when reading through a case like this one and thinking about the dispute between Aetna and RP:

1. Q: How much of RP’s growth is the result of a financial arbitrage play in payor and provider contract negotiations?
   A: A lot of it.
   Back in 2014, NEA published a blog post describing Radiology Partners as “a new image of healthcare,” working to transform radiology by partnering with a national network of radiology experts and applying a modern tech stack to streamline operations and improve care. Sounds like a pretty nice vision, right?

   Yet underneath that veneer of innovation, this lawsuit tells a different story of the RP strategy. It reads like a straightforward financial arbitrage play, taking advantage of different negotiated rates providers have with commercial payors in order to increase the profitability of the provider organizations. If you can “acquire” the best in-network provider contract in a market and then “acquire” other providers to move them to that contract, it seems like an obvious financial arbitrage opportunity for an investor.

   This isn’t just an isolated incident either, as RP has seemingly taken the same approach in other geographies. RP and UHC had a series of lawsuits in 2022 and 2023 focused on a similar scenario in Texas. When economic incentives are explained plainly like in these court cases, it becomes much clearer what is actually happening behind the scenes — RP was running a standard playbook to acquire providers and increase their profitability by billing for them at higher rates.

2. Q: What will the impact of the No Surprises Act be on healthcare costs?
   A: Increasing costs in the short term, who knows in the long term

   When I think about the impact of price transparency on healthcare costs, I assume that it should result in lower costs in the industry. At least in theory. Yet this case, combined with this analysis from earlier this year by Matthew Fielder and Loren Adler at Brookings Institute, very much suggests that the NSA will increase costs in practice.

   The Brookings Institute report found that the median NSA arbitration decision was 50% higher than the historical mean in-network commercial price. The Brookings Institute report notes it is one of four organizations that submitted a collective 74% of the cases submitted to the NSA arbitration process, which is consistent with Aetna’s legal case suggesting that RP flooded the NSA arbitration process with cases.

   Logically, the argument Aetna is making in the case seems to hold water — RP is choosing to submit these cases under its MBB out-of-network contract because that MBB contract had the highest rates with Aetna rather than seeking in-network reimbursement via contracts with worse rates. Again, it seems like a pretty straightforward economic decision for a for-profit investor to evaluate. The result is that costs go up, similar to the Brooking Institute report.

   It’s a really good example of how we potentially have a long road ahead before the idea of price transparency results in lower healthcare costs in this country.

3. Q: Does anyone actually “win” in these lawsuits?
   A: No

   It doesn’t seem like any of the parties in these lawsuits actually come out on top, regardless of the ultimate conclusion of the lawsuit. RP faces questions about the integrity about its business practices and whether it actually adds any value in the healthcare ecosystem. Aetna faces questions about its competence as an insurer given how long it takes to identify and take action on issues like this one. Even if Aetna wins in this case, RP’s response to Aetna indicates the challenge in suggesting this is a waste of healthcare resources.
   In the similar legal battle between UHC and RP, it took two-plus years for these types of arguments to play out before an arbitrator ultimately concluded that both parties violated an agreement they put in place almost thirty years ago. Therefore, neither party was entitled to damages. It seems that this is just part of a protracted PR battle between payors and providers, with each trying to gain negotiating leverage against the other.
   It’s hard to disagree with RP’s assertion in response to Aetna that this case is a waste of healthcare resources, although it seems a bit disingenuous on RP’s part to suggest it is just Aetna that is wasting healthcare resources here.
   

4. Q: How much should radiologists be paid and is there a role for private equity here?
   A: I don’t know.

   Underlying all of these conversations is a bigger question about how much providers should be paid for the services they provide. For example, the Aetna case highlights how a provider should have been paid $7.25 for doing a read of a chest x-ray under the TIN of the provider organization he worked for. RP instead billed for the read via the MBB TIN, resulting in Aetna paying $77 for the same service. Aetna claims that RP submitted >2,100 claims for this single provider under the MBB TIN, resulting in Aetna paying $380,000 in billed charges it should not have. I don’t know what a chest x-ray read should cost, but I am pretty sure that it shouldn’t have a 10x price variation for the same provider with the same payor simply because a provider submits the same claim via a different provider organization TIN.
   Aetna also gave examples of how it was paying claims via the NSA arbitration process at more than 450% of Medicare rates, which is consistent with the Brookings Institute finding that the median arbitration decision was 3.7x Medicare rates. It all goes to highlight the question of what is the “right” amount for radiologists to billing for a service like reading a chest xray. Payors seem to think Medicare rates are a reasonable baseline. Providers very much seem to disagree with that suggesting they are underpaid by Medicare. What do we do about that?

   In many ways, the core value proposition for models like RP is that they can help radiologists earn a better living by affiliating with RP, which can then negotiate better rates with payors on their behalf. That seems like a very reasonable idea in theory. That said, reporting from Ben White and others on some of the financial difficulties organizations like RP have faced over the last several years suggests that they may not be as supportive of providers as they seem in theory. This reporting on RP not paying out its profit-sharing commitments to providers is just one example of the complexity that exists in answering this question.

ICHRA

A new $100 million bet on the ICHRA market as Remodel Health raises capital from Oak HC/FT and others

The ICHRA market continues to show signs of quickly picking up momentum as we head into 2025 and more organizations pick up on the idea that ICHRA will be the “401k of health insurance”. Just before the holidays, Remodel Health announced $100 million in new growth funding from leading healthcare investor Oak HC/FT and Hercules Capital. Remodel appears to be focused on supporting brokers and agencies as a distribution strategy, seeing its business grow “11x YoY in broker-led ICHRA bookings.” Interestingly, Remodel appears to have an eye on the large employer market in ICHRA, with the press release noting that ICHRA adoption grew by 84% from 2023 to 2024 among large employers, with the overall ICHRA market expected to 10x in size by 2032.

This investment comes amid a flurry of activity in the market both from early-stage companies and investors, as well as public companies like Centene and Oscar, both of which have been beating the drum for ICHRA as a long-term growth opportunity for the businesses. It seems like a good bet that we will see more investors and companies look to place a bet on the growth of the ICHRA market as we enter 2025, even despite uncertainty about the regulatory environment under the new administration.

Read the Remodel Health press release

COST / QUALITY OF CARE

Gallup data highlights perceptions of the quality and cost of American healthcare, finding that ~70% of Americans think their own experience is good / exellent

Gallup’s annual Health and Healthcare poll, conducted between 11/6/24 and 11/20/24, includes several interesting charts exploring Americans’ perceptions of the quality and cost of American healthcare over the past twenty-four years.

It is fascinating to see the chart above suggesting that 65% of people think their healthcare coverage and 71% of people think that the quality of healthcare they receive is excellent or good. This is down slightly over the past twenty-four years, from 68% and 80% back in 2001. Yet those numbers are a lot higher than I would have expected, particularly given the state of public discourse over the last several weeks.
The chart below, also from the Gallup report, is more in line with what I’d expect:

I’m befuddled as to why there is this gulf between how people view their own healthcare quality and coverage experience and how they view the overall state of quality and coverage in this country. Suppose the data here are accurate that roughly 70% of Americans perceive the quality of care and coverage they receive as good to excellent. In that case, it seems like a markedly different conversation that needs to be had than the one currently careening wildly through social media and news outlets.

Read the Gallup findings

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