Definition of Allowable Amount

Facts of Class Rep                              CalPERS and Anthem’s Standardized Representations

Definition of Allowable Amount              Fairhealth.org

  1. Definition of Allowable Amount

The “Allowable Amount” is defined in the Evidence of Coverage for each year. See Exhibits 14, 23, 24-26, 28, 41-45, 54.

The “Allowable Amount” definition granted Anthem the right to set the “Allowable Amount” at the lesser of the Billed Charge ($420 in Dr. Walker’s case) or the amount defined in one of three subparts:

  1. The amount appropriate in the geographic area based on evaluation of the market considerations (this should be similar to Dr. Walker’s contract rate of $299.72);
  2. The amount that Anthem agreed to accept as payment (Dr. Walker’s contract rate was $299.72);
  3. If not determined in either (1) or (2) the amount that Anthem determines is appropriate considering the circumstance and services rendered.

The first two of the three subparts of the “Allowable Amount” definition are consistent with a reasonable reimbursement rate (i.e. $299.72). The third has an appropriateness standard that should be consistent with the first two subparts.

More specifically, the definition of “Allowable Amount” in the EOC for the PERSCare Basic Plan Preferred Provider Organization effective January 01, 2008 – December 31, 2008 (Exhibit 24) is

“1. the amount that Blue Cross of California or the local Blue Cross and/or Blue Shield Plan has determined is an appropriate payment for the service(s) rendered in the provider’s geographic area, based on such factors as the Plan’s evaluation of the value of the service(s) relative to the value of other services, market considerations, and provider charge patterns; or

“2. such other amount as the Preferred Provider and Anthem Blue Cross or the local Blue Cross and/or Blue Shield Plan have agreed will be accepted as payment for the service(s) rendered; or

“3. if an amount is not determined as described in either (1) or (2) above, the amount that Blue Cross of California or the local Blue Cross and/or Blue Shield Plan determines is appropriate considering the particular circumstances and the services rendered.”

Under these terms, the “Allowable Amount” should have been calculated the reasonable and appropriate rate available under one of the three subparts of the definition:

  1. In the amount of the prior agreed-upon fee by Dr. Walker when in-network ($299.57) under subsection (b) of the definition, or
  2. Otherwise related to the value of other services, market considerations, and provider charge patterns under subsection (a) (which should be consistent with the $299.57 agreed upon fee by Dr. Walker when in network), or
  3. An appropriate and reasonable amount considering the particular services rendered under subsection (c) of the definition (which should also be consistent with the agreed upon fee by Dr. Walker when in network or the UCR rate).

Each of these subparts should provide a similar or identical “Allowable Amount.” The appropriateness standard in the third part should result in an “Allowable Amount” that is consistent with the first two subparts. Exhibits 24-26, 28, 41-45, 61.

There is no disclosure that the third subpart of the definition would provide a significantly reduced calculation of the “Allowable Amount.” Exhibits 3-55, 59-60.

Although 28 CCR §1300.711(a)(3)(C) holds the amount set forth in the enrollees’ Evidence of Coverage controls reimbursement for out-of-network non-emergency services, that only applies to clear and patent terms that are consistent with the other terms. CalPERS and Anthem should not be allowed to focus solely on the third subpart of the “Allowable Amount” definition in the EOC and ignore the other terms and examples in the EOC that require identical or higher reimbursement. CalPERS and Anthem fail to harmonize and give effect to all of the terms in the EOC when they say that the third subpart is the only relevant part and it allows Anthem complete discretion to determine an “Allowable Amount” as Anthem sees fit.

The Orthopedics Specialist case (a quantum meruit case expressly not based in contract) is not applicable. Its dicta, that the terms in the EOC contract control even if the terms are not fair (or unclear), is not on point or controlling.

CalPERS and Anthem cannot string together a series of technicalities that purportedly allow CalPERS and Anthem to provide greatly reduced reimbursements irrespective of other terms requiring a higher reimbursement consistent with UCR and industry standards.

The examples and other terms in the EOC represent that the “Allowable Amounts” will be identical for medical services whether in plan or out of plan, and those terms and examples must also be given effect, even under 28 CCR §1300.71. The “Allowable Amount” definition must be construed consistently with the other two subparts of the “Allowable Amount” definition such that the reimbursement should be based in contracted rates or the appropriate UCR rates.

The third subpart is so vague and ambiguous without standards as to be not a recognizable or defined term in the EOC under 28 CCR §1300.71, including as it is inconsistent with other express patent terms and examples, and without standards. 2 CCR §510.598 regulations require that CalPERS reimburse for the majority of the usual, customary, and reasonable rates.

In the third subpart of the “Allowable Amount” definition, to the extent that Anthem can unilaterally determine an “appropriate” standard, the language and placement is so vague, unilateral, and self-serving without any benchmarking that it fails to provide standards for performance and renders the EOC an illusory contract. Exhibits 24-26, 28, 41-45 and 46 -53. The third subpart does not itself provide any terms under 28 CCR §1300.71 because unfettered discretion is not a term.

The “Allowable Amount” must be reasonable, including related to the value of service considering market conditions, the prior contract rates, etc. To save the contract from being void for vagueness, a judge would need to excise this third subpart, deem “appropriate” to signify the “appropriate UCR” rate, or at a minimum impose some objective standards that the “Allowable Amounts” must be reasonable and consistent with the two other subparts.

Neither the language nor the placement of the appropriateness language in the third subpart allows Anthem or CalPERS unfettered discretion to calculate the “Allowable Amount” at a fraction of a (1) contract rate; (2) the agreed rate, (3) the UCR rate, or (4) other prevailing industry standards. Exhibits 1-61.

“Appropriate” Requires Benchmarks

Indeed, a reimbursement rate that is not based on value of the service relative to the value of other services, market considerations, and provider charge patterns, the agreed upon rate, and other usual, customary, and reasonable rates could not be “appropriate.”

Stated differently, to be “appropriate,” CalPERS would have to require Anthem to use adequate “usual, customary, and reasonable” (UCR) reimbursement rates. Instead, CalPERS acquiesced in Anthem’s use of “inappropriate” and unreasonably low “Allowable Amounts” and thereby provided “inappropriate” unreasonably low reimbursement rates. The “inappropriate” arbitrary rates caused Heinz and other members to pay more than the plan document allow.

CalPERS’ and Anthem’s Failure to Use Appropriate Benchmarks. To satisfy the “appropriate” language in the CalPERS and Anthem “Allowable Amount” definition, CalPERS and/or Anthem must use reasonable industry standards for each of the subparts in the definition, including, as the adhesion contract must be construed reasonably and in favor of the non-drafting beneficiary.

Instead of using appropriate standards, and indeed failing to provide any standards, Anthem and CalPERS instead used an arbitrary and capricious “Allowable Amount” that was purportedly calculated by some proprietary software of unknown origin.[1] Although requested, no evidence was provided to support the calculation.[2]

CalPERS simply accepted the “Allowable Amount” as purportedly determined by Anthem’s computers. Exhibit 1, Final Decision.

As calculated by CalPERS and Anthem, the “Allowable Amount” is inconsistent with the EOC, inconsistent with the actual reasonable charges by providers in the area, and contrary to law.

There is no notice that Anthem and CalPERS do not consider themselves bound by reasonableness or consistency when applying the “appropriate” standard.

  [1] It is unclear if the software was proprietary to Anthem or was a database created by Ingenix or another provider. It is odd that the software would reduce the “Allowable Amount” so much (from $128.41 down to $76.91) in such a short period.

  [2] Anthem represented that it reviewed the other rates for similarly situated doctors in the locality, but no evidence supported Anthem’s claim that it took any independent review.