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Does Pay-to-patient Cost California $100m Per Year In Lost Tax Revenues?

Does Pay-to-patient Cost California $100m Per Year In Lost Tax Revenues?

Wednesday, April 19, 2017 Author: Joan Borsten Categories: Legal and Regulatory challenges
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In the past 6 years, to balance the State budget, California has slashed spending for social services, health, education, state parks, state worker compensation, as well as prison and court programs. Additional tax revenues would have made a difference.

Stampp Corbin, President of the Addiction Treatment Advocacy Coalition (“ATAC”), is known for his ability to crunch numbers. An in-depth analysis by Corbin reveals that at least $100 million a year in tax revenues has been lost to California since 2011 because health plans adopted a new national “pay-to- patient” policy for out-of- network providers. (Corbin estimates the annual federal tax revenue loss to be $1.56 billion).

From North to South, East to West, health plans including Anthem, stopped accepting Assignment of Benefit Forms and began sending payments due out-of-network providers directly to the patients, even though the patient has not pre-paid for treatment. Our elected officials closed their eyes to the pay-to- patient impact, insisting that health insurance payments to patients are “health care benefits,” just like “auto insurance benefits” issued to repair or replace a damaged vehicle, are non-taxable. That argument might make sense if the check was written in the names of both the provider and the patient indicating there is a lien on the funds.

In fact, “pay-to- patient” negatively impacted virtually every out-of- network provider in the U.S., not just addiction treatment facilities and professionals, but also dentists, chiropractors and facilities that provide radiology services.

The patients pay no taxes on the payments they receive. The providers write off the claims as bad debt lowering their annual tax burden. The health plan’s decision to send payments directly to patients creates a tax loss for California and the IRS.

Over 25 states are also left holding the bag for the health plan’s action. The others have passed laws that do not allow checks being sent directly to patients.

I have personally been documenting the negative impact pay-to- patient has had on those suffering from Substance Use Disorder since 2012. Click here to see the 2013 article I wrote for RecoveryView.

When a health plan sends a $30,000 check to a recovering heroin patient addict who just completed detox and residential treatment, the patient may use the windfall to relapse, overdose, die, or fund other side addictions like gambling, shopping or lavish spending. In July 2013, then State Senator, now Congressman,

Ted Lieu became the first elected official to send a letter to Anthem highlighting the impact of the about pay-to- patient policy. Assemblyman Richard Bloom subsequently offered to hold hearings but not enough impacted families were identified to testify.

Then in April 2017 came Senate Bill 636 (“SB 636”). Thanks to the hard work of American Addiction Centers and CCAAP, State Senator Steven Bradford (D-35 th District) agreed to introduce a bill that aimed to end “pay-to- patient,” for addiction treatment. SB 636 also included a much-needed ban on paying compensation or inducement to anyone who refers addiction clients to a certified or licensed facility, or pays for a patient to go to treatment. The bill was scheduled to be debated and voted on by the Senate Health Committee on April 5, 2017.

Unfortunately, the authors of the bill were unaware that Senator Ed Hernandez, the optometrist who chairs the Senate Health Committee, has been on record for years as a supporter of pay-to-patient. The bill was dead on arrival at the Health Committee. The day before the vote Senator Bradford heroically pulled the bill, rather than have the pay-to-patient section of the bill deleted.

On a recent trip to Sacramento, Stampp and I met with many State Senators, Assembly Members, as well as members of the legislative and gubernatorial staff.


During our discussions, it became clear that to end pay-to-patient ATAC needed a new approach. We began to talk numbers, not addiction, and suddenly there was new interest. We asked, “how many worthy programs had California abandoned due to budgetary constraints from 2011-2016, and how many more will be abandoned in 2017 that could be saved by an additional $100 million in annual tax revenue? How many addicts we asked will cash a pay-to-patient check this year, relapse and end up in prison, adding to the population Governor Jerry Brown is fighting hard to reduce?

Help ATAC follow the money trail by going to this link (https://goo.gl/forms/tOOOgCnHFgVW9LFr1) and letting us know how much money your facility or practice was unable to recover from patients who cashed checks meant for treatment providers in 2014, 2015 and 2016. If you have first-hand knowledge of insurance carriers, (other than BC/BS or Anthem), who have active pay-to- patient policies in any of the states or US territories, please email the information to info@atac.org.

The fight has just begun. Stay tuned.

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