New Jersey’s Health Plan for School Employees Pays Out-of-Network Providers Without Limit

On December 19, 2019, ProPublica published an exhaustive investigative analysis of New Jersey’s health plan for school employees – and the absolutely insane health care costs associated with the program. The author, Marshall Allen lays out a comprehensive piece of reporting showing how a single component of a health care plan gets exploited. We’ve included a few highlights below, and strongly recommend reading the article’s full text at ProPublica.

The Exploit

According to ProPublica, unbeknownst to most of the 158,000 active and retired New Jersey school employees covered by the state’s School Employees’ Health Benefits Program — about a third of the state’s districts — their benefit plan has a lucrative carveout for out-of-network providers, and it’s a big one: The teachers’ plan will cover virtually anything they charge.

The generous out-of-network benefits apply to all medical providers. The teachers’ plan pays out-of-network practitioners at the 90th percentile of what other clinicians in their area bill for the same services — so if everyone is charging a lot, everyone gets paid more. The program also allows clinicians to unbundle services, allowing providers to bill for many treatments per visit.

Through interviews with state officials, analyzing internal memos, and procuring meeting transcripts ProPublica showed that teachers are being targeted primarily by acupuncturists, chiropractors and physical therapists, who can draw them in for multiple appointments.

The Numbers

The best way to illustrate the problem is through comparing the teacher’s expenses to other state employees, whose plans closed this loophole back in 2015.

In 2015, the State Health Benefits Program, which covers firefighters, police officers, local and state government workers, ended the program that included no caps on billing for out-of-network practitioners. Alarmed by runaway costs, they capped the payments to bring them in line with what in-network providers make for the same services. State officials say capping the payments to such providers on the state workers’ plan has drastically reduced the costs. And they say they haven’t received any complaints from employees about not getting the care they need.

The differences between that plan and the teachers are stark, Allen reported. An out-of-network physical therapist treating a teacher would have been paid an average of $351 per visit by the state in 2018. The state would have paid the same therapist treating a police officer an average of $119, nearly a third as much, according to state data. Out-of-network acupuncturists were paid an average of $377 per visit from the teachers’ plan while the state workers’ plan paid $144. For chiropractor visits, it was $121 compared with $25.

In August, consultants for the state estimated that if the teachers’ plan similarly capped payments to out-of-network providers of chiropractic services, acupuncture and physical therapy, the plan could save about $130 million a year. That could reduce medical premiums by about 8%, according to other estimates. The consultants have been making similar reports for years. Officials in the state’s division of pension and benefits say that they are frustrated by the overspending in the teachers’ plan, but that they don’t have the authority to make the changes to the plan themselves.

Solving One Problem Created Another

ProPublica pointed out that tightening up the state workers’ plan has had a perhaps predictable effect: It focused the marketing of some New Jersey practitioners on the remaining lucrative customers: teachers. When examining the advertising campaigns targeting NJ’s teachers, Allen noted that it would seem the teachers of New Jersey have collectively thrown out their backs, pulled a muscle or pinched a nerve while engaged in rigorous educating.

Last fall, when teachers at about a dozen New Jersey schools returned from break, employees from Thompson Healthcare & Sports Medicine welcomed them with bagels and orange juice. The clinic’s owner also created an empathetic YouTube video titled “We Understand Painful Conditions Suffered By Teachers,” and an April 2017 Instagram post shows a provider from Thompson Healthcare & Sports Medicine giving chair massages during a visit to an elementary school. NJ Spine and Wellness offered catered lunches, chairside massages and prizes at “Teacher Wellness Days.” “Want us to come to your school?” the chiropractic business asks educators in an online ad.

The Health Services Abusing this Exploit

This bonanza has not gone unnoticed by the providers of services like physical therapy that generally require repeat visits, argued Allen. Last year, the teachers’ plan paid some acupuncturists and physical therapists an average of more than $600 per visit, according to payment data obtained by ProPublica — dwarfing the out-of-network fees of even psychiatrists and gynecologists. More than 70 acupuncturists and physical therapists earned more than $200,000 in 2018 from their teacher clients alone, the data shows. The services of one acupuncturist brought in more than $1 million.

Through state documents, ProPublica showed that the state paid Thompson Healthcare & Sports Medicine, with 10 clinics along the Jersey Shore, about $11.2 million in 2018 for providing chiropractic services, acupuncture and physical therapy to teachers. According to Allen, the Thompson Healthcare & Sports Medicine clinic in Forked River looks like an upscale spa, with flat-screen televisions, wide-plank wood floors, soft lighting and exposed brick and ductwork.

The site serves as the headquarters for chiropractor Robert Thompson’s chain of clinics. Thompson said he wants to achieve the “wow” factor with his patients, so they keep coming back and refer others. The facility’s acupuncture suites are tranquil and scented with essential oils. And it’s loaded with devices: compression sleeves that slide over the limbs, machines for shock wave therapy and spinal decompression, a handheld device that vibrates to break up adhesions in joint capsules and more. Thompson called some of the tools his “secret weapons,” saying that teachers are some of his best patients and make up about a third of his practice. His wife is a former teacher, and he readily concedes that his clinic markets to them. But he doesn’t consider the fees he charges excessive. The wow factor and the cutting-edge devices cost money, he said, driving up the per-visit fee. But patients heal faster and don’t have to come in as often, he said.

ProPublica argued that the state’s data shows marked differences between what Thompson’s clinics made from the teachers’ plan in 2018 and from the state workers’ plan. Thompson was reimbursed an average of $465 per acupuncture appointment from the teachers’ plan compared with $44 from the state workers’. For physical therapy, it was about $321 versus $33; for chiropractic, an average of $161 and $25.

The payments attributed to one acupuncturist at Advanced Physical Medicine & Rehabilitation averaged $677 per visit in 2018, the state data shows. In response to questions about those fees, co-owner Reizis said, “We are all familiar that out-of-network pays very well.” Hafeez, his partner, said that the provider’s patients suffered from complex medical conditions. Advanced is getting paid top dollar from both the teachers’ plan and the one for state workers — despite that plan’s reforms. For acupuncture, for instance, the teachers’ plan paid an average of $609 per visit in 2018, the data shows, while the state workers’ plan paid an average of $569 per visit — far more than should be allowed under the limits that went into effect in 2016.

In 2018, the teachers’ plan paid more than $1 million for 3,308 patient visits to a single acupuncturist at Palluzzi Health Center in Old Bridge, the data shows. That would require the acupuncturist to have treated about 13 school employees every day for the entire year, given a five-day workweek. Through his attorney, Dr. Edward Palluzzi, the chiropractor who founded the clinic, declined to be interviewed. His attorney said the practice is high volume and stands behind the care it provides and how it interacts with payers, including the teachers’ plan.

The State Panel Overseeing the School Employees Health Plan

The state panel overseeing the benefit plan, made up of six people, half of whom are union members, has done nothing to stop the runaway costs, ProPublica reported, although meeting transcripts show they’ve been discussed since at least 2014. The panel members declined to comment on their oversight of the plan. Since at least 2014, the six-member committee charged with overseeing the teachers’ plan has publicly lamented the millions rolling out the door — and has done nothing to stop it. During a meeting in August 2018, committee members wondered if acupuncturists and physical therapists were raising rates on teachers to make up for the lower payments from the state workers’ plan. At a meeting in April, Kevin Kelleher, the committee chairman, noted the cost of the out-of-network visits had increased by 20% to 30%. Kelleher is the director of the research and economic services division of the New Jersey Education Association, a teacher’s union. “Right now, we are paying somewhere between 10 and 12 times what an out of network provider is paid” in the state workers’ plan, he said, according to a meeting transcript. “Clearly, we see there is a problem, and we need to do something about it.”

Yet to date, no action has been taken because the committee requires a majority vote to make changes. Three members represent teachers’ unions. And three work for the Treasury Department, which runs the health plan. Two of those members also serve on the plan design committee for the state workers’ plan, which voted unanimously to cap the out-of-network payments.

State treasury officials, who have watched the money pouring out to practices like Advanced, said in interviews that they’ve repeatedly pushed the panel to cap the out-of-network fees, pointing out that they had forwarded the names of several practitioners flagged by ProPublica for further scrutiny. Deacon, the state official, said it wouldn’t be hard to stop to over-the-top payments. With the state workers’ plan, “they changed the payment structure so that we couldn’t be exploited in this way,” Deacon said. “The solution is at our fingertips.”

The Effects

Allen pointed out that in recent months, teachers across New Jersey have been protesting, even striking, for higher wages and more affordable benefits. Meanwhile, a state analysis shows, the glut of out-of-network payments has consumed hundreds of millions of dollars in the past four years. That’s money that experts say could have helped fund the teachers’ demands. And New Jersey residents are also pitching in to pay the bills: Homeowners in the towns where the schools are located are chipping in through higher property taxes.

The New Jersey school employees covered by the plan, and their districts, have been paying the price. Their premiums have spiked by 8% and 13% in recent years, in part due to the out-of-network spending, according to data from the state. They now cost more than $36,000 a year for the most popular family plan, nearly twice the typical cost in other parts of the country.