The hospital bill was $674,856: Why did the state pay Blue Cross over $2 million?

Last year, officials overseeing New Jersey’s employee health plan — which covers the state’s teachers, cops and other public workers — discovered something that made no sense. The state had been billed $674,856 for a patient’s care at NewYork-Presbyterian. But it had paid $2,026,524, some three times what it was charged.

It wasn’t an isolated incident either. A review by the state’s Treasury department of the 50 biggest out-of-state hospital claims in 2020 showed the state paid millions in excess of what was actually billed, even though New Jersey’s contract with insurer Horizon Blue Cross Blue Shield of New Jersey explicitly bars overpayments. Efforts by those inside the state government investigating the payments were thwarted by the insurer, documents show. And today, neither the state nor Horizon are saying where that money wound up, leaving open questions about where the state’s money went and who may have profited.

Hundreds of pages of records that Bloomberg News obtained through an open records request reveal a picture of a state that has sometimes overpaid for health care for its workers by hundreds of thousands of dollars for a single hospital stay. The records show how the nonprofit insurer that manages billions of dollars in public funds resisted efforts by state officials to trace those payments. And while the dispute played out in Trenton, rising expenses in the plan led to a spike in medical premiums of about 20% for next year that blindsided some workers and local governments and triggered calls for more scrutiny of the state’s health spending.

The state is investigating the payments and “aggressively enforcing the contract with Horizon,” spokesperson Jennifer Sciortino said in an email. Horizon disagrees with the state’s assertion that it’s not complying with its contract, spokesperson Thomas Wilson said in an email. He said the company couldn’t comment on specific payments because it’s barred from discussing many details that the state deems confidential, but that Horizon’s approach “resulted in the lowest cumulative cost-of-care” for the state.

New Jersey has one of the country’s largest state employee health plans. It covers more than 800,000 public-sector workers, dependents and retirees and will cost the state almost $3.8 billion this fiscal year, half a billion dollars more than the year prior. Large employers, like states, rely on third-party administrators — usually insurance companies like Horizon — to manage their relationships with doctors and hospitals. While the state ultimately pays the medical expenses its employees incur, the administrator negotiates prices, processes claims and makes the actual payments to medical providers on the state’s behalf.

Third-party administrators usually tout discounts they negotiate with hospitals and doctors. Yet states like New Jersey are often in the dark about the prices they pay, despite the billions they spend on health care. To prevent overpayments, the state put a provision in its insurance contract in 2020 saying it won’t pay a doctor or hospital more than the amount billed. So state officials expressed surprise when they discovered that Horizon continued to sometimes pay what appeared to be substantial markups over hospitals’ own sticker prices, emails show.

“I see that the paid amounts are higher than the charged amounts in many instances, which means I’m misunderstanding something — I hope,” Christin Deacon, a state official who managed the New Jersey health plan contract, wrote in an April 2021 email to Horizon executives.

The conflict over the payments transpired while state officials clashed with Horizon last year in a separate multimillion-dollar contract dispute. The state alleged Horizon failed to deliver on a program designed to reduce health-care costs. The state Treasury backed down from that fight, allegedly under pressure from Governor Phil Murphy’s office, Bloomberg News reported in June, an allegation the Treasury has since denied. (Treasury said it’s still investigating the issues with the Horizon contract.) Republican lawmakers have called for an investigation into both the handling of the contract dispute and the premium increases. Murphy, a Democrat and former Goldman Sachs Group Inc. senior director, has said he didn’t intervene.

Related: Health insurance increases are unsustainable, new polices might help employers gain leverage

Horizon and the New Jersey Department of the Treasury declined interview requests about the payments in excess of billed amounts.

“​​We will see this investigation through until we fully understand and redress the problem,” Sciortino, the Treasury spokeswoman, wrote. “Our goal is to make the state health benefit plans whole,” she said, meaning ensuring the state health plan is reimbursed for any overpayments it may have made. State workers have spent hundreds of hours investigating the payments already “for a number of years,” she said. “Ensuring that every dollar spent on public employee health care was done correctly remains a top priority.”

Horizon “works continuously and collaboratively with the state to adapt, address issues, meet the terms of the state contract and deliver for the members” as well as for the state government and taxpayers, Wilson, the company spokesperson, said in an email. He also said Horizon provides the state “complete and detailed claims and reimbursement data every month” and has responded to dozens of requests for additional reports and audits.

Wilson didn’t directly address questions about payments above billed charges. He said the company “employs an aggressive reimbursement strategy supported by network agreements incorporating multiple pricing and reimbursement models” that won top scores from state evaluators assessing bids for the state health plan contract. Horizon is on pace to deliver at least $200 million in savings for the state compared to what it would have paid under the prior contract that ended in 2019, the company said.

Nearly half of Americans are on employer-sponsored plans like New Jersey’s. US employers and their workers combined spend more than $1 trillion a year on premiums for employer-sponsored health plans that cover more than 150 million Americans. Yet the operation of those plans can be a black box to both the employers and the workers who often pay a substantial portion of their own health-care expenses.

Concerns about expenses in New Jersey’s state plan have escalated for years. In 2018, a state senator pressed the Treasurer over fees charged by the companies managing the plan, asking whether they keep some of the money the state paid for claims “as additional income.” Companies aren’t allowed to do that, the Treasurer replied in a letter. The following year, lawmakers required the state to hire an outside company to review medical claims and check that the proper amounts were paid as a way to ensure money wasn’t wasted on overpayments.

Related: Cost of average hospital stay skyrockets 98% since 2004

That same year, a senior state official uncovered new cases where the state continued to pay more than what providers billed. Emails to Horizon showed instances in which the state was paying hundreds of thousands over what was charged and one in which New Jersey paid 24 times the rate Medicare paid for the same service, far higher than the norm. (The state says Medicare rates weren’t used to calculate payments.)

“With every passing day, state is incurring unnecessary cost,” the Treasury official, Dini Ajmani, wrote in September 2019. Ajmani, who no longer works for the state, declined to comment.

In American health care, a provider’s billed charges often resemble the sticker price of a car: a notional figure that’s the starting point for negotiations. Billed charges are far higher than what government programs like Medicare and Medicaid pay. Insurers usually negotiate a discount off the charge amount with providers in their network.

In some cases, though, payments can exceed billed charges, typically when insurers negotiate bundled rates for a particular diagnosis or type of case, according to Chris Severn, chief executive officer of Turquoise Health, which compiles data on health-care prices. To avoid this, contracts often include a provision to cap payments at the lesser of billed charges or the negotiated rate.

Out of concern about rising health-care costs and potential overpayments, New Jersey wrote a new contract for its medical plan that would take effect in 2020 with a new provision intended to ensure the state would never pay a price higher than what a medical provider charged. If the rate negotiated by the insurer was lower, the state would get that price. And if the medical provider billed less, that’s what the state would pay.

Horizon won the bid to keep being the state’s health insurer, agreeing to those terms.

But when the state followed up the next year to see if the bills were being paid correctly, Horizon resisted providing certain out-of-state claims. In a 2020 email, a company vice president said Horizon didn’t have to give the state information on those. Though the state had also passed the law requiring an outside company to review payments, the executive said there was an exception for “Blue Card” claims that were processed by other Blue Cross Blue Shield plans outside of Horizon’s network. The executive said the company had worked with the law’s sponsors to get the exception included.

When asked about the claims that Horizon resisted providing to the state, company spokesman Wilson said in an email that the company “regularly and routinely provides to the state and its consultants complete and accurate data at an individual claims level for all claims ​submitted for payment” by the state plan.

Three years after the state senator asked the Treasury whether the state’s insurance companies kept a portion of the money paid for medical claims, and two years after the Treasury official’s warning about payments above billed charges, more problems surfaced.

In April 2021, Deacon, the state employee who managed the health insurance contract, asked Horizon for details of the top 50 “Blue Card” claims processed outside of the insurer’s network. The file she got a few days later alarmed her, according to emails that Bloomberg News reviewed through a public records request.

Many of the claims were still paid out at amounts higher than what the providers charged. Deacon thought she must be misunderstanding it. It seemed to flatly contradict the new contract that state officials had put in place to stop the practice. But further discussion with Horizon confirmed that the state was, in fact, paying more than what providers charged in some instances.

Over the next four months, the emails, which are partially redacted, show escalating concern as Deacon and her colleagues sought to understand the transactions. She asked Horizon for additional documents. She wanted to see the paperwork sent to medical providers that showed how much they were paid for those 50 claims. She also wanted to see the documents sent to patients, known as explanations of benefits, or EOBs — the ones people get in the mail after a medical procedure that show what doctors charged and how much insurance paid.

State officials were trying to find documents that would connect the dots about where the money was actually going. Deacon and her colleagues spent weeks trying to get the payment information. When they did, it raised more questions than it answered. Not only was the state sometimes paying rates above what providers charged, but the explanations the company sent to patients appeared to be wrong too. The EOBs showed a “paid amount” equal to providers’ charged amount, even when the state plan was paying far more than that.

“The state needs an explanation as to why the EOBs materially differ from the claims file,” Deacon wrote on July 20, 2021. She asked for a meeting with Horizon within the week.

At the meeting, the two sides discussed an explanation of benefits that a patient received for a claim at NewYork-Presbyterian. It showed the charged amount and the “plan paid” amount at $674,856. But the state actually paid more than $2 million. (NewYork-Presbyterian didn’t respond to emails seeking comment.)

Horizon officials explained that its system was programmed so that it would never show “paid amounts” above charged amounts, according to an email from Deacon characterizing the company’s response. That meant that not only was the state paying amounts above what providers billed, but the full extent of the cost was being “misrepresented to the member and to the plan,” Deacon wrote. She called the company’s explanation “simple, yet troubling,” in an email to Ajmani, who agreed it was “quite worrisome” and urged her to investigate further.

But Horizon continued to defend the payments. A company official wrote that “the claims in question are paying correctly” and that out-of-pocket costs to members weren’t affected, according to a partially redacted email. Horizon also rebuffed a separate request Deacon made for data on hundreds of similar claims. No matter how many times she asked, Deacon still wasn’t able to ascertain the full extent of the problem.

The two sides met again in early August 2021. State officials continued to ask why the paid amounts were higher than providers’ charges. The company said they were determined by an out-of-state “host” plan, not by Horizon, according to Deacon’s notes of the meeting in an email to Ajmani. She also pressed for ways to trace where the state’s money was going for each claim but got nowhere. Ajmani alerted officials in the attorney general’s office and state Treasurer Elizabeth Muoio in an attempt to escalate the concerns.

While Deacon couldn’t get the hundreds of claims she sought to analyze, it was clear from the documents she did get that the state was continuing to pay amounts above the charges. Neither Horizon nor the state addressed questions about how often it happened, whether the insurer kept some of the payments or whether the full amount went to medical providers. Wilson, the Horizon spokesman, said in an email that the contract “includes specific and explicit terms that dictate how Horizon is compensated and Horizon strictly complies with those terms.”

From the documents they did get, the Treasury was able to review the top 50 out-of-state claims, which showed that the state plan paid $18 million more than providers’ billed charge amount, according to a memo seen by Bloomberg News. (The state declined Bloomberg’s request for the analysis, saying it was confidential.)

Deacon left her job at the state in August 2021. She now works as a consultant helping employers address health-care costs. Deacon, who previously described her experience in the Treasury to Bloomberg News, declined to comment for this story.

The state continued to pursue the issue. In a May 11, 2022, letter to Horizon, the Treasury said it was seeking reimbursement for losses related to payments above billed charges, though it didn’t say how much. The letter said Horizon was still resisting the state’s attempt to audit out-of-state claims, which make up 12% of the state’s health spending.

The letter threatened to reinstate the Treasury’s formal complaint against Horizon, filed through an internal office that handles conflicts between agencies and their contractors, if the dispute wasn’t resolved by May 27. But that didn’t happen. (The Treasury spokesperson said the state is pursuing “direct discussions with Horizon” and that “any insinuation that we have abandoned enforcement is categorically false.”)

Reviews of medical claims that the state was able to get access to saved taxpayers a cumulative $128 million, according to a memo the state auditor recently sent to lawmakers. The state Treasury says those savings mostly relate to claims that are examined before payments are made and are separate from any recoveries the state may make related to Horizon’s alleged contract violations.

Horizon’s contract is up for extension at the end of the year. The state hasn’t publicly sought bids from competing insurers to see if it can get a better deal. State officials wouldn’t say whether they would seek any changes to the contract. This summer, after learning their health insurance premiums would be rising by about 20% next year, hundreds of New Jersey public workers rallied at the statehouse in Trenton to protest the rising health costs. Over the objections of union leaders and workers, state officials approved the higher rates anyway. This fall, New Jersey’s public workers were invited to sign up for another year of coverage from Horizon.

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