44 [88 Op. Att’y

HEALTH

INSURANCE – EFFECT OF 2001 AMENDMENT OF HMO LAW ON

LAW’S BALANCE BILLING PROHIBITION AND ABILITY OF

HMO MEMBERS TO ENTER INTO PRIVATE CONTRACTS

WITH PROVIDERS

March 13, 2003

The Honorable John P. Donoghue

Maryland House of Delegates

Three years ago, at your request, this Office issued an opinion

that discussed the circumstances under which a member of a health

maintenance organization (“HMO”) may enter into a private contract

with a health care provider having no relation to the HMO and

whether the statutory prohibition against balance billing of HMO

members would apply to that contract. You now ask whether a 2001

amendment of the State HMO law changes the answers given in that

opinion.

In our opinion, the 2001 amendment of the HMO law was

intended to increase the compensation of trauma physicians when

they treat patients who happen to be HMO members. It was not

intended to affect the ability of HMO members to enter into private

contracts with other health care providers. Nor was it intended to

affect the restrictions on direct billing or balance billing of HMO

members by other health care providers. However, because the 2001

legislation could be read literally to limit the ability of HMO

members to enter into private contracts concerning services included

in the HMO benefit package, the General Assembly should clarify

its intent with an appropriate amendment of the HMO law.

I

Background

To answer your question, we must place it within the historical

context of the balance billing prohibition in the Maryland HMO
Gen. 44] 45

 The Maryland Health Maintenance Organization Act is codified 1

at Annotated Code of Maryland, Health-General Article, §19-701 et seq.

 In this opinion, the terms “out-of-network provider,” “non- 2

participating provider,”and “non-contracting provider” are used

synonymously to mean a health care provider who is not under contract

with the patient’s HMO to provide services to the HMO’s members. 

law. That history was chronicled in some detail in a 1998 opinion 1

of this office. 83 Opinions of the Attorney General 128 (1998) . A

later opinion issued at your request discussed the relationship of the

balance billing prohibition to the ability of a health care provider to

bill an HMO member under a private contract between the patient

and provider. 85 Opinions of the Attorney General 330 (2000). We

first summarize that history and the conclusions reached in those

opinions. 

A. Prohibition Against Balance Billing of HMO Members

Since 1988, the Maryland HMO law has required contracts

between HMOs and health service providers to contain a “hold

harmless” clause that bars the provider from charging HMO

members for services provided under the contract other than copayments, other charges permitted by the HMO plan, and charges for

services not covered by the HMO plan. See Annotated Code of

Maryland, Health-General Article (“HG”), §19-710(i). By its terms,

this ban against direct billing of HMO members applies only to

providers who are under contract with the HMO. 

In 1989, this concept was extended to non-contracting

providers when the Legislature enacted the prohibition against

balance billing of HMO members. See 83 Opinions of the Attorney 2

General 128, 130-33. As a result, an HMO member is not liable to

any health care provider for a “covered service” provided to the

member. HG §19-710(p)(1). However, the HMO member remains

liable for co-payments and co-insurance as provided in the plan, as

well as for services not covered by the HMO plan. HG §19-

710(p)(3). 

The “hold harmless” requirement and the prohibition against

balance billing together “explicitly provide that subscribers or

members owe no debt to any health care provider (i.e., any doctor,

hospital, etc.) for any covered services.” Riemer v. Columbia

Medical Plan, Inc., 358 Md. 222, 244, 747 A.2d 677 (2000)
46 [88 Op. Att’y

 The rules against balance billing do not apply to an out-of-state 3

provider who is not under contract with a Maryland HMO and does not

otherwise have the minimum contacts with Maryland that permit

application of Maryland law. See 83 Opinions of the Attorney General

128, 135-40.

(emphasis added). Thus, providers, whether part of the HMO

network or not, are prohibited from direct billing or balance billing

HMO members for “covered services.” 

3

The inability to bill HMO members directly for “covered

services” apparently discouraged non-participating providers from

treating HMO members. See 83 Opinions of the Attorney General

128, 134. The General Assembly responded in 1991 by enacting HG

§19-710.1. In lieu of billing HMO members directly for services

covered by an HMO plan, an out-of-network provider became

entitled to reimbursement from the HMO within a specified time

period at a more favorable rate than the HMO contract rate. HG

§19-710.1(b). The HMO could in turn seek reimbursement from its

member if it determined that any amount paid to the provider was

the responsibility of the member. HG §19-710.1(c)(1).

The new statute also defined “covered service”:

“Covered service” means a health care service

included in the benefit package of the health

maintenance organization and rendered to an

enrollee of the health maintenance

organization by a health care provider,

including a physician or hospital, not under

written contract with the health maintenance

organization:

(i) Pursuant to a verbal or written referral

by the enrollee’s health maintenance

organization or by a provider under written

contract with the enrollee’s health

maintenance organization; or

(ii) That has been preauthorized or

otherwise approved either verbally or in

writing by the enrollee’s health maintenance

organization or a provider under written
Gen. 44] 47

In a development not directly related to your question, the 4

Legislature created another vehicle for compensating out-of-network

providers for services provided to plan members, which incorporated the

possibility of balance billing of plan members. Legislation passed in 1995

required employers who offer health care benefits through an HMO plan

to also offer a “point-of-service” option. See Chapter 605, Laws of

Maryland 1995, codified at HG §19-710.2. A point-of-service plan allows

a subscriber to receive covered treatment by an out-of-network provider

without a prior referral or authorization by the plan, although the

subscriber may be liable for additional fees, including balance billing by

the out-of-network provider. See 83 Opinions of the Attorney General.

128, 133-35.

contract with the enrollee’s health

maintenance organization.

HG §19-710.1(a)(3) (2000 Repl. Vol.). While this definition

specifically pertained to HG §19-710.1, that statute was clearly

designed to correlate with the prohibition against balance billing for

covered services in HG §19-710(p). The 1998 Opinion summarized

this relationship: “Thus, as of 1991, non-contracting providers were

entitled to be paid promptly and at a higher rate but were still

prohibited from balance billing or otherwise charging HMO

members for covered services. All providers, of course, could still

directly bill HMO members for non-covered services.” 83 Opinions

of the Attorney General 128, 133.4

The 1991 amendment provided a statutory formula for the

compensation that a provider was to receive from the HMO in lieu

of billing the patient. In its original version, HG §19-710.1 directed

that hospitals were to be paid at the rate approved by the Health

Services Cost Review Commission (“HSCRC”), and that other

providers were to be paid at the rate billed or at the provider’s

“usual, customary, and reasonable” (“UCR”) rate. HG §19-710.1(b)

(1996 Repl. Vol.). 

Nine years later, the Legislature altered the method for

determining the compensation of non-hospital providers. Under a

2000 amendment, an HMO was to pay a non-hospital provider 125%

of the rate that the HMO paid a comparable contracting provider for

the same service or the actual rate it had historically paid to noncontracting providers, whichever was greater. Chapter 275, Laws of

Maryland 2000. A year later, another amendment added a different

methodology for determining payment of trauma care providers.
48 [88 Op. Att’y

Chapter 423, Laws of Maryland 2001. Your question relates to part

of that amendment and is discussed in greater detail in Parts I.C. and

II of this opinion.

B. Private Contracts Between HMO Members and Out-ofNetwork Providers

In 2000, a question arose as to the circumstances under which

an out-of-network provider could charge an HMO member the

provider’s normal fee for services of a type included in the HMO

plan. As noted above, with respect to a “covered service,” the

HMO law clearly set the terms of the provider’s compensation from

the HMO and barred the provider from directly charging or balance

billing the HMO member. In assessing the extent to which an outof-network provider could directly contract with an HMO member

to pay the provider’s normal fee, we thus looked to the definition of

“covered service” in HG §19-710.1(a)(3). We concluded:

The HMO law does not prohibit an HMO

member from entering into a private contract

with a health care provider outside of the

context of the HMO.... The balance billing

prohibition in the State HMO law applies only

to the provision of “covered services.”

85 Opinions of the Attorney General 330, 334-35. We reasoned that,

even if a particular service was included in the HMO’s benefit

package, it would not fit the definition of covered service if the

member was not referred to the provider by the HMO and if the

HMO did not authorize or otherwise approve the provision of the

service to its member. Id. at 335. In those circumstances, neither

the balance billing prohibition of HG §19-710(p) nor the provider

compensation provisions of HG §19-710.1 would pertain.

We cautioned that the patient’s intent to access the provider

outside the HMO plan and the patient’s knowledge of the

consequences of that decision should be clearly documented at the

time a private contract was formed. 85 Opinions of the Attorney

General 330, 335. “The written document ... should clearly and

concisely inform the member of the financial consequences of

entering into a private contract outside the context of the HMO – i.e.,

that the member will be solely responsible for the provider’s

charges, that the HMO will not pay the provider, that the provider

will not accept payment from the HMO, and that the member’s

obligation to pay HMO premiums will not be affected.” Id.
Gen. 44] 49

C. Amendment of Definition of “Covered Service”

After the 2000 opinion was issued, the Legislature amended

the definition of “covered service” in HG §19-710.1. See Chapter

423, Laws of Maryland 2001. That legislation eliminated the two

subordinate clauses that condition a “covered service” on a referral,

pre-authorization, or other form of approval by the HMO. Thus, the

definition now reads:

“Covered service” means a health care service

included in the benefit package of the health

maintenance organization and rendered to an

enrollee of the health maintenance

organization by a health care provider,

including a physician or hospital, not under

written contract with the health maintenance

organization.

HG §19-710.1(a)(3) (2002 Supp.). As noted above, this definition

establishes the universe of services for which an out-of-network

provider is entitled to the statutorily-defined reimbursement from the

HMO and, concomitantly, is barred from charging the patient. 

You have asked whether this amendment affects the ability of

an HMO member and an out-of-network provider to enter into a

private contract that is outside the context of the HMO and not

subject to the balance billing prohibition of the HMO law.

II

Analysis

It might be argued that, with the elimination of any reference

to a referral or approval by the HMO, a “covered service” is now

simply any service included in the HMO benefit package that an outof-network provider provides for an HMO member, regardless of

whether the HMO authorized performance of the service. As

explained above, HG §19-710.1 would set the amount of

compensation for that service, and the out-of-network provider

would be barred from balance billing the member for that service.

Under this interpretation, an HMO member and an out-of-network

provider could not enter into a private contract that provided for

greater compensation to the provider if the service was part of the

HMO’s benefit package.
50 [88 Op. Att’y

On the other hand, it seems unlikely that the Legislature would

dramatically restrict the freedom of HMO members to enter into

private contracts in such an indirect and circuitous fashion.

Moreover, that interpretation would appear to undermine the

incentive for a provider to contract directly with an HMO since any

provider, whether authorized by the HMO or not, could perform

services provided in the HMO benefit package for at least 125% of

the contract rate. When a literal interpretation of an amendment

appears to yield an illogical result, the principles of statutory

construction instruct us to consider the legislative history of the bill

and “other material that fairly bears on the fundamental issue of

legislative purpose or goal.” Kaczorowski v. City of Baltimore, 309

Md. 505, 515, 525 A.2d 628 (1987); see also Consolidated

Construction Services, Inc. v. Simpson, 372 Md. 434, 456-57, 813

A.2d 260 (2002). That analysis reveals that a mechanically literal

interpretation of the amendment would be at odds with the

legislative history of the balance billing prohibition and the evident

purpose of the 2001 legislation. 

The 2001 legislation was focused exclusively on trauma

physicians. The sponsor of the bill testified that it was “targeted

specifically to physicians that provide trauma care.” Tape of

testimony of Senator John Astle before the Senate Finance

Committee on Senate Bill 728 (March 7, 2001). As outlined above,

beginning in 1991, the statute specified a method for determining the

amount that an HMO was to pay non-contracting providers for

covered services. Between 1991 and 2000, reimbursement of out-ofnetwork physicians was keyed to the UCR rate. As a result of the

2000 legislation, a non-contracting physician was entitled to 125%

of the rate paid to a contracting provider, or, if greater, the rate that

the HMO had historically paid to non-contracting providers. This

new methodology was apparently deemed inadequate for

compensation of trauma physicians. The sponsor indicated that the

bill was intended to “rectify” that situation. Id.

Other advocates of the 2001 legislation testified that trauma

centers treated a disproportionate share of uninsured and

underinsured patients. See, e.g., Testimony of Thomas M. Scalea,

Physician-in-Chief, R Adams Cowley Shock Trauma Center (March

7, 2001). While hospitals are compensated for those services

through the State’s hospital rate setting system, trauma physicians do

not enjoy similar relief for uncompensated care. Id. Proponents

asserted that the rates allowed under the new methodology, when

applied in the context of trauma physicians, resulted in

reimbursements “dramatically lower than the already low Medicare
Gen. 44] 51

fee schedule.” Testimony of Andrew N. Pollak, M.D., Maryland

Orthopaedic Association, in support of Senate Bill 728. According

to testimony of both proponents and opponents of the legislation

who appeared before the Legislature, the 2001 legislation was

directed to the compensation of trauma physicians when they treated

HMO members. 

While it was before the Legislature, the bill was amended to

tailor it with respect to trauma physicians. Under the original

version of the 2001 legislation, a single clause would have been

added to HG §19-710.1(b)(1)(ii) specifying the reimbursement

formula for trauma care providers. Under that provision,

reimbursement of trauma care providers would have reverted to the

pre-2000 formula keyed to the UCR rate – a rate apparently believed

to be more favorable to the physician. See Bill Analysis for Senate

Bill 728 (2001). A Senate amendment substituted a different

formula: trauma physicians were to receive either 140% of the

Medicare rate or the rate that the HMO had historically paid for the

service, whichever was greater. Amendment SB0728/137072/1.

Amendments made in the House of Delegates also added certain

obligations for trauma physicians, trauma centers, and HMOs.

Trauma physicians were obligated to provide additional

documentation of treatment at the request of the HMO; trauma

centers could be required to verify the credentials of the billing

provider as a trauma physician; and an HMO was required to assign

a provider number to a trauma physician for purposes of

reimbursement, at the request of that physician. Amendment

SB0728/343896/1.

As part of the House amendments, the definition of “covered

service” was amended to delete the two subordinate clauses that had

conditioned the definition upon referral or authorization of the

HMO. While the legislative record does not address this particular

part of the House amendment, its purpose appears evident in context.

A trauma physician confronted with an emergency medical situation

involving an HMO member would not necessarily have the benefit

of a referral or authorization from the patient’s HMO. While the

HMO could subsequently provide the necessary authorization to

make the treatment a “covered service,” the requirement of referral

or authorization could at least raise a question as to whether the

service was “covered” and whether the HMO was obligated to pay

the statutory reimbursement. As in other provisions of the HMO law

relating to emergency services, the alteration of the definition of

“covered service” was likely designed to ensure that prior

authorization was not an obstacle to reimbursement of a trauma
52 [88 Op. Att’y

 It would also be at cross purposes to the ongoing assessment of 5

the provision. The Legislature has directed the Maryland Health Care

Commission and the HSCRC to conduct a study and make a

recommendation as to the balance billing prohibition in the HMO law.

Chapter 250, §2, Laws of Maryland 2002.

 In your letter requesting this opinion, you indicated that you 6

believe that a patient should be allowed to enter into a private contract

with a physician who is not under contract with the patient’s HMO “and

therefore not contractually bound to accept only the HMO payment”

(continued...)

physician. See HG §19-712.5(c) (prior authorization of HMO not

required for reimbursement of hospital emergency facility and

provider); see HG §19-705.6 (creating a presumption of HMO

authorization in certain circumstances).

There is no indication in the legislative record that the General

Assembly was considering reimbursement of non-contracting

providers other than trauma physicians. Surely, if the General

Assembly had intended to effect a radical expansion of the balance

billing prohibition or to eliminate the ability of providers to enter 5

into private contracts, it would have done so more explicitly. Thus,

in our view, “covered service” with respect to services performed by

providers other than trauma physicians should be deemed to include

whatever referral or authorization conditions, if any, are required by

the HMO benefit plan. However, because the amended version of

the definition may create confusion as to the Legislature’s intent, we

recommend that the General Assembly clarify application of the

definition. 

III

Conclusion

In our opinion, the 2001 amendment of the definition of

“covered service” in the HMO law was part of an effort to increase

the compensation of trauma physicians who treat patients who

happen to be HMO members. It was not intended to affect the

ability of HMO members to enter into private contracts with health

care providers. Nor was it intended to affect the restrictions on

direct billing or balance billing of HMO members by other

physicians. However, because the 2001 legislation could be read 6
Gen. 44] 53

 (...continued) 6

(emphasis added). Of course, in a private contract, the physician would

not be accepting any HMO payment. If the service by the out-of-network

physician was authorized by the patient’s HMO, the physician would be

limited to the amount of the HMO payment specified in HG §19-710.1. 

literally read to limit the ability of HMO members to enter into

private contracts with providers who are not trauma physicians, the

General Assembly should clarify its intent with an appropriate

amendment of the HMO law.

J. Joseph Curran, Jr.

Attorney General

Robert N. McDonald

Chief Counsel

 Opinions and Advice

Editor’s Note:

The General Assembly later revised the law to include a new

definition in HG §19-701, that definition is discussed in 90 Opinions

of the Attorney General 29 (2005). Chapter 440, Laws of Maryland

2004.