ANNAPOLIS — A bill moving through the State House is pitting physicians against insurance companies over a billing practice that the state's largest insurer says is needed to keep doctors in their network and health care costs affordable for small businesses and their workers.

If an assignment of benefits bill passes and becomes law, CareFirst Inc. executives warn many doctors will decide to leave the insurance company's network. That, they claimed, would result in more patients being treated by physicians outside of the network, which in turn would lead to higher bills for the patients.

The Senate passed its version of the bill Monday, 37-9. The House Health and Government Operations Committee has yet to take its vote on the matter.

At a recent Health and Government Operations hearing, CareFirst Chairman Michael R. Merson said that if 10 percent of the physicians and specialists in the CareFirst network decided to leave, the people covered by CareFirst could end up spending $220 million in out-of-pocket expenses.

But an official from MedChi, the state medical society, said CareFirst officials were exaggerating the potential consequences and that many physicians would continue to remain in the insurance company's network.

"Despite these grim exaggerations, CareFirst has been unable to point to a single state where an [assignment of benefits] law passed and the supposed network apocalypse occurred," said Gene M. Ransom III, MedChi's executive director.

The reason physicians, particularly specialists, do not participate in CareFirst's network is because of CareFirst's "abysmal rates" for reimbursement, Ransom said.

"The simple way to have all doctors be in [network] is to pay fair and reasonable rates," Ransom said. Twenty-four other states have passed assignment of benefits laws because it makes it easier for claims handling by doctors and doctors continue to remain in insurance company networks, Ransom said.

CareFirst spokesman Kevin Kane said insurance "is a filter of true medical costs as there is in our market."

"Ultimately we'd want the doctor to negotiate a rate whether in-network or not," Kane said.

The bill would allow patients to have the checks sent directly to a doctor or medical specialist when the doctor or medical specialist is not in the insurance company's network of providers.

CareFirst sends the check to the patient directly when the doctor or specialist is not in the CareFirst network and then the patient is expected to pay the medical bill.

The step is needed to ensure physicians join the CareFirst network of preferred providers because in-network providers are reimbursed directly by CareFirst and health care providers do not like to "chase down" the patients for the payment, Kane said.

CareFirst opposes the assignment of benefits bills. The bills are supported by the Maryland Insurance Administration, the Attorney General's Office and physician groups, including MedChi.

Interim Maryland Insurance Commissioner Elizabeth Sammis said the assignment of benefits measure is needed so people insured by CareFirst can have the out-of-network doctors sent the payments directly. Too many people are surprised when they later receive bills from the out-of-network doctors that are higher, a practice known as balance billing, she said.

Sammis said she is "ashamed" that her office approved contracts letting CareFirst send payments directly to patients, instead of to the out-of-network doctors.

For example, if there is an emergency and the person is treated by an out-of-network physician, other insurance companies reimburse the doctor as they do in-network physicians and if there is a difference in the bill, the insurance carrier negotiates with the physician rather than requiring the insured to do it, Sammis said. CareFirst reimburses the patient what it would pay an in-network doctor and the patient is responsible to either negotiate with the physician or pay the rest, Sammis said.

"It's an exception that has been in CareFirst's contract since the 1970s," Sammis said.

At the time it was a standard practice of insurance providers, but the market has since changed and the other providers do not do it, Sammis said.

"If [preferred provider organizations] were starting in 2010 instead of the 1970s when they started, we'd put different requirements in place, but they're not there today," Sammis said.

As the largest insurance provider in the state, nearly every hospital-based physician in Maryland is in the CareFirst network, Sammis said.

Considering the number of people insured by CareFirst, the overall number of complaints is small but growing, Sammis said. CareFirst accounts for about 54 percent of all health care coverage in the state.

In 2006, the Maryland Insurance Administration received 89 complaints related to out-of-network benefits. In 2008, the latest figures available, the number grew to 339. Sammis estimated that between 80 percent and 90 percent of the complaints were from people insured by CareFirst.

But CareFirst executives warn the bill could cause wide-ranging problems. Physicians could leave the network to charge higher rates and still get payments sent directly to them, which would in turn drive up reimbursement rates for even in-network providers, Merson said.

If the legislation is enacted, the costs to CareFirst will go up higher still and the company will have to pass that on in the form of higher premiums to be paid either by the businesses that offer CareFirst or by their employees as a higher share of their deductible, Merson said. CareFirst has had the "unfortunate task" of increasing premiums each quarter for the past 10 quarters, Merson said.

"As a nonprofit, we have no profit motive to raise the rates," Merson said. "If the premium goes up it's because the costs go up."

That could lead to more people dropping coverage, Merson said.

"We'll end up with an underinsured or uninsured population," Merson said.