Addressing Surprise Medical Bills Without Raising the Cost of Health Care


Apr 1, 2019

A medical bill showing balance due, photo by DNY59/Getty Images

Photo by DNY59/Getty Images

This commentary originally appeared on The Hill on March 31, 2019.

U.S. senators on both sides of the aisle and President Trump have declared a need to protect patients from surprise medical bills.

Insured patients who try to stay within their insurers' networks can be hit with these bills when they unknowingly receive care from out-of-network physicians in emergencies or at hospitals in their insurers' network where the doctors are not in the insurer's network.

Out-of-network physicians bill the patient's insurer their list price, which is similar to the sticker price of a car—a price few people actually pay.

If the insurer doesn't pay the physician in full, the physician may send the patient an unexpected “surprise bill” for the balance not paid by the insurer, which can be for thousands of dollars. One in five hospital admissions from emergency departments and one in ten elective admissions can have a surprise bill.

While several states have taken actions to address surprise billing, as federal legislation is considered, it is important to weigh the potential effects of the proposed legislation on the overall cost of health care—not just the implications for surprise bills.

As consumers, people tend to focus on out-of-pocket liability, and individual cases of egregious surprise billing have a shock-value that grabs attention. However, it is also important to keep a close eye on the less salient payments that insurers make to physicians because these are passed on through the prices of premiums.

The wrong solutions could raise costs for everyone. Any action that limits patients' out-of-pocket liability must also account for the amount owed to physicians by insurers so that costs don't get passed on to everyone.

Existing state policies to address surprise billing set payment standards or invoke arbitration processes with a legislated benchmark to inform arbitration, such as multiples of Medicare rates, average contracted rates and/or percentiles of charges.

How much should a physician be paid for providing a service that is critical but rendered without the patient's ready ability to choose a provider that is “in-network?”

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How much should a physician be paid for providing a service that is critical but rendered without the patient's ready ability to choose a provider that is “in-network?”

Senators are wrestling with this question, and they have recently requested analysis from insurers and health-care providers on the use of charges, contracted rates and Medicare as benchmarks.

As they absorb physician and insurer input, policymakers would be wise to consider the potential impacts of physician payment on the total cost of care.

Physician groups say their charges (PDF) reflect the real value of their services and should be the basis for setting payment standards in these scenarios. But charges are often not subject to competitive market pressures.

Average charges for emergency services are more than double the amount insurers typically pay and four times Medicare rates. Pegging insurer payment obligations for involuntary out-of-network services to such charges would cost everyone more.

Physicians would collect on this high price for their out-of-network services, and they could also use the threat of these high charges at the negotiating table to strong-arm insurers into higher in-network rates since the only alternative to making a deal would be for insurers to pay the full out-of-network charges.

This happened in New Jersey, where a policy aimed at protecting patients from surprise bills while requiring insurers to pay out-of-network physicians' full charges increased physicians' leverage to raise in-network rates.

Protecting consumers from unexpected out-of-pocket expenses while requiring insurers to pay a high payment for involuntary out-of-network services won't actually reduce prices. It will simply split the bill among all consumers in the form of higher premiums.

On the flip side, establishing a lower payment standard may have cost-containing effects by reducing both direct payments for out-of-network services and physicians' leverage in contracted rate negotiations.

California set a payment standard for out-of-network physician services at in-network hospitals at the greater of 125 percent of Medicare or average contracted rates. In both California (PDF) and Medicare Advantage, this policy lowers physicians' negotiating leverage and reduces in-network rates.

These proposed solutions to surprise bills share a common mindset: They take providers' out-of-network status as a given and do not attempt to bring them in-network. But network status is critical. In-network providers cannot engage in surprise billing.

Moving providers from out-of-network to in-network status could solve the surprise billing crisis without requiring policymakers to set benchmarks, arbitrate or otherwise stroll into the minefield of provider payment rates.

To bring more providers in-network, policymakers could make failure to agree on network payment rates less attractive for both providers and insurers.

For example, publicly reporting instances of surprise out-of-network billing, either by systematically surveying patients about surprise billing or analyzing multipayer claims databases, could warn patients to avoid hospitals and insurers whose patients receive surprise bills and pressure providers and insurers to contract with each other.

The bipartisan Senate working group has stated an intention “to protect patients from costly surprise bills while preventing undue disruption in the health care system.” But disruption is inevitable when addressing surprise billing.

Changes to out-of-network practices could have a dynamic effect on contracting between insurers and physicians. It is in consumers' best interests to let those effects err on the side of cost containment. If the spirit of the policy is consumer protection, then look to Medicare and average contracted rates as benchmarks for physician price.

Erin Duffy is an assistant policy researcher, Mark Friedberg is a senior physician policy researcher, Christopher Whaley is an associate policy researcher, and Chapin White is an adjunct senior policy researcher at the nonprofit, nonpartisan RAND Corporation.