Influence of Out-of-Network Payment Standards on Insurer-Provider Bargaining

California's Experience

Published in: The American Journal of Managed Care, Volume 28, No. 8, pages e243-e246 (August 2019)

Posted on RAND.org on August 23, 2019

by Erin L. Duffy

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Objectives

To examine the early effects of California's recent policy addressing surprise medical billing (AB-72) on the dynamics among physician, hospital, and insurer stakeholders and to identify the influences of the policy's novel out-of-network (OON) payment standard on provider-payer bargaining. This study can inform current policy formation, given that current federal proposals include a payment standard like that in AB-72.

Study Design

Case study of the implementation of AB-72 and stakeholders' perspectives, experiences, and responses in the first 6 to 12 months after policy implementation.

Methods

Semistructured interviews were conducted with 28 individuals representing policy experts, representatives of advocacy organizations and state-level professional associations, and current executives of physician practice groups, hospitals, and health benefits companies. Related documentation was collected and analyzed, including bill text, rule making guidance, testimony before the California Senate Committee on Health, and advocacy letters. Qualitative analysis techniques, such as process tracing and explanation building, were employed to identify key themes.

Results

AB-72 is effectively protecting patients from surprise medical bills. However, stakeholders report that an OON payment standard set at payer-specific local average commercial negotiated rates has changed the negotiation dynamics between hospital-based physicians and payers. Interviewees report that leverage has shifted in favor of payers, and payers have an incentive to lower or cancel contracts with rates higher than their average as a means of suppressing OON prices. Physicians reported that this experience of decreased leverage is exacerbating provider consolidation.

Conclusions

California's experience demonstrates that OON payment standards can influence the payer-provider bargaining landscape, affecting network breadth and negotiated rates.

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