The Surprise Billing Revelation

“Surprise billing” is the hot healthcare reform topic du jour.

Also known as balance billing, surprise billing commonly refers to situations in which patients receive out-of-network emergency care or treatment from an out-of-network doctor at an in-network facility and then get hit with large, unexpected bills. The surprise charges, representing the difference between what the patient’s insurer paid and the non-discounted “list” rate charged by the provider, often are well above in-network or Medicare reimbursement rates for the same services.

Some news accounts have reported that one in five emergency room visits and one in 10 elective hospital admissions now result in such a “surprise bill.” Others project the extra charges total well into the billions of dollars annually. Across the country, lawmakers are hearing the agitation being expressed by the many families victimized by these billing practices, and both Congress and state legislatures are taking action.

The finger-pointing is rampant. Some blame insurers for moving to skinnier networks to save costs. Others blame providers and hospitals for charging rates disproportionate to the value of the services provided. Whoever we blame, there’s no question that surprise billing—aside from feeling fundamentally unfair—creates problematic incentives.

For example, because disputes over balance bills often are sent to arbitration for resolution—some state laws, in fact, require them to be settled by arbitration—providers have a perverse incentive to set the bill as high as possible and negotiate down from there.

Surprise billing might also financially incentivize large medical groups to stay out of networks that include the facilities where they perform services. Something akin to “network gerrymandering” raises serious network adequacy concerns, particularly in areas like ambulances (traditional and air), anesthesiology, radiology—and sometimes entire emergency departments—where patients can hardly choose to forego services.

The Response

Potential legal questions surrounding some of these practices range from claims of network inadequacy to false advertising to outright fraud. One consulting service challenges the magnitudes of these charges as not being justified. Some courts have sided with them, questioning whether there is “mutual assent” about price, particularly in emergency situations, and forcing providers to accept much less than the amount billed.

In response, many hospitals now require patients to sign contracts as a condition of admission guaranteeing payment of the hospital’s charges regardless of the level of insurance reimbursement. Some courts have found that this does constitute a valid contract—though even those courts have had a hard time determining how much the patient should owe, largely because the “right” price is hard to nail down in a marketplace in which prices are all over the map and often undisclosed because they are claimed to be proprietary.

Proposed policy solutions, not surprisingly, run into opposition from various stakeholders that stand to lose money if dollar amounts on bills shrink or if the obligation to pay shifts to someone other than the patient. But many policymakers are pressing forward anyway.

Some have decided to work on minimizing surprises in the first place. As with so many things in the sector, this is an area where more disclosure and transparency could be helpful. In non-emergency situations, for instance, up-front disclosures about out-of-network providers who work at a facility—and their costs—may help ensure patients schedule procedures with in-network providers. New Jersey took this approach and passed a law requiring providers to tell patients before scheduling an appointment about the provider’s network status and the costs the patient would likely incur from a procedure.

More generally, hospitals could publicly post specialties or services in which they lack providers who participate in the same networks as the hospital. Consumers would then have some mechanism by which to gauge their likelihood of encountering an out-of-network situation as well as the potential attendant costs at that facility.

Some solutions have been proposed to lessen the financial sting for patients (and minimize some of the aforementioned negative incentives). The most consumer-friendly approach is to remove the patient from the situation entirely, which several states have done, and obligating insurers and providers to work out the payment. But when insurers are put on the hook, the argument often goes, they will pass on the costs via higher premiums.

Another proposed solution is to cap balance bills at an amount pegged to Medicare rates (e.g., 125% of Medicare reimbursement for the same service). Providers generally do not support these proposals because they say the rates are too low.

Under another proposal, all providers at in-network facilities would be required to accept in-network rates. Notably, this could be driven by the private market rather than imposed by the government. In fact, some hospitals already require their in-hospital doctor groups to contract with the same carriers as the hospital, perceiving other arrangements as anti-patient, disruptive and potentially damaging to the hospital’s reputation. This practice was apparently more prevalent prior to the growth of mega medical groups, which generally assert more bargaining power over hospitals and, for financial reasons, may decline to participate in the same network as the hospital. Critics of the approach note that such arrangements give carriers a huge negotiating advantage over doctors, who then must contract with the insurer to work at the hospital. If the insurers insist on unreasonably low rates, entire groups may decide to walk away from the hospital.

Regardless of stakeholder opposition, major change is likely coming to surprise billing. Half the states have adopted some protections for consumers, and this issue has been the subject of presentations and discussions at recent meetings of the National Conference of Insurance Legislators and the National Association of Insurance Commissioners. So far, nine states have enacted comprehensive protections—California, Connecticut, Florida, Illinois, Maryland, New Hampshire, New Jersey, New York and Oregon. These measures include protecting patients in both emergency and non-emergency scenarios; removing patients’ responsibility for paying balance-bill charges, which leaves negotiations to insurers and providers; and an outright ban on balance billing.

More groups are agitating for federal action on balance billing to protect consumers in both the fully insured and self-insured contexts and to allow for adoption of a more comprehensive approach to such protection. Multiple federal proposals have been released, but lawmakers have yet to coalesce around any particular approach. One bipartisan proposal in the U.S. Senate, which applies to insured and self-insured plans, would limit patients’ cost-sharing to what they would have owed in-network; would set payment standards according to what insurers owe providers based on median in-network rates or averages of geographic prices for services; and would prohibit providers from balance billing patients.

There is no denying that balance billing is on policymakers’ radars. We can expect reforms of these practices in the not-so-distant future. It will be a true balancing act to avoid unintended consequences for networks and premiums, but there seems to be consensus emerging that the status quo—which traps American families in the middle—is not a viable option.