It’s My Birthday and All I Got Was This Surprise Medical Bill

Yes indeed, it was my birthday this week! I didn’t actually receive a surprise medical bill for my birthday (thank goodness!), but there sure is a lot of buzz on the topic in Washington D.C.! With the increase in high-deductible health plans in America, patients are feeling the financial impact of their healthcare services more directly than ever.

What exactly is a “surprise medical bill,” and why is it a problem?
Proposed surprise medical bill legislation specifically addresses the conundrum of in-network and out-of-network healthcare providers. For example, if you visit the Emergency Department of a hospital that is in your insurance plan’s network, yet the physicians group that staffs the ED is out-of-network, the patient would receive a surprise medical bill. Many hospitals use out-of-network consulting services such as radiology and pathology. If a patient utilizes a hospital with outsourced services, they could end up receiving a surprise medical bill, even though the hospital they visited was in-network. Another such situation resulting in a surprise medical bill would be using an out-of-network ambulance, regardless if it is air or ground transportation. Situations such as these, along with the increase in high-deductible health plans, results in a rise in liens on homes, bank accounts and taxes, garnished wages, and crippling medical debt. The Kaiser Family Foundation completed a national poll of partisans, asking whether or not the federal government should protect patients from balance billing for out-of-network services. The results of this poll shows that 90% of Democrats, 77% of Independents and even 61% of Republicans said “Yes.”

A new bipartisan proposal would remove patients from disputes between insurance companies, doctors and hospitals. This act would require that health insurers pay at least the median in-network market rate for the area. For bills that are above $750, either side could seek to have an independent arbitrator resolve the conflict if they disagree with the benchmark rate. This act is the marriage of the first two solutions below.

Possible Solution Number #1 – Regulate Out-Of-Network Payment (“Burn in Hell”)
The first possible solution to reducing surprise medical bills comes out of the Senate. Senators Bill Cassidy (R-LA) and Maggie Hassan (D-NH) offer a two-fold proposal: step one – prohibit balance billing, and step two – regulate out-of-network payment. The plan seems relatively simple at first glance, but big questions remain about how prices would be set. Would the payment standard be a percentage of Medicare reimbursement? Or a percentage of average in-network payments?

This is similar to a plan some health plans are enacting called “reference-based pricing.” It’s a simpler solution compared to others that have been proposed, but it significantly reduces the ability for providers and insurance companies to negotiate contracted rates. A large health system in North Carolina decided not to participate in such a health plan that capped provider payments at 160% of the Medicare rate for inpatient care and 230% of the Medicare rate for outpatient services. An administrator from the system sent an email to the health plan that read, “Burn in hell, you sorry SOBs,” further stating that the plan “would financially destroy every hospital in this state.” Mandating a program like this for out-of-network payment would likely distort some of the market forces left in healthcare.

Possible Solution Number #2 – Baseball-Style Arbitration
The second possible solution to reduce out-of-network pricing comes out of the House. Representatives Frank Pallone (D-NJ) and Greg Walden (R-OR) offer a similar restriction against balance billing, but include baseball-style arbitration for determining what the payment should be. In Major League Baseball, most young players with less than three years of major league “service time” earn the league minimum salary. However, once they reach three years, they become eligible for salary arbitration. The team submits a salary offer, the player submits a salary offer, and a third-party arbiter decides which salary is the fairest; no compromise.

Balance billing patients would still be prohibited, but arbitration would not be between the patient and the provider each time a service is rendered, but instead with the insurance company and provider for a set period. The biggest questions around this solution are who would set the guidelines for arbiters, and what should those guidelines be? It does maintain market forces to an extent, but administratively, a system like this is very burdensome.

Non-Legislative Possible Solution – In-Network Matching Guarantee
Another possibility is for hospitals to voluntarily offer an in-network matching guarantee. This means that any doctor or clinician who treats a patient at an in-network hospital would have to accept the patient’s in-network payment rate. It seems like a nice way for hospitals to differentiate themselves from neighboring hospitals to increase market share, but could discourage physician groups to practice at their hospitals.

Who Wants What?
Once again, the money fight in healthcare is between insurers, hospitals and clinicians. Insurers want federal payment standards to be set, which would likely lower reimbursement benchmarks for setting contracted prices. Providers, for the most part, prefer the arbitration style approach to settling payment disputes, since it would make the process to challenge their out-of-network rates more difficult. Limiting out-of-network payment rates could significantly distort the importance of contracting between insurers and providers. A hospital threatening to leave an insurer’s network gives them leverage to negotiate higher payment rates, and an insurer threatening to leave a provider out of their network gives insurers more leverage to negotiate lower payment rates. How surprise medical bill legislation impacts this dynamic will be interesting to follow in the coming years. We will continue to keep an eye on this issue to see where it goes.