Everyone hates surprise medical bills, and our elected officials are finally taking notice. A few years ago, my wife received a $700 surprise medical bill after a Texas hospital performed diagnostic testing. Unfortunately, not everyone who worked at her (in-network) hospital was affiliated with the network of her health plan. Neither was she warned of that in advance.
It could have been worse. In 2014 a man in New York state received a surprise bill for $117,000.
Surprise medical bills occur when patients either unknowingly receive or cannot avoid receiving medical care from physicians and therapists, or in hospitals, clinics, and labs that are not in the provider networks of a patient’s health plan. Many out-of-network providers purposely refused to join provider networks so they can charge fees many times higher than the usual and customary fees reimbursed by health plans. When out-of-network provider fees exceed health plans’ in-network rates, patients often must pay the outstanding balance (even if they could not avoid the out-of-network provider).
The medical establishment refers to this practice as balance billing. Providers patients do not choose or meet prior to care are the ones most prone to charge higher fees. For example, consumers have no discretion over the anesthesiologist on call the day of surgery or the ER doctor in a emergency department. Under the balance billing business model, this is a feature, not a bug.
The Subtle Injustice of This Practice
Surprise medical bills are a growing problem across the country. It’s to the point that even careful patients find it difficult to avoid surprise medical bills. For example, consumers visit an emergency room that posts misleading signage claiming “We accept all insurance.” Patients later discover the facility did not actually have an agreement with its health plan—or perhaps any health plan.
Emergency room physicians often shun provider networks because consumers have little opportunity to go elsewhere in emergencies. Many couples experience surprise bills when having a baby. Perhaps it’s an out-of-network lab where a specimen is sent or an on-call pediatrician who examines the baby.
Balance billing has become a strategy many providers use to boost revenue beyond what health plans customarily pay. Providers like to blame balance billing on narrow networks and lower network reimbursements. Yet it is doubtful balance billing would go away even if insurers and health plans were to double or triple the provider fees they pay. Why? Because patients have proven to be a source of additional revenue too lucrative for many providers to ignore.
Consider this: More than 90 percent of physicians participate in Medicare, while more than two-thirds accept new Medicare patients. This suggests physicians earn enough off Medicare’s lower fees that most doctors find it sufficiently rewarding to treat seniors. Private health plans pay about 25 percent more than Medicare pays for the same service, on average. Yet in a recent survey of physician fees published in the Journal of the American Medical Association, individual physicians billed anywhere from the rate Medicare pays to 101 times what Medicare pays. The median fee was 2.5 times Medicare fees, so some providers’ fees are beyond exorbitant.
President Trump and a bipartisan group of members of Congress have all expressed support for protecting Americans from surprise medical bills. The group, led by Sen. Bill Cassidy (R-LA), proposes to hold patients harmless, requiring them to pay no more than in-network cost-sharing. Cassidy proposes a payment standard based on average in-network fees in the area or 125 percent of the average allowed amount for the same service in the same region by a similar provider, whichever is higher. Cassidy would also require greater transparency in non-emergency situations. As Congress grapples with what to do about surprise medical bills, many states have already tackled the issue and can serve as a model.
Protection Already Exists for Some
Half of states have some type of surprise medical bill protection for people visiting ERs or in-network hospitals, according to the Commonwealth Fund. Yet only nine states have comprehensive protections using multiple methods.
For instance, some states ban balance billing outright. These states often require health plans to pay average in-network fees or a percent of what Medicare pays, whichever is higher. A few states require insurers to pay entire surprise medical bills, rather than consumers. Many states (like Texas) use a form of arbitration or a mediation process between the out-of-network providers and health plans.
If members of Congress want to see what works and what could be improved, they should look at Texas. The Texas legislature created consumer protections from surprise medical bills in 2009 and later expanded them in 2017. The program allows Texans to ask the Texas Department of Insurance (TDI) to mediate out-of-network bill disputes between providers and health plans. There are limitations, however.
When the program was designed, patients who went to in-network hospitals or clinics were eligible. Patients had to meet a $1,000 threshold before TDI would intervene, which was lowered to $500 in 2017. Initially only out-of-network bills from selected specialists were eligible for mediation. This was later expanded to include all out-of-network physicians at an in-network hospital. Yet TDI has no power to intervene if the health plan is not regulated by the state of Texas.
Most large employer plans are regulated under the federal Employee Retirement Income Security Act of 1974 (ERISA). Neither is assistance available to help uninsured Texans gouged by rogue providers.
One weakness of the program is the surprise medical bill problem is too large to mediate. Requests arising from surprise medical bills increased more than 100-fold during the past five years of Texas’ program—growing to 4,519 requests in 2018. TDI is expecting a 78 percent increase in mediation requests in 2019, projected to reach 8,000 by the end of the year.
Although mediation helps, a solution besides mediation is needed. Texas and other states need to identify solutions that discourage billing disputes in the first place. A new bill sponsored by state Sen. Kelly Hancock (R-North Richland Hills) would hold patients harmless for fees in excess in-network cost-sharing and remove them from the fee dispute. The bill would also force providers to negotiate with insurers to arrive at a settlement fee.
In most other areas of our economy, a meeting of the minds (also known as mutual assent) is required to have an enforceable agreement under contract law. Duke University law professor Barak Richman believes the legal concept of mutual assent could be used to protect patients from excessive out-of-network provider fees.
How To Help Consumers
The first step to protecting consumers is to get them out of the fee disputes between providers and health plans. Another important step to reducing surprise medical bills is to require greater transparency in physician, clinic, and hospital charges. Providers should also be required to make their network affiliations more transparent to patients.
How do we boost transparency? Simple: by making it more difficult to collect outstanding medical bills when patients are treated by a provider that did not disclose network affiliations and provide a cost estimate well prior to care. Hospitals could be responsible for negotiating and disclosing the fees of those providers who work inside the hospital.
There is certainly nothing wrong with providers declining to join provider networks. Health care providers in competitive markets should be free to establish fees in accordance with market conditions where they provide care. However, providers should not be allowed to profit from subterfuge, gaming the health-care system by intentionally keeping their network status and prices a secret until it’s too late.
