Away from the headlines and ideological food fight over Medicare for All, Congress has quietly been working to fix the problem of “surprise medical bills”—a situation whereby individuals with insurance coverage nonetheless find themselves facing exorbitant unexpected bills from out-of-network providers. The problem has become so bad that Republicans and Democrats have even started to agree on reforms, with bipartisan proposals this month being introduced in both chambers to address it.
Currently, hospitals, doctors, and other medical providers who treat out-of-network patients are often allowed to subsequently bill them whatever charges they have unilaterally chosen to set, even if patients were not aware of the associated prices before they received care. This tends to be most problematic in two types of situations: First, when individuals seek emergency care from a hospital that has refused to accept insurers’ proposed rates as full payment for treatment; and second, when physicians or other medical providers, whose services (emergency or otherwise) are delivered at in-network hospitals, choose to remain out-of-network.
This has become more than an occasional unfortunate incident because medical providers have systematically used the threat of being able to impose exorbitant unexpected bills on patients, to drive up the reimbursement rates they are able to claim from insurers in return for being part of their networks.
The House bill, proposed by the Democratic Chairman (Frank Pallone) and Ranking Republican (Greg Walden) of the Energy and Commerce Committee, would establish a default minimum payment for out-of-network care equal to the median payment made by insurers to providers in their networks delivering equivalent services in the same geographic area. It would require insurers to cover the same share of emergency medical costs for out-of-network providers as they do at in-network providers, and prohibit providers from charging patients additional amounts.
Although this proposal relates only to out-of-network payment arrangements, it would have pervasive effects, as these are an important factor in negotiations between insurers and providers over contracted rates. Establishing a minimum reimbursement for out-of-network providers set at the median of in-network rates, would surely establish a “Lake Wobegon” dynamic, by which no provider would ever agree to in-network terms for emergency care below the median rate—driving both the in-network median and out-of-network minimum up over time.
Yet relatively high-priced out-of-network providers delivering care at in-network facilities, who currently exploit surprise billing to impose the most inflated charges, would likely be subject to an opposite dynamic—facing reduced reimbursement levels, as insurers become able to pay the in-network median rate, by leaving them out of networks. This would particularly affect anesthesiologists, radiologists, and other providers of ancillary services—classes of medical professionals whose average private rates exceed Medicare fees by the largest margin.
For hospitals that are currently priced above the in-network median, the likely consequences would be more complex. Insurers might wish to drop above-median-priced facilities from their networks of preferred providers if they know their enrollees could be given emergency care treatment at the out-of-network rate (Hospitals are required by the Emergency Medical Treatment and Labor Act of 1986, commonly referred to as EMTALA, to stabilize the condition of patients arriving needing emergency treatment, regardless of reimbursement.) But prices will likely not be forced all the way down to the median, as (beyond immediate hospital care necessary for stabilization) medical providers may simply refuse to deliver services if they are not paid their desired rates.
This dynamic may further be constrained by interaction with existing network adequacy regulations, as any reform can be expected to increase providers’ lobbying efforts for these to be strengthened.
The danger of a payment floor
To the extent a comprehensive payment floor is established, open to any willing provider, without any ability of insurers to steer enrollees to in-network providers, an open-ended entitlement to reimbursement for medical providers may be established, whose costs insurers would struggle to constrain. Should such a combination of rules be applied to various medical services, price competition would essentially be eliminated.
That might not be such a big problem if these rules are tightly limited to a small set of emergency-care services, for which there is already little price competition, but providers would face a great temptation to gradually expand the definition and scope of such generous reimbursement arrangements if allowed to do so. Even for some emergency services this might be problematic. We would not, for instance, want to get rid of incentives for urgent care facilities to price services much below hospital emergency departments, or to eliminate the ability of insurers to steer lower-acuity cases to them.
It is therefore important to strictly limit the scope of any out-of-network reimbursement floor. The requirement that insurers pay out-of-network providers at least benchmark rates, and the restrictions on insurers’ ability to impose out-of-network cost-sharing, should therefore only apply to a subset of medical procedure codes associated with emergency stabilization of patients in line with EMTALA rules. The financial responsibility for limiting out-of-pocket costs associated with all other care, such as that from out-of-network providers practicing at in-network facilities, should fall on that facility, rather than the insurer directly. The facility has control over which ancillary providers are employed, and the incentive for that to be done cost-effectively should rest with them.
Differences between providers
Calculating median in-network rates will itself likely pose several challenges, given differences between various providers.
First, there is the issue of the geographic scope of markets from which that median will be calculated. If this is too broad, then providers will rightly complain they are being benchmarked against providers in entirely different circumstances. If it is too narrow, then problems may arise if no providers are willing to enter into networks, and no benchmark may be produced at all. A fallback arrangement for such a situation would surely be needed.
Second, some hospitals will doubtless argue that they offer unique capabilities and quality of care, and deserve reimbursements for emergency care that are higher than the local median. That argument will surely be recited by a variety of lobbyists to the point of cynicism and beyond, but would have legitimacy in important cases—most clearly that of trauma centers of various levels, for which there are often intentionally no local peers.
Adding an array of facility-by-facility adjustments would surely invite a festival of special-pleading, and should be avoided. An appropriate response may instead be to distinguish procedures by facility types—allowing trauma centers to be compared with those further away for specialized procedures, but not more routine ones.
Manipulability of benchmarks
The House proposal would essentially equalize emergency care cost-sharing at in-network and out-of-network facilities. This would make emergency care provider networks meaningful primarily as the basis for out-of-network payment benchmarks. This would immediately make them a target of manipulation by providers and insurers alike—unlike Medicare Advantage’s default rates for out-of-network services, which are fixed exogenously by the Medicare fee schedule.
From a political point of view, it's understandable that existing in-network rates are seen as a less disruptive benchmark for default out-of-network payments than Medicare fees, given the disparity between the two, and the complex variation in that disparity across medical specialties, facility types, and regions. Benchmarks based on existing in-network rates would also mean a less disruptive transition than going to rates based on a percentage of Medicare fees—especially as these fixed fees do not exist for many classes of provider, such as rural Critical Access Hospitals.
To prevent providers and insurers from respectively trying to distort benchmark out-of-network rates by strategically manipulating network participation, payment benchmarks should be tied to in-network rates that existed prior to the reform, indexed by growth in medical costs. Such rates would likely need iterative adjustment by subsequent legislation over time, but such an arrangement would be necessary to avoid their manipulation.
The main aspect of the Senate bill, proposed by Senators Cassidy, Bennet, Young, Hassan, Murkowski, and Carper, which differs from the House version, is the inclusion of a provision for a right of appeal to Independent Dispute Resolution.
The idea of empowering independent arbitration has often been discussed as an alternative to a statutorily-specified out-of-network payment benchmark. As such, one ought to be wary of it as a form of buck-passing and an attempt to avoid taking a deliberate position on unavoidable trade-offs. There is certainly a danger that unguided arbitration might well inadvertently make things worse, by establishing broad payment standards which evolve into a form quite unintended by legislators.
However, the Senators’ proposal appears to employ arbitration only as a back-up, to which parties could appeal if they were unhappy with the specified in-network median benchmark payment standard, which it could helpfully complement. Indeed, in this auxiliary role, arbitration could help allow reasonable exceptions to be made for cases in which local in-network market averages are unavailable or inappropriate.
The immediate imposition of a flat out-of-network payment default for each local market would likely have distributive consequences: with relatively expensive providers being threatened with sudden cuts in revenues, and low-priced providers being able to capture a sudden revenue windfall. Such an auxiliary form of arbitration might therefore facilitate a more appropriate transition from unconstrained to regulated out-of-network rates, by providing flexibility for their adjustment in accordance with unanticipated local market idiosyncrasies.
A body of rules and precedents could then accumulate over time, filling in gaps in rules and adjusting them for exceptional situations, without granting insurers or providers unchecked power to exploit unanticipated circumstances. Yet, it would be important for Congress to place explicit bounds on the right of arbitrators to deviate from established payment rules—so that the process of arbitration is not used to entirely break free from rules, to evolve into something unintended or become a mechanism of first-resort, as a result of interest group pressure. Such guardrails, combined with the requirement that the non-prevailing party pay the costs of arbitration, would also help keep associated administrative expenses minimal.
Payment benchmarks and arrangements
It has become necessary to establish default reimbursement rules for out-of-network care, but the establishment of a guaranteed floor in reimbursement should be limited to a small set of procedures for the stabilization of high-acuity emergency patients. Otherwise providers may seek to expand their scope to impede price competition more generally. For other services, contracting facilities should be prohibited from balance billing patients, and made responsible for negotiating terms with insurers that protect patients from surprise out-of-network bills associated with services delivered there.
Out-of-network payment benchmarks should be based on indexed in-network rates prevailing prior to the enactment of legislation, to avoid their manipulation by involved parties. Arbitration can play a helpful role, so long as it remains auxiliary to generally well-specified rules. The proposed reforms do not cover the uninsured, but such protections could probably be extended to them without too much difficulty.
The development of a good set of default out-of-network payment arrangements is likely to be an incremental process of trial and error. Policymakers should therefore be wary of political compromises with excessively inflationary consequences being made at the outset. If a floor mandating reimbursement by insurers to providers is set too low, it can easily be moved up (by states or the federal government)—but is unlikely to ever be moved down.
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