April 4—The fault line in congressional discussions this week on addressing surprise medical bills involved the best approach to determining provider payment in such situations.
The House Education and Labor Committee’s Subcommittee on Health, Employment, Labor, and Pensions heard from researchers who have examined varying legislative approaches that states have taken to curtail the practice.
“This issue has risen to be the top healthcare issue people are concerned about,” Rep. Tim Walberg (R-Mich.) said.
Walberg cited a 2018 Kaiser Family Foundation poll in which surprise billing was identified as the leading healthcare concern of the public. He said 39% of working-age adults have received a surprise medical bill for services they thought were covered by insurance.
Christen Linke Young, JD, a fellow, at the Brookings Institution, said research estimates 20% of emergency department (ED) visits and 10% of inpatients stays involve at least one out-of-network provider.
Such bills “represent a market failure,” Young said.
Young urged federal legislation to include the establishment of an out-of-network provider price for services, either through negotiations or rate setting.
“It is critical that [payment] not be set at a rate that is too high,” Young said
Additionally, hospitals should establish insurance contracts that include all providers working in those facilities, Young said. However, such an approach needs to include “guardrails” to ensure it doesn’t become a form of bundled payment with much higher charges, said Ilyse Schuman, a senior vice president at the American Benefits Council.
Hospitals raise concerns
Still, Schuman urged federal legislation to require hospitals to bundle services provided into a single payment.
That idea drew strong opposition from the American Hospital Association (AHA).
In a letter to the panel, AHA wrote that “this approach would be administratively complex, fundamentally change the relationship between hospitals and their physician partners, and, alone, do nothing to protect patients from surprise bills. We strongly oppose such a model.”
Jack Hoadley, PhD, research professor emeritus at Georgetown University, said the most challenging component of surprise-bill legislation is determining how to set the payment standard. He warned that basing it on provider charges would drive up costs. In contrast, use of arbitration for out-of-network charges encourages insurers and providers to reach agreement before going to arbitration.
Rep. Phil Roe (R-Tenn.), a physician, said most providers would support benchmarking out-of-network payment rates to some share of Medicare’s rates, except for the deleterious impact of the Medicare wage index on providers in rural states.
“When you benchmark off Medicare, you’re discriminating against us,” Roe said about physicians in rural states.
But AHA warned against any national rate-setting for out-of-network services.
“Health plans and hospitals have a longstanding history of resolving out-of-network emergency service claims, and this process should not be disrupted,” AHA wrote. “We are particularly concerned that any attempt at setting a reimbursement standard in law will have significant consequences, including the creation of a disincentive for insurers to maintain adequate provider networks.”
The increasing incidence of “no-network, reference-based pricing models” among commercial plans suggests that approach has become an industry strategy, which would accelerate if plans simply could default to a government-established, out-of-network rate or methodology, wrote AHA.
Lessons in state laws
Hoadley noted 25 states have enacted laws that include varying levels of consumer protection from surprise medical bills. Nine of them have “comprehensive protections” that may apply to all types of insurance regulated by states and include some kind of payment standard.
“Although states are making progress in addressing surprise medical bills, they are looking for the federal government to protect residents in ERISA plans,” Hoadley said about self-funded plans.
Schuman said states have taken a variety of approaches to the issue, but most laws have been in effect for too little time to provide lessons to Congress. However, the use of binding arbitration in Texas appeared to have caused a backlog in settlements.
An Illinois law provided evidence that comprehensive approaches work best, giving insurance plans and providers incentives to resolve billing disputes by getting them to negotiate privately instead of mandating arbitration, Hoadley said.
Connecticut’s law, which set a payment rate standard, is effective because there is no ambiguity, he said. States using this approach have varied between using some share of Medicare rates or in-network charges.
However, “arbitration allows individual circumstances to be accounted for,” Hoadley said.
In states that use arbitration, the process ends up being a last resort for health plans and providers because it incentivizes resolving the case through negotiation to avoid the arbitration expense.
In New York, where a comprehensive bill was enacted in 2015, researchers have found “a general degree of satisfaction” and no inflationary effect on provider rates, Hoadley said.
“That’s an encouraging sign,” he said.
Rep. Joseph Morelle (D-N.Y.), who helped enact the New York measure when he served in the state legislature, said the law has resulted in only 800 arbitrations out of 7 million bills, while helping to settle about 2,000 billing disputes.
Morelle said out-of-network bills have declined by 34% and prices charged by in-network providers have dropped by 9% since the law took effect. Insurers, providers, and patient advocates told him that as a result of the law, “the system has changed for the better.”
Young, of the Brookings Institution, praised the New York law as comprehensive and transparent but criticized the hospital-backed legislation for guiding arbiters to focus on charges, which “has the potential to be inflationary over time.” Arbiters use a standard of 80% of the usual and customary charge, as determined by a state database.
“The problem with charges is they are not market-determined, so it is like saying, ‘The 80th percentile of your wish list to Santa,’” Young said. “Over time, there’s no constraint on your wish list to Santa.”
Schuman, of the American Benefits Council, agreed the New York law’s billed-rate approach “would fuel incentives for out-of-network providers to stay out of network and raise their charges.”