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Lawmakers Can Prevent Surprise Medical Bills, Lower Health Costs

At a hearing tomorrow, the House Energy and Commerce Committee will discuss a proposal from Chairman Frank Pallone and Ranking Republican Member Greg Walden to protect patients from large bills when they unexpectedly or unknowingly receive care from an out-of-network provider. Lawmakers of both parties have offered several such proposals in recent months. As they refine these proposals, lawmakers should aim to protect patients and reduce health care costs.

Surprise bills generally arise when someone receives out-of-network emergency care or encounters an out-of-network practitioner or service while receiving care at an in-network facility. For example, an insured person may identify a hospital and surgeon within their plan’s network for a needed procedure, unaware that the assistant surgeon or anesthesiologist that the hospital secures for the procedure is out of network. The patient may then be billed up front for the full amount of the ancillary providers’ care and get little or no reimbursement from their health plan, and those large costs won’t count toward their deductible or limit on out-of-pocket costs. For some patients, surprise medical bills can be financially catastrophic.

All major congressional proposals to address surprise billing would take important steps to protect patients. They would take patients out of the middle of payment disputes between health plans and providers, limit patients’ cost-sharing to what they would normally pay for in-network services, and require that plans count patients’ cost-sharing toward their in-network deductible and out-of-pocket maximum. They’d also prohibit providers from “balance billing” — that is, charging their patients the difference between the provider’s full charge and what the health plan pays, rather than accepting the plan’s reimbursement as full payment.

The crux of the surprise billing problem is that ancillary providers whom patients don’t choose (like the anesthesiologist in the example above) have a win-win financial opportunity: if they stay out of network, they can balance-bill patients who come from the in-network facility, and if they decide to participate in a plan, they can use that balance-billing option as leverage to negotiate excessive in-network rates. Physicians in anesthesiology, emergency medicine, and diagnostic radiology — specialists who are particularly likely to balance-bill — have median charges at least four times greater than Medicare rates, compared to two to three times the Medicare rate for other specialists, a recent study found.

Two options that lawmakers are discussing stand the best chance of addressing surprise bills for patients while lowering inflated prices due to balance billing.

  • Guaranteeing that all providers at an in-network facility are also in network. Under this option, a facility would have to require each provider to contract directly with its in-network health plans. Alternatively, providers could be prohibited from billing directly; instead, their payment would be folded into the facility’s charges, which would eliminate the possibility of out-of-network billing and force the facility and providers to negotiate mutually acceptable rates.
  • Establishing a payment benchmark. Pallone-Walden and some other proposals would require plans to pay out-of-network providers the median rate they pay in-network providers for the same or similar service in that geographic area. This would put a ceiling on rates and could reduce premiums, partly by encouraging providers that would otherwise stay out of network to instead negotiate with plans rather than accept the median rate. Setting a benchmark rate, however, could also lock in rates that are excessive and uneven across specialties and payers, as explained above. Preferably, the benchmark rate would be tied to Medicare rates, which are adjusted for geography and widely accepted.

Some lawmakers prefer arbitration as a way to settle these payment disputes. But it carries high administrative costs (even if the loser must pay both sides’ costs), so it might not be practical for lower-dollar disputes that can still burden individuals and raise health system costs. Arbitration also isn’t transparent, since neither the final rate nor the basis for it might be made public, and it lacks the predictability of a payment benchmark.

Lawmakers must work out other important details. Surprise billing has many forms, so legislation should take the broadest possible view of the potential care settings, practitioners, and insurance types. Legislation also should protect patients from excessive ground and air ambulance fees; no bipartisan legislative proposal to date has done so, though ambulances are frequently an out-of-network service. And to improve uniformity and avoid a patchwork of rules across states, the federal law should either preempt relevant state laws or allow them only when, relative to federal law, they’re more protective of patients and don’t raise costs.

The surprise billing problem also reinforces the need for good data on health care costs and quality. Much of the quantitative data comparing payments across specialties comes from claims databases, which many states have tried to build for the commercially insured population. But the Supreme Court (in Gobeille v. Liberty Mutual) barred states from mandating reporting by self-funded group health plans that are regulated by the federal Employee Retirement Income Security Act (ERISA), which account for a large share of total health insurance enrollment.

Cost-containment legislation that the Senate HELP Committee has proposed would create an alternative pathway to collect claims information from self-insured plans and others, which employers, providers, plans, and academic researchers could then use to advance public understanding of costs, utilization, quality, and price variation among providers. Data like these could facilitate research to improve the quality of care, identify ways to deliver care more efficiently, and provide critical information for understanding surprise billing and other payment issues.


Director of Health Insurance and Marketplace Policy