State approaches to mitigating surprise out-of-network billing

Ambulances are parked outside the emergency room entrance at Mount Sinai West Roosevelt Hospital in New York
Editor's note:

This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between the Center for Health Policy at Brookings and the University of Southern California Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings.
Through a grant from the Laura and John Arnold Foundation, Brookings is working to critically evaluate the prevalence, drivers, and policy implications of surprise medical billing, as well as develop potential nonpartisan policy solutions.

Attention to the issue of surprise out-of-network billing continues to grow, with more and more states taking action and the federal government now actively considering legislation to address the problem.These surprise bills occur when patients are treated by providers outside their health plan’s contracted network under circumstances that cannot reasonably be avoided. Circumstances can include emergency services or services delivered to patients at in-network facilities by out-of-network specialty physicians or other providers that patients typically have no role in choosing – most commonly, ancillary physicians (anesthesiologists, radiologists, pathologists, and assistant surgeons). Unfortunately, surprise out-of-network bills are frustratingly common.

In “State Approaches to Mitigating Surprise Out-of-Network Billing” (PDF), Loren Adler, Matthew Fiedler, Paul Ginsburg, Mark Hall, Erin Trish, Christen Linke Young, and Erin Duffy dissect why surprise out-of-network billing happens and detail a suite of potential policy responses and what impacts each would have. The paper concludes with policy recommendations to eliminate surprise out-of-network billing in a manner that reduces currently inflated health care costs.

Figure 1. Percentage of visits leading to a potential surprise out of network bill

Normally, negotiations between health plans and physicians are driven by a price-volume trade-off, in which a physician is willing to accept a lower per service price in exchange for the health plan effectively steering more enrollees to that physician by including the physician in its network. However, for facility-based emergency department (ED) and ancillary physicians, as well as hospitalists, patient volume is largely unaffected by whether the physician is in-network or not. While patients seeking emergency care usually go to a facility in their insurer’s network, once at the ED they typically have no choice over the specific physicians treating them. Similarly, for elective care, insured patients regularly seek a network facility and primary physician, such as a surgeon, but then have no choice over which ancillary physicians treat them. A similar dynamic applies for emergency ambulance transport since ambulances tend to be centrally dispatched and patients almost never have a choice of which ambulance company transports them in an emergency.

As a result, ED and ancillary physicians, as well as hospitalists and ambulance companies, have a potentially lucrative out-of-network billing option that is unavailable to almost any other provider. And not surprisingly, given that the amount charged to out-of-network patients faces few market constraints, emergency medicine and ancillary physicians have much higher charges (or “list prices”) than other specialists relative to Medicare payment levels on average, with extremely high charges at the top end.

Table 1. Ratio of charges to Medicare rates by physician type, CY 2016

Not only are surprise out-of-network bills financially burdensome to the individual patients receiving them, but ED and ancillary physicians’ ability to engage in out-of-network billing enables these physicians to demand high in-network rates, which makes contracting with these physicians quite costly, and in turn increases insurance premiums. The paper, therefore, focuses on solutions that wouldn’t bake in today’s inflated costs.

Figure 4. Average contracted payment relative to Medicare rates for selected specialtiesRecommendations for Action

In crafting a solution to surprise out-of-network billing, our chief objectives are to protect patients in a comprehensive manner and to restore more normal market dynamics to contracting for emergency department and ancillary clinicians, which should in turn reduce health care spending. Below, we describe two approaches to achieving these objectives, which we believe would have similar effects in practice.

Option #1: Billing Regulation Only

The first option is a pure billing regulation approach. Under this approach, states would:

  • Set a limit on out-of-network charges equal to a multiple of the relevant Medicare rate in line with what non-emergency or ancillary specialists with similar training are paid by commercial payers. Given existing national data and the limited risks to setting the charge limit below “normal market” rates, we believe that 125 percent of the relevant Medicare rate would constitute a reasonable limit. States could modify the multiple, either statewide or by market area, to reflect local market conditions.
  • Require fully-insured health plans to hold enrollees harmless for any cost-sharing beyond normal in-network cost-sharing amounts for these out-of-network services (and count such cost-sharing toward in-network deductibles and out-of-pocket limits).
  • Apply these requirements to: (1) out-of-network emergency services (including ambulance transport but excluding services delivered after transfer to an in-network facility is offered); and (2) out-of-network ancillary clinician, hospitalist, and neonatology services delivered at an in-network facility (where a facility is defined as a hospital, ambulatory surgical center, or freestanding emergency department).

Option #2: Hybrid of Billing and Contracting Regulation

The second option is a hybrid billing regulation/contracting regulation approach. For out-of-network ambulance services and emergency services delivered at an out-of-network facility, states would implement the billing regulation approach described under option #1. For the other services enumerated in the third bullet above—emergency, ancillary clinician, hospitalist, and neonatology services delivered at an in-network facility—states would bar independent billing, thereby implicitly requiring that insurers pay for these services entirely through payments to the facility at which they practice. (Facilities would then compensate clinicians delivering these services directly.)

By enacting either of these approaches, states could largely protect all privately-insured state residents from surprise out-of-network bills, regardless of whether they are enrolled in a fully- or self-insured health plan. And by eliminating the lucrative out-of-network billing option for ED and ancillary physicians, these approaches could also reduce health care spending and insurance premiums (although for option #1, this reduction would likely only occur if policymakers set a charge limit sufficiently far below the inflated amounts currently paid for these services). States can enforce these regulations on providers as a condition of provider licensure or facility certification, and on fully-insured health plans through existing insurance regulatory processes.

These two options could also serve as a blueprint for action at the federal level, with a few modifications. If pursuing option #1, the federal government could require self-insured (in addition to fully-insured) health plans to hold enrollees harmless for any costs beyond normal in-network cost-sharing amounts associated with surprise out-of-network services. The federal government could also extend the billing regulation approach we recommend for ground ambulance and out-of-network emergency services to air ambulance services (which states are prohibited from doing). If enacting a federal solution, Congress would also have to decide whether to supersede existing state reforms, which range widely in their comprehensiveness and effectiveness.

Read the full report here.

Additional resources on surprise billing are available here.