At a news conference last week, President Trump joined the bipartisan chorus calling for a national fix for the aggravating and costly nuisance of surprise medical bills. The principles the president laid out to protect consumers, while vague, point in the right direction, which is to say they would require the industry to take responsibility for solving most of the problem. Unfortunately, some of the ideas under consideration in Congress would go in the wrong direction. It is important to get this policy right for the precedents that will be set for the future.
There are two types of typical surprise billing scenarios. The first occurs when there is an emergency and one or more of the key billing parties — the ambulance, the hospital emergency room (ER), or the ER physician — is outside of the network of the patient’s insurance plan. The second is when a patient selects an in-network physician and hospital for a planned service, such as surgery, but the care he or she receives includes ancillary providers (such as anesthesiologists or radiologists) who are out-of-network. In many states, out-of-network providers are not bound by any limits on what they can charge patients. It is easier to solve surprise billing for ancillary providers than for emergency care.
Surprise bills are maddening because patients are powerless to stop them. In emergencies, patients cannot choose where they get care, or how they are transported to hospitals. And most of the time patients do not have an opportunity to select the ancillary providers attached to their in-network hospitals and physicians.
Some House and Senate members want to micromanage a solution, through an elaborate arbitration system or by establishing regulated payments for some medical services. Both of these approaches are likely to lead to an ever-expanding role for government rate-setting.
Under an arbitration system, the government would establish a system for settling payment disputes between out-of-network providers and insurance plans. The out-of-network providers would stipulate prices they want to charge for out-of-network services, and the insurers would do likewise. The arbitrators would pick the prices they see as more closely approximating the “right” amounts.
Arbitration is an expensive response to a relatively confined problem. While the charges involved in surprise bills can be large from the perspective of patients, they are for amounts in the vicinity of $1,000, or $5,000, or sometimes $10,000, which are small sums to be pushed into a quasi-judicial and time-consuming nationwide resolution system. The administrative costs associated with adjudicating millions of small claims would be significant.
Arbitration also begs the question: What is the right price for a medical service? Absent a clear market signal, there is no answer to that question. Arbitrators likely would refer to what Medicare pays for the same services and use those rates as benchmarks. Medicare’s fees (or some percentage of them — such as 125 percent) might quickly become the de facto rates for all out-of-network care, even if Medicare’s rates are themselves arbitrary. Medicare’s payment system for physicians, for instance, has been criticized for the distortions it creates in the delivery of care to patients. Using those rates as the basis for out-of-network care in the commercial insurance market would extend and deepen those distortions.
Congress does not need to legislate a precise answer to the problem of surprise bills. Instead, as Ben Ippolito and David Hyman have recommended, Congress should force the key parties to internalize a solution based on their contracts and business practices.
For instance, it does not make sense that insurance plans are allowed to expose patients to the costs of out-of-network ancillary services. If a patient goes through the trouble of ensuring the hospital and main physician (such as a surgeon) are in-network, then the entire care process should be treated as an in-network episode. That means the insurers, working with the hospitals and physicians, should be required to build networks that prevent this kind of surprise billing from ever occurring. Part of the solution might be for the insurers to contract only with hospitals that will help them build sensible networks that meet this test.
Insurers will protest that such a requirement will drive up premiums for all consumers because the anesthesiologists, radiologists, and others will have leverage to demand high in-network rates. But that is a problem for creative business managers to solve, not patients. If anesthesiology, radiology, pathology, imaging, and lab services are too expensive in a certain market, perhaps it should be the responsibility of the insurers and hospitals to develop work-arounds, by finding (and recruiting) alternatives means of getting those needed services for patients. The answer should not be to pass on outrageous bills to patients who played no part in picking these providers for their care.
Similarly, when ambulances take patients to in-network ERs, patients shouldn’t have to worry if the ER physician is in or out-of-network. The hospital should ensure, through its contracting with insurers, that all of the care provided in the ER will be considered in-network for all patients enrolled in those plans.
Out-of-network ambulances and ERs are more difficult problems because emergency care is not easily contained within network relationships. Providing this care is essentially a universal public service. Still, that does not mean the solution is nationwide rate-setting, especially since state and local governments play large roles in regulating the terms of emergency care. A first step might be to push hospitals and ambulances toward universal in-network status, which would force negotiations with all insurers and socialize the costs across all premium payers. Some governments might choose direct subsidization of these services in return for lower insurance-financed rates. State and local experimentation would help clarify which approaches work best to minimize costs while ensuring universal access and a fair distribution of the financial burden.
Surprise medical bills are mainly symptoms of the market’s larger dysfunction. Consumers are rarely presented with clear pricing before getting care, and, when getting expensive care, they usually receive bills from a disorganized and fragmented array of facilities and practitioners instead of a single bill covering the full episode. Some in Congress would enable this dysfunction to persist by layering new processes and price regulations over the current system. A better approach would force the industry to clean up the mess with better pricing and billing practices. That step alone would make most of the problem go away, while leaving the rest to the state and local governments that are most responsible for ensuring universal access to affordable emergency care.
James C. Capretta is a RealClearPolicy Contributor and a resident fellow at the American Enterprise Institute.
