“Most senators represent states in which the leading delivery system is one of the largest and most influential employers. In addition, most states – unlike many congressional districts – have rural hospitals that are affected by federal policies like Medicare and Medicaid reimbursement rates. Senators have to worry about whether legislation would affect the supply of emergency physicians – and thus the availability and quality of emergency services – in rural hospitals.”
William G. (Bill) Stuart
Director of Strategy and Compliance
October 3, 2019
Imagine you’re on a car trip with your family. Your car breaks down 700 miles from home, an it’s towed to the nearest dealership. You’re told that you need a new transmission, and the dealership quotes a price of $2,200. You agree to the charge, and a day later you’re back to your vacation.
Then, a month later you receive a bill for $950 from a transmission specialist who oversaw the replacement. You complain to the dealership, only to be told that he’s not an employee and that his professional fees aren’t included in the facility’s charges for the service.
Welcome to the world of surprise medical bills.
What constitutes a surprise medical bill? In broad terms it includes any unexpected charge that patients must pay. Often times they just didn’t understand their plan’s cost-sharing, or inadvertently received care from a provider that doesn’t participate in their plans network. Another common charge is that unexpected visit to the emergency room, and they were seen by a non-contracted doctor or other practitioner.
The focus of current legislative efforts are aimed at surprise medical billing. Patients who earnestly follow their plan rule are surprised later to learn they received care from a provider not contracted with their insurer.
The most common scenarios include:
- A patient chooses a network hospital and surgeon for a routine arthroscopic procedure. The patient meets the Anesthesiologist for the first time as they’re being prepped for surgery. The Anesthesiologist subsequently sends a bill because he’s not a hospital employee or part of the insurer’s network.
- A patient is transported by ambulance to a network hospital, where he receives care in the emergency department. The hospital bills the insurer for the visit, plus services like lab work, x-rays, and other diagnostics. The patient receives a bill several weeks later from the emergency physician or a specialist (Read about one situation in Example 2 in this article). So, it is weeks later when the patient learns that the hospital contracts with an independent group of emergency physicians to staff the emergency department. And what makes matters worse is the physician group doesn’t contract with any insurer.
- At the scene of an auto accident, the paramedic recommends patient transport via air ambulance rather than traditional ambulance.
Historically, PARE (pathology, anesthesiology, radiology, emergency medicine) providers were hospital employees. That system began to break down about 30 years ago, as some of these services (especially radiology) were provided remotely. Hospitals preferred shifting total administration of emergency medicine to outside entities. These outside entities-providers realized they could bill the insurance company far more than hospitals were willing to pay. Additionally, these providers could charge more than what insurers would reimburse when applying in-network rates.
Fees are rapidly increasing as is the much-maligned pharmaceutical industry. And particularly now with many emergency physician groups owned by venture capitalists seeking a return on their financial investment. Suppliers hold a monopoly position as well, and face no competitive constraints on their fees for the same reason.
(Learn more about the financial effects here.)
Today, about two-thirds of emergency physicians today work for physician groups rather than hospitals. And few anesthesiologists are not employees of the Hospital in which they work.
There are two common-sense means of addressing this issue – neither of which is happening in the current model.
First, insurers could insist that hospitals require anyone providing professional services at the facility be contracted with the hospital. Thus part of the insurer’s contract with the hospital – in effect, is a return to the model that prevailed before the 1990s. This approach would ensure that consumers are protected because the providers and insurer have agreed to a fee schedule and the services are applied to the in-network deductible. But PARE providers split with hospitals to increase their reimbursements, so it’s unlikely that they’ll return to the fold on terms that both parties accept.
Second, insurers could negotiate with hospitals to reimburse services at a certain level, then let the hospital and the non-employee providers haggle over reimbursements. This approach would protect consumers and shift the conflict to where many critics argue it rightly belongs – between the hospitals and the providers who staff their facilities but aren’t employees. Hospitals are concerned that they wouldn’t be able to offer these services because insurance won’t reimburse enough for the procedure to pay PARE providers what they currently receive. However, it can be argued that PARE providers have limited income opportunities if hospitals don’t allow them access to treat patients.
It’s not that hospitals and providers can’t enter into bundled-payment agreements. The Surgery Center of Oklahoma, for example, quotes all-inclusive prices for services ranging from nasal valve repair ($3,600) and distal clavicle excision ($4,730). Other services include a robotic hysterectomy ($17,760) and Achilles tendon repair ($5,730). These prices include all services rendered within the facility and include a guarantee of readmission and repair of any post-surgical complications.
But the Surgery Center of Oklahoma is the exception rather than the rule. Most hospitals continue to operate under a model in which some providers aren’t contracted with the hospital or any insurers. And patients usually have no way of knowing who among the professional with whom they interact or don’t interact (radiologists and pathologists are often not hospital employees, either, and thus bill separately) are hospital employees or contractors.
New York has been a leader in this area, and in 2015 the State enacted legislation that protects consumers . The law states that consumers who are covered by fully-insured plans (about half the population in most states) are not responsible from out-of-network charges beyond their control. The law has reduced the percent of emergency department services billed as out-of-network from 20.1% to 6.4%.
New York uses baseball-style arbitration. Simply put, when there’s a dispute, the insurer and the provider both submit figures. An independent arbitrator then chooses one figure or the other – nothing in between. Baseball-style arbitration prevents either party from submitting a super-low (insurer) or super-high (provider) figure. The hope is that the arbitrator chooses a figure in the middle, as traditional arbitration works.
Many states have influential businesses – farming, fishing, auto manufacturing, mining, oil exploration, pharmaceutical manufacturing, tourism, and gambling, for example – that they share with a handful of other states. However, these businesses aren’t a major factor in most states’ economies.
In contrast, large medical delivery systems and physician organizations are among the most dominant and politically influential businesses in many congressional districts and nearly all state. A House member from Massachusetts can vote on a mining bill, and a Montana representative a tuna-fishing bill, without in-state repercussions. But medical-delivery systems are often the most visible businesses, largest employers and largest political contributors in those same elected officials’ districts. Few members of the House of Representatives can cast a vote on legislation affecting medical providers without potential repercussion from voters or donors.
Most senators represent states in which the leading delivery system is one of the largest and most influential employers. In addition, most states – unlike many congressional districts – have rural hospitals that are affected by federal policies like Medicare and Medicaid reimbursement rates. Senators have to worry about whether legislation would affect the supply of emergency physicians – and thus the availability and quality of emergency services – in rural hospitals.
You’ll be hearing a lot in the next few months about surprise medical billing efforts in Congress. Both the House Energy and Commerce Committee and the Senate Health, Education, Labor, and Pensions (HELP) Committee have proposed legislation.
But we’re unlikely to see meaningful legislation pass this Congress. Why? Refer to the politics discussion above, or read this article to understand the divisions within the Democrat caucus in the House. If you listen to the radio, you’ve probably heard ads by emergency physician groups talking about shortages of doctors and compromised emergency care. These groups warn you that more serious problems will arise if providers are forced to settle for prevailing reimbursement levels, or a multiple of the Medicare reimbursement rate.
Insurers, employers (who pay medical bills under group coverage), and employees (often with high out-of-pocket responsibility) aren’t willing to settle for arbitration. They cite the old insurance maxim about discounts on provider charges, in which the seller says, “I’ll give you whatever discount you want – even 99% – as long as you let me set the initial price.” Their fear: Even higher provider billed amounts will drive costs higher than they are now if disputes are settled by traditional arbitration.
States Aren’t Waiting
Many states aren’t waiting for federal lawmakers to reach an agreement. State lawmakers are considering bills that include variations of the New York and the House and Senate approaches to end surprise billing. These State Legislators are facing the same political pressures as their counterparts are at the federal level. Not all state representatives have a powerful hospital-based system in their districts, but many state senators do. And, an equivalent amount of political support and donations have a powerful influence over a State House or Senate race than they can in congressional elections.
Other approaches under consideration will increase transparency, but their effect on reimbursements is questionable. These approaches include:
- Publishing provider fees on a public data base. This approach might help with anesthesia for elective surgery. But patients generally don’t review provider fees prior to transport to the emergency department while unconscious, or facing a serious or life-threatening situation. And they’re often not transported to their hospital of choice in emergency situations due to such influences as current location, paramedics’ judgment, or traffic.
- Having patients sign a waiver acknowledging that providers are out-of-network. This approach increases transparency, but it’s doubtful that an anesthesiologist or emergency physician can or will quote a binding price prior to delivering services. This approach strengthens providers’ positions because patients acknowledge that they’re in “no man’s land” when it comes to potential costs.
Congress has reconvened and both parties would like to pass healthcare legislation this fall. Getting control of surprise billing, reining in prescription drug costs, and increasing price transparency are three goals that both Republicans and Democrats share. The devil, as always, is in the details.
What novel concept do you propose to resolve the impasse on surprise billing? Please enter your comments below, and lets come up with some creative solutions!
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What We’re Reading
Kaiser Family Foundation provides some sobering statistics on medical coverage costs. The average family premium in 2019 is more than $20,000. Employees pay, on average, 30% of the cost. Translation: Employees pay an average of $6,000 in family coverage before they receive care, which is usually subject to a deductible of $3,000 or more. For most families, $500 per month for premiums alone is their third largest budget item, after housing and food – and well above what most families save for retirement.
Want more independent confirmation of the benefits of a Health Savings Account as a retirement savings opportunity? Barron’s explains the tax advantages of the accounts and shows how a 40-year-old couple can increase their retirement savings by nearly $100,000. A considerable amount Just by choosing a Health Savings Account over a traditional tax-advantaged retirement account. For a lot more detail on this topic, I recommend my book, HSAs: The Tax-Perfect Retirement Account.