Editor’s Note: This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between Economic Studies 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. This originally published on Health Affairs.
A new bipartisan discussion draft to address surprise out-of-network billing was released today, introduced by the Chairman and Ranking Member of the House Energy and Commerce Committee. This bill follows two Senate proposals released late last year, one from a bipartisan group composed of Senators Bennet, Carper, Cassidy, Grassley, McCaskill, and Young, and another from Senator Hassan.
Surprise out-of-network bills can occur when a patient receives care from an out-of-network provider in situations they cannot reasonably avoid, typically when there is no real choice of provider. These surprise bills can arise both from emergency care (whether the facility itself is out-of-network, the ambulance that transports the patient is out-of-network, or a physician providing emergency treatment is out-of-network) and out-of-network nonemergency care received at an in-network facility (typically a hospital or ambulatory surgery center).
Energy and Commerce Draft Approach
The Energy and Commerce draft would eliminate surprise out-of-network billing for both emergency and non-emergency services (with the notable exception of ambulance services) and across different sites of care (e.g., hospitals, ambulatory surgery centers (ASCs), freestanding emergency departments). Importantly, the legislation would do so for all commercial insurance plan types, including self-insured health plans that can only be regulated by the federal government. The legislation achieves this objective by combining the following three components:
- Require the health plan to treat the out-of-network service as if it were in-network for purposes of enrollee cost-sharing, deductibles, and out-of-pocket limits;
- Set a minimum payment amount that the health plan must pay to the out-of-network provider; and
- Prohibit out-of-network providers from “balance billing” patients — that is, from billing the patient any amount above the patient’s in-network cost-sharing.
These protections would apply to all out-of-network emergency services and to all out-of-network nonemergency services received at an in-network facility from “facility-based providers,” which the bill defines to include anesthesiologists, radiologists, pathologists, neonatologists, assistant surgeons, hospitalists, intensivists, and any additional provider types specified by the Secretary of Health and Human Services (HHS). Other provider types would still be allowed to treat patients on an out-of-network basis in nonemergency situations if they met the strong notice and consent requirements detailed in the discussion draft. Limiting notice and consent exceptions to physician specialties that patients typically actively choose strikes a sensible balance. It preserves patients’ ability to seek out-of-network care in circumstances where it is appropriate, while mitigating the risk that the flood of paperwork involved in seeking medical care will result in some patients consenting to out-of-network billing without understanding what they are consenting to or whether they have a reasonable alternative.
Payment Standard
By prohibiting balance billing by out-of-network emergency and facility-based providers, the Energy and Commerce draft addresses the market failure that allows these specialties to receive what appear to be very high in-network payment rates, relative to what specialties facing more typical market forces earn. In addition, to help providers, the draft requires health plans to pay out-of-network emergency and facility-based providers their plan-specific median contracted rate for the relevant service in that geographic area. Existing state laws that provide methods for determining out-of-network payment for surprise bills would remain for fully insured plans and would not be pre-empted.
Notably, given that the threat of surprise billing allows emergency and ancillary physicians such as anesthesiologists to garner very high in-network rates today, tying a payment standard to current median contracted rates may fail to bring rates down to what normal market rates would be in the absence of the market failure. However, because median contracted rates for the specialties most commonly associated with surprise billing are typically considerably below the mean (due to the typical presence of a minority of physician groups garnering especially high rates), this bill represents a clear improvement over the status quo. For example, in one study of commercial claims data, mean reimbursement for the highest-level emergency physician service was 306 percent of Medicare’s payment for the same service, whereas median reimbursement was 257 percent of the Medicare rate.
Therefore, the Energy and Commerce draft likely would result in lower insurance premiums in most markets and hence reduced federal deficits (from reducing loss of revenue from tax subsidies to health insurance), in addition to eliminating the scourge of surprise bills to patients. We also believe that a decision by Congress on an out-of-network payment standard is preferred to arbitration, which could be unpredictable, lacks transparency, and could involve significant administrative costs. While it may fall short of fully unwinding the increase in health care spending stemming from today’s market failure, the Energy and Commerce draft legislation represents the strongest proposal to date on the dual fronts of protecting consumers and reducing health care costs. The bill’s structure is most similar to state laws in California and Oregon.
Areas For Further Consideration
The Energy and Commerce Committee should be applauded for a serious bipartisan proposal to address surprise out-of-network billing. As is, the proposal would reduce system-wide health costs and provide valuable protection from surprise bills to patients. The rest of this post discusses a few areas that Members should consider as they revise this discussion draft.
How To Determine The Median Contracted Rate
There are important considerations relating to the payment standard being tied to an insurer’s own median in-network rate for the relevant service in a geographic area. First, this approach gets around the technical challenge of setting different payment standards by geography from the federal perch, without sufficient data available to calculate median contracted rates by geographic market. Second, it leaves in place insurer-specific dynamics based on the rates they have negotiated for emergency services and “facility-based providers,” which may not be desirable to the extent that those rates largely reflect a plan’s current willingness to shield their enrollees from surprise bills.
Third, over time this approach may allow health plans to drive down in-network payment rates toward normal market rates if the plan is able to undo contracts with physician groups earning especially exorbitant rates today and rachet down their plan-specific median contracted rate to more reasonable levels. And because the draft legislation requires the plan to make this payment directly to the provider and prohibits the provider from billing the patient any more than their in-network cost-sharing amounts, the distinction between these provider types technically being in- or out-of-network becomes meaningless from the patient’s perspective.
Still, relying on insurer’s own median rates may lead to out-of-network payment rates being unpredictable for providers, although the HHS Secretary is tasked with determining a methodology for guaranteeing accurate and fair reporting by insurers, which may address this concern. States with all-payer claims databases could also be allowed to use those to determine a market-wide median rate.
In the context of a relatively high payment standard such as median contracted rates, the insurer-specific median approach may be preferable. However, there would be value to pursuing a more transparent approach utilizing a payment standard tied to a lower rate set across a market or tied to a percentage of Medicare rates, which vary by geography.
Lower Payment Standard
For emergency physicians and ancillary clinicians (anesthesiologists, certified nurse anesthetists, radiologists, and pathologists), the natural market negotiation is between them and the facility at which they practice (that’s where the price-volume trade-off exists). To fully ameliorate the current market failure, an out-of-network payment standard would need to be set at or below the normal market rate for that specialist (that is, the rate that would be negotiated with the hospital in the absence of the ability to surprise bill patients).
Fortunately, there is little risk to setting the payment standard below market rates because facilities would then have to step in to demand market rate payment from insurers in order to ensure adequate staffing – or, alternatively, pay these specialists more money directly. (See here for a more detailed discussion of the considerations in setting an out-of-network payment standard.) Given the difficulty of determining this normal market rate, we recommend setting an out-of-network payment standard at a percentage of the relevant Medicare payment rate equal to the ratio of average contracted rates to Medicare rates for other specialists (ones that patients do choose) in the same geographic region.
Ambulances
Similar to the two Senate bills last year, today’s draft does nothing to prevent surprise out-of-network bills from ground or air ambulances, despite ambulance services frequently being delivered out-of-network. Very similar market dynamics characterize ambulance services, and federal law prevents states from addressing this market failure for air ambulances in particular. Federal legislation addressing surprise billing should incorporate ambulance services within the emergency service protections. The same approach, including a payment standard, could apply.
Non-Physician Providers
Non-physician providers often involved in surprise billing, such as certified nurse anesthetists (CRNAs), should be included in the draft’s list of “facility-based providers” that are subject to the law. Lab services are also a common source of surprise bills. While the draft includes laboratories in its list of health care facilities, it’s not clear that a patient would be protected from a surprise bill if their labs are sent to a non-participating facility.
State Preemption
As drafted, the Energy and Commerce bill appears to allow all existing state surprise billing laws that include a payment standard or arbitration process to supersede the new federal law, for the fully insured plans that states can regulate. This approach, however, allows for state laws that are worse for consumers to continue. One option to address this risk while still allowing for state flexibility would be to rely on the approach already built into the Public Health Service Act — to allow states to maintain laws that are at least as protective as the federal one. The federal legislation could then include language clarifying that to be considered at least as protective, state protections must not increase premiums or include a payment standard tied to amounts greater than median contracted rates (or an arbitration process in which arbiters are, on average, selecting rates above the relevant median contracted rate).
There is also a narrower question to be resolved regarding how preemption would function for state laws that have a method for determining out-of-network payment but exempt surprise bills below a certain dollar amount, such as in New York or Arizona. A federal law should at least serve as the default for the surprise bills currently not protected against by such state laws. Similarly, certain state surprise billing laws only apply to specific physician specialties, and it should be clarified that the federal default would then apply to other specialties providing out-of-network services for enrollees in state-regulated, fully insured plans.
Post-Stabilization Protections
While the draft legislation clearly protects consumers from surprise out-of-network bills for emergency services, there may remain a risk of patients receiving surprise bills for post-stabilization services performed at an out-of-network facility. One approach to ameliorate this concern is to extend protections from surprise out-of-network facility bills to 24 hours after stabilization from an emergency and require that the facility offer transfer to an in-network facility for continued care.