No More Surprise Fixes to Surprise Medical Billing

Shortly before Christmas, with no chance for debate or amendments, Congress very nearly slipped a major change in health care law into the year-end government spending bill. Like most such travesties, the effort was bipartisan, written largely behind closed doors, and not open for amendment or debate. Thankfully, this effort failed at the 11th hour, and the language was left out of the bill.

The provision in question was intended to address what is commonly called “surprise billing.” This problem is the result of hospitals which employ the services of doctors who do not participate in some of that hospital’s payment agreements with insurance companies and are therefore “out of network.”

So a patient can check in for a procedure at a hospital that is covered by their insurance plan but get socked with a shocking bill afterward when it turns out that, for example, their anesthesiologist was out-of-network and the hospital passes along the full balance for what the insurance would not pay.

Surprise billing is a real and growing problem that harms thousands of Americans each year, but a hastily conceived top-down patch could easily create new and lasting damage of its own, without even truly fixing the problem. Attempts to address surprise billing in Congress have largely been pushed by competing medical industry interests (largely the insurance companies versus hospitals and doctors) who each accuse the other of being responsible for the problem and want the feds to stick the other side with laws to change their behavior.

Like everything about our government-infested health care industry, neither the problem nor the solution to surprise billing is simple. There are some, although few, hospitals that employ zero in-network doctors in their emergency rooms, effectively guaranteeing that every unfortunate urgent care patient will receive a hefty surprise bill. This problem is exacerbated by a lack of competition in the hospital industry which gives many hospitals little incentive to deal with the problem. Particularly in rural areas, the supply of necessary medical professionals is limited as well, meaning that hiring lower-cost medical staff may not be an option. A huge morass of anti-competitive regulations works to keep markets from supplying solutions to these problems.

Insurance companies, on the other hand, have an incentive to narrow their networks as a way to combat costs. It’s no coincidence that the incidence of surprise billing has increased dramatically since Obamacare’s regulations took full effect in 2014. Forced to cap their premiums for older, sicker, and higher-risk patients, insurers became much more aggressive in pushing back against doctors who charge at much higher rates than the hospitals which employ them.

Surprise billing is a deadly result of all of these distortions and more; predictably, most legislative proposals to address the issue have been as superficial as they are clumsy. The bill that had been gaining momentum toward the end of 2019 seemed to be a proposal by Sens. Lamar Alexander, Tennessee Republican, and Patty Murray, Washington Democrat, which would set regional “benchmark” prices for out-of-network providers. That this bill had gained Republican support is horrifying, as it effectively concedes the premise to progressives that the problem with health care markets is a lack of central controls on prices, rather than attempting to restore functioning market prices and competition.

This benchmarking proposal would fix prices for out-of-network services at a hospital that is in a patient’s network at the “median in-network rate” for that region. This is a classic sort of technocratic fix that entirely ignores how markets actually function. Setting the rate at the regional median by definition means that half of the providers in the region are being reimbursed less. Providers in this lower half have an incentive to either negotiate their reimbursements upwards, shift costs elsewhere, or simply refuse to reach an agreement with a given insurer at all. Depending on the outcome in a given region, this will likely lead to higher prices for hospital services, reductions in access to care or a mixture of both.

On the other side of the debate, doctor and hospital interests have lobbied for forced arbitration as a remedy for surprise billing. Essentially, a surprise out-of-network charge that exceeds a given in-network price would automatically kick the bill to a (theoretically) neutral, third-party service that would negotiate a charge that the insurers and providers would both accept. Depending upon the parameters used for the arbitration, this process could actually lead to higher health care costs, especially when factoring in the new cost of paying the entities managing the arbitration.

The other argument against any of the federal interventions currently on the table is that states can address surprise billing themselves, and some have, for better or for worse. In fact, one of the reasons that the surprise billing legislation was pulled in December appears to be because Senate Minority Leader Chuck Schumer, New York Democrat, in an unusual spasm of federalism, was concerned about how it might preempt his own state’s attempts to rein in the problem.

In sum, Congress needs to slow its roll. A federal intervention to fix surprise billing needs to be carefully thought through and debated, and not rammed through on some must-pass bill. Ultimately, we desperately need to demand that Congress do what it’s worst at — thinking holistically about the policies that created the problems they are being pressured to solve.