The Simple Solution to Surprise Billing

Congress is set to over-engineer what could be an easy fix.

Just a few weeks ago, it looked like the end of surprise billing was right around the corner. After consistent media coverage and a steady stream of consumer complaints, Congress took up the issue, and legislators narrowed their focus to two bipartisan approaches to end surprise billing that were expected to proceed in May. 

While the timing of this legislation may change due to the COVID-19 outbreak, the issue of surprise billing remains – and change may still be on the horizon when it comes to how payors and providers negotiate out-of-network care.

But, as you might expect, D.C. is set to over-engineer what should be a simple solution. If the goal is to prevent consumers from being balanced billed, why should legislation go any farther than that? 

We can address surprise billing without over-engineering it due to other, bigger things going on in healthcare in the world around us. In an ideal world, here’s what that might look like.

A federal law would simply cut the consumer out of the equation and require payors and providers to realign around accountability in signing contracts for services. The law could be as simple as: “Balance billing of patients is hereby prohibited.” That’s it. There doesn’t need to be anything about median rates, or arbitration, or price transparency – all of which have been suggested as components of the proposed laws. 

The free market has a way of figuring these things out. 

We don’t need overly prescriptive legislation. At the end of the day, health insurance companies will pay what they want to pay, which, most of the time, is less than health care providers expect to be paid, and then the two parties will work it out, just like they always do. They will land on rates that they both live with, and the problem will be solved.  

But there’s a larger issue at stake here. Taking the consumer out of the equation puts the responsibility back on payors and providers to negotiate reasonable contracts for care in the first place. To prevent surprise billing, what we really need is to preserve insurance contracts. 

Why should anyone care about insurance contracts?

Okay, fair question. The answer is that they are the primary mechanism for ensuring widespread access to high-quality healthcare. While in many ways healthcare isn’t like other industries, when it comes to quality, it is the same. High-quality healthcare and specialized services simply cost more money to provide than basic care. 

It costs more per unit to produce one can of Coke than a thousand. Having a specialty surgeon at your hospital is expensive – but their services can be priced lower when you know you’ll be paid for more of them.

This is why we have insurance networks. Insurers steer big groups of members to facilities, which offer discounted rates in exchange for the assurance of volume. If the insurer has a lot of members, they may get bigger discounts. If the provider is extremely specialized, her services may cost more. This negotiation process, conducted in a free market, accounts for and adjusts based on the unique specifications of each hospital and insurance contract, ultimately achieving a fair rate for both sides and for the consumer.

Where it all went wrong.

The system worked pretty well, until some healthcare services started falling outside the purview of insurance contracts.  

Over time, specialty physicians like anesthesiologists and emergency room physicians were dropped from or declined to contract with insurer networks. In some cases, a provider “going out of network” benefited the payor; in other cases, it was to the provider’s benefit.

Either way, the primary rub between the insurers and the providers became what insurers would pay without a contract specifying a reimbursement rate. When an insurer paid less than the provider was expecting to be paid, some providers balance-billed the patient and created the problematic situation we find ourselves in today.

These balance bills have certainly put providers on the defensive for trying to recoup some of that payment from the consumer. But while some providers are doing well enough financially to cover the balance, others operate on razor-thin margins and can’t afford to just eat the part of the bill the insurer refused to pay. 

Understandably, all sides are frustrated—especially consumers, who find themselves caught in the middle of what is essentially a payor/provider dispute. 

Enter the legislators.

In an ideal world, a federal balance billing law would simply hold the consumer harmless, requiring payors and providers to realign around accountability in signing contracts for services.

Instead, some of the proposals go many steps beyond, especially those establishing “median rates” for insurers to pay without a contract.  

This undermines the basic philosophy of why insurers contract with providers in the first place and puts price-setting power in the hands of the government and insurance companies. It allows insurers to pay top doctors as much as mediocre ones, and regardless of their volume. If price-setting comes to pass, I strongly suspect that providers will begin to refuse to treat insured patients for elective procedures if the provider has no contract with the insurer. That’s the outcome of rate-setting – access will be curtailed, and consumers will be even more frustrated than they already are. 

A free market approach, on the other hand, allows both parties to pull the levers of quality, access, and price to create competitive markets for consumers. 

If consumers could no longer be balanced billed, out-of-network providers may initially struggle from a cash flow perspective as insurers pay less, and providers are forced to adjust to the dispute process. But eventually, the world would find its equilibrium, and patient access to high-quality care without the risk of a balance bill would be achieved. 

If that’s what Congress is after, then that’s what surprise billing legislation should do. Anything beyond is an overreach – and will hurt providers’ and patients’ access to care.

Clint Hailey is the chief managed care officer at Tenet Healthcare. Previously, he held managed care positions at HCA Texas and Texas Health Resources. Views expressed in this article are those of the author.

March 19, 2020
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