Reducing Surprise From Out-of-Network Bills

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In a recent report, researchers advocate limits to the fees that out-of-network health care providers can charge.

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While Kelly Kyanko was in labor, her doctors became concerned about potential complications for her child and called a pediatrician. Kyanko had no idea that merely calling in a pediatrician would add an extra $600 to her hospital bill.

Surprise medical bills occur when patients choose hospitals and doctors contracted with their insurance network but learn after the procedure that they were treated by an out-of-network specialist. This out-of-network specialist is often an anesthesiologist, radiologist, or neonatologist called to assist with the service. Patients may also receive care from providers who are not contracted with their insurance company when there is an emergency and either the ambulance or its hospital destination is out of network.

Scholars caution that, when out-of-network providers give care, they can bill at rates above what they would charge if they were contracted with a health plan. To their dismay, patients are left paying the difference between the provider’s fee and the amount that their insurance will cover.

In a recent report, a group of researchers from the University of Southern California (USC) and the Brookings Institution argue that states need to address these surprise out-of-network bills by creating “billing regulations” that limit what out-of-network practitioners can charge patients.

States could also establish “contracting regulations” to prohibit providers from being out of network when the facility they work at has a contract with the health plan, according to the USC-Brookings team.

These billing and contracting standards are needed because emergency physicians and supporting health care professionals do not have incentives to contract with health plans.

When health care providers contract with insurance plans, the providers agree to charge lower fees and the insurance company agrees to direct its enrollees to the provider’s practice. But because patients do not have the option during an emergency to choose another provider, emergency room physicians and supporting health care professionals are often able to maintain a high volume of patients without contracting with health plans and lowering their fees.

The authors of the USC-Brookings report describe a case in which out-of-network emergency care physicians billed an insurance company for a treatment at almost 800 percent of the Medicare rate.

To reduce the financial benefits providers receive from being out of network and prevent patients from receiving expensive “surprise” bills, the authors of the USC-Brookings report recommend that states use Medicare rates as a basis for determining limits on out-of-network fees. According to the report, “Medicare rates are reasonable, if imperfect, estimates of the relative cost of providing various services.”

But Medicare rates are still typically lower than the commercial cost of the service, so states should set limits no less than 125 percent of the Medicare rate for each service, taking into account state or local market conditions, the report’s authors recommend.

If the capped fee is still greater than what patients pay for the service as part of their usual in-network costs, state regulations could also require health plans to pay the difference. The report’s authors recognize that federal law prevents states from applying this aspect of the regulation to self-insured plans where the employer pays for each individual claim. But states could still require fully-insured health plans—plans where the employer pays a fixed rate to cover all claims—to cover the difference between the out-of-network fee and the patient’s in-network costs, the USC-Brookings team argues.

States could also adopt a regulation that prevents patients from being treated by out-of-network providers when they are being treated at a facility that is in network—what the report refers to as a “contracting regulation.”

State contracting regulations would prevent out-of-network emergency care practitioners and supporting health care professionals from independently billing patients or insurance companies when a facility itself is in network. Following the report’s proposal, insurance companies would pay facilities in-network rates for all services, including those services provided by out-of-network practitioners. The facilities would then pay the health care providers directly to avoid patients or insurance companies receiving bills for out-of-network care at an in-network facility.

Under this proposed regulatory framework, contracting regulations would govern out-of-network providers working in facilities that are contracted with the health plan. In cases where the entire facility is out of network, a billing regulation would apply instead of the contracting limits.

The authors of the USC-Brookings report recognize that existing state and federal legislation could impede the adoption of their recommended regulatory proposals. For example, two federal laws­­­­—the Stark Law and the Anti-Kickback Statute­­—restrict payments between physicians and hospitals that refer patients to each other.

The authors of the report argue that these federal laws should not apply if states decide to require all billing to be performed by the hospital or require all providers to be in network.

At the state level, laws may prevent health care facilities from directly employing practitioners. Other laws may hold hospitals responsible for errors made by physicians when the physicians do not bill independently from the facility.

As a result, states may need to modify their laws to allow for billing and contracting regulations. “If not addressed, these types of state laws could frustrate approaches to address surprise out-of-network billing,” the report concludes.