This week the House passed a $1.4 trillion omnibus spending package. As The New York Times noted, the package contains “a giant potpourri of unrelated spending and policy measures stuffed full of priorities with enough appeal to each political party to ensure their passage through Congress and smooth their path to Mr. Trump’s desk.”
Conspicuously missing, however, were provisions addressing surprise healthcare billing, which occurs when patients are unknowingly treated by a physician who is out of their health insurance network and they receive an unexpected, often expensive, bill. Typically, such treatment occurs in emergency situations or when an out-of-network provider is practicing at an in-network hospital. Out-of-network providers bill patients for the difference between their price and the (usually lower) reimbursement paid by insurance plans.
As recently as last week it seemed a consensus had been reached on how to address the problem, but the provisions were dropped at the last minute from the House bill. The language would have mandated that out-of-network doctors be paid the median price of in-network doctors in the area. For certain large claims, doctors would have been allowed to appeal to an outside arbitrator for reconsideration. A similar process also would have applied to hospitals that treat patients in medical emergencies and to air ambulances (the helicopters and planes that transport patients from remote areas to major hospitals).
The fall issue of Regulation includes two articles on surprise billing that propose different solutions. One endorses mandatory arbitration of surprise charges as the most neutral market-oriented solution. Unlike the dropped provision, this solution would not impose a rate for physicians’ services. Instead, in cases in which in-network reimbursement rates differed from out-of-network provider charges, patients would be responsible only for the usual in-network charge and the decision over whether the provider payment request or the insurer network reimbursement would prevail would be made by an independent arbitrator.
A second recommends a contract-based alternative in which in-network hospitals become responsible for resolving surprise billing by providers who work at the hospitals. This solution would require all providers at a hospital to contract with the same insurers as the hospital or to secure payment for their services from the hospital, which would bundle these payments in the in-network facility fees they charge insurers. This would incentivize hospitals to directly address the problem of surprise billing because if they did not the costs would fall on them. This is consistent with economic theory that recommends placing burdens on those that face the lowest transaction costs to resolve disputes.
The primary difference between these two proposals is their understanding of the root cause of surprise billing. Are surprise bills the natural outcome of failed negotiations between insurers and providers? Then an independent dispute resolution process replaces patients as the final backstop in negotiations. Or are surprise bills a symptom of a flawed system in which bad-faith actors set artificially high prices? The second solution requires hospitals to resolve the problem contractually or be responsible for the surprise bills.
Despite these different perspectives, both proposals are superior to the proposed Congressional solution, which would have imposed prices through policy. Whatever solution is eventually agreed upon, lawmakers should resist the temptation to specify the appropriate price in legislation.
