Surprise Billing

“If you want an egalitarian distribution of health care,” providers said, “we endorse it heartily, and we shall do our best to bring it about but for a fee–and we want that fee to be reasonable as we define that term.”

–Uwe E. Reinhardt, “Uncompensated Hospital Care” (1986)

With those words, the late, great Uwe Reinhardt provided what is, perhaps, the bet description of the crony capitalism that is our healthcare system. Perhaps nothing better illustrates how in this system, patients are relegated to ATM status better than the problem of surprise billing. 

The Problem

More than half of Americans received a surprise bill. And no wonder. You can’t (yet) be surprise billed for breathing but they’re working on it. Let’s say your in-network surgeon and insurer can’t agree on a price. Surpirse! Here’s your bill. Or you go for a mammogram which the facility sends your scan to an out-of-network radiologist to read. Surprise! If you’re in an emergency and are operated on either in an out-of-network hospital or by an out-of-network doctor you will be surprise billed. You will also be surprise billed if your doctor leaves the insurance network for any reason and no-one tells you about it. It doesn’t matter if your doctor appears in your insurance provider directory. It doesn’t matter that no-one told you. If the doctor is not part of the insurance network and you see them, you will definitely find out about it when you get the surprise bill. Emergency transportation is often out-of-network so if you call 911, you will likely get a surprise bill. In 2017, the Washington Post published some tips on how to avoid these. Their tips include:

• Asking your local fire department if the ambulance service that responds to 911 is a government service or a private company or some combination;
• Asking the fire department how much it charges and whether it lets the ambulance company surprise bill people
• Asking the company itself whether it surprise bills patients and how much it charges.

You or your loved one are having a heart attack and you are expected to have this calm, well-reasoned, lengthy and detailed conversations with multiple people at multiple agencies? No wonder people are increasingly calling Uber when they’re having a life-threatening emergency. But if (God forbid) you need to be airlifted to a hospital, Uber is not an option. Air ambulances know that—which is possibly why sixty-nine percent of them are out-of-network. Worse, states can’t regulate air ambulances because they are governed by the federal Airline Deregulation Act. Claire McCaskill tried to amend the law to allow states to regulate air transport but the Association of Air Medical Services (the lobby for air ambulances) defeated her efforts.

Surprise billing is only getting worse. In part that’s because there are now a lot more staffing companies. Healthcare staffing companies are job shops for the healthcare industry. If a hospital or a doctor’s office has a hard time recruiting a doctor, lab technician, radiologist, nurse, or administrator, they turn to one of these companies. But the healthcare providers sent by the staffing agency are out of network. Any care you get from them will cost you dearly.

It will cost you even if you are super-diligent. Let’s say you are about to have surgery. You make sure your hospital, your surgeon, even your anesthesiologist are in-network. You might still be surprise billed. That’s because your surgeon may bring in consulting physicians. They may not even do anything. Maybe they’ll simply ask you how you’re feeling as you’re walking around the hospital in recovery. But that one question is considered care. “Care” that will cost you hundreds if not thousands of dollars. Or let’s say the doctor you have seen all your life opens another office almost right next door to your home. Wonderful! Now you can walk to your appointment! You do and surprise! That’s because often an insurer has only one doctor’s location in-network. If you visit your doctor in the “wrong” office, you will pay for it.

This is not a comprehensive list of all the different ways you and your loved ones might get surprise billed but it does give you an idea of how rigged the system is against us.

Proposed Solutions

It’s gotten so out of hand that politicians are paying attention. Everyone says patients shouldn’t be surprise billed. What they are struggling with is who should shoulder the outrageously high costs of American healthcare. Should doctors and hospitals get paid less or should insurers pay more? One proposal is to pay doctors and hospitals a percentage of Medicare rates. Another proposal is to solve this through binding arbitration. In binding arbitration, the insurer and hospital/doctor would go before an arbiter and he would decide which price should be paid. Insurance companies like the rate setting approach; doctors and hospitals prefer arbitration.

In this case, I agree with insurers. I prefer benchmarking the out-of-network rate to 125% of Medicare. Binding arbitration may seem fair, but it hurts patients. In most states, the prices are secret so how will the arbiter decide whose price makes most sense? Washington State is an exception because they have an all-claims database. That database can tell the arbiter who is trying to game the system. Most states don’t have such a database and, as a result, in New York State (for example), healthcare prices may have risen, and the healthcare system become even more secretive, and more providers decided to practice out-of-network because they enacted binding arbitration.

The very fact of arbitration is going to drive up healthcare costs. Filing for arbitration is very expensive. The average filing fee is $1,500. If the dispute involves three or more parties (say a hospital, an out-of-network doctor, an out-of-network radiologist and the insurer), the average fee is $2,000. On top of that, there is the 12% Case Management Fee. And remember that’s per bill. When you consider that over half of Americans have been surprise-billed we are talking millions of arbitration filings. To pay for that, doctors, hospitals and insurers will charge us more. That alone should convince us that setting a benchmark rate to 125% of Medicare is the better option.

But that’s not the only thing arbitration has going against it. In most states, arbitration takes a long time and while your doctor and insurer are duking it out, your credit score will suffer because until they come to terms, the surprise bill is considered your responsibility. So if politicians decide to go the arbitration route, I would advise against planning any major purchases after seeing a doctor or going to the hospital. If you benchmark the bill to Medicare, there is no arbitration, no waiting, and your credit score doesn’t suffer.

How the Free Market Does It

A free market is not anarchy; that’s crony capitalism. The free market has rules in place for when a buyer and seller exchange goods without first agreeing on a price. It happens all the time when the price of the goods being bought and sold fluctuate wildly. Petroleum is a good example of such a product, soybeans may be another. The Uniform Commercial Code specifies that when the buyer and the seller don’t agree on the price ahead of time, they enter into an “open-price-term contract”. That’s an agreement where the price must be agreed to later by the parties. In that situation, the price can be fixed by a market standard or by a third party, or the price can be fixed in good faith by the buyer and seller. We have laws and a lot of case law governing this sort of thing.

If we truly wanted our healthcare system to work on free market principles, we would apply the Commercial Code to healthcare. But the healthcare industry likes its crony capitalism just fine. Please don’t burden it with rules. That doesn’t mean we won’t solve surprise billing. We will. Even if our politicians do nothing, we will solve it. Demographics will solve it for us.

Demographics is Destiny (and Solution)

By 2030, 20% of Americans will be covered by Medicare. Today, 60% of Americans don’t have $500 in savings. Less than half (49%) of Americans get their insurance through their employer. Forty-three percent of Americans have high-deductible plans. The minimum deductibles for such plans are $1,350 for an individual and $2,700 for a family. Sixty percent of Americans can’t afford a $500 deductible, let alone a deductible that is more than five times that. To summarize: Americans are getting older and poorer. Meaning that in a decade or less, most of us will be covered by Medicare, Medicaid (or both). In Medicare and Medicaid, the government does not regulate healthcare; it buys it. In ten years, providers will either take Medicare/Medicaid rates or go out of business.

That may be why doctors and hospitals are frantically trying to grab as much money as they can right now—even though what they should be doing is setting rates that will let them stick around long-term. It is also why fixing surprise billing seems to be so complicated.

In healthcare, demography truly is destiny and demography says that our-of-control healthcare spending is about to come to a screeching halt. And your doctor knows it.