Editor’s note: This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between Economic Studies at Brookings and the University of Southern California Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings. 

Another Senate bill to address the scourge of surprise out-of-network medical bills was newly released on October 12, the No More Surprise Medical Bills Act of 2018, this time introduced by Senator Maggie Hassan (D-NH) and cosponsored by Senator Jeanne Shaheen (D-NH). As we explained recently, surprise out-of-network medical bills can occur when a patient is unexpectedly seen by a physician who does not participate in their insurer’s provider network either in the course of emergency care or elective nonemergency care at an in-network facility, or when transported in an out-of-network ambulance.

For enrollees in employer-sponsored health plans, the bill takes a largely similar approach to the recent bipartisan Senate bill, taking the patient out of the middle of the dispute and protecting patients in both emergency and nonemergency situations. The big difference is that, instead of prescribing a minimum payment rate from insurer to provider, Senator Hassan’s bill sets up a “binding arbitration” process to determine the appropriate provider payment rate in surprise out-of-network scenarios. And importantly, the arbiter would be instructed to consider Medicare and negotiated network rates, rather than artificially high provider charges, in making their rate determination.

A companion bill introduced by Senator Shaheen would affect the individual market more broadly, capping the amount that out-of-network providers can charge in any situation (not just in situations we would define as a “surprise”) to enrollees in individual market plans (and also to uninsured patients). The bill allows states to choose among three options to set this out-of-network charge limit: 125 percent of Medicare fee-for-service (FFS) rates (with an allowance in rural areas to set payments up to 200 percent of Medicare rates), 80 percent of the “usual and customary rate” (UCR) based on provider’s billed charges, or the insurer’s in-network contracted rate for the service in question.

While these provisions would not directly prohibit surprise bills in the individual market, they could considerably reduce the liability that patients potentially face in such situations by capping the amount that the out-of-network provider could charge. Moreover, by reducing the potential financial benefit to providers of remaining out-of-network, these provisions would likely also reduce the frequency of surprise bills by encouraging more providers to join insurers’ networks.

The rest of this post focuses on the No More Surprise Medical Bills Act of 2018.

No More Surprise Medical Bills Act Of 2018

Senator Hassan’s legislation would protect group health plan enrollees from surprise out-of-network bills through the combination of:

• Restricting the provider from charging the patient any more than what they would owe an in-network provider;
• Requiring the insurer to count cost-sharing amounts for surprise out-of-network bills (which as just mentioned could not exceed in-network amounts) toward in-network deductibles and limits on out-of-pocket costs; and
• Setting up a binding arbitration process to determine payment from insurer to provider in cases where they are unable to reach a resolution on their own.

Provider Bills To Patients

Hassan’s proposal would protect patients from surprise bills in both emergency situations and nonemergency situations at in-network facilities, when they are seen unexpectedly by an out-of-network clinician. An exception is allowed if the out-of-network provider provides an estimate of costs and obtains both written and verbal consent from the patient more than 24 hours in advance. If timely patient consent was not obtained, then the legislation’s surprise out-of-network billing protection automatically kicks in and the patient can be charged no more than what they would have paid if the service were performed by an in-network provider.

Insurer Payment Of Providers

Rather than prescribing the payment rate from insurer to provider for surprise out-of-network services, Hassan’s bill sets up a binding, “baseball-style” arbitration process to resolve payment disputes if the two parties are unable to agree on a payment amount. In this process, the insurer and provider each make a final offer and an independent arbiter contracted by government then chooses which of the two options it considers more reasonable. The theory behind this approach is that it incentivizes each side to make a reasonable offer or settle beforehand, because the arbiter is unlikely to choose an unrealistic offer. Making the results of these arbitration decisions public, as this bill would do (and as New Jersey’s new law does), further facilitates settlement before going to arbitration as both parties learn to anticipate what rate the arbiter would choose.

The legislation provides guidance to the independent arbiter to consider the relevant Medicare payment rate and the local average in-network rate, in addition to the level of training of the physician and complexity of the service, when determining which offer to select. The bill makes no reference to provider billed charges, which tend to be extremely high and are largely untethered from market forces.

Alternatively, Hassan’s legislation allows states to establish their own arbitration process, as New York, New Jersey, Illinois, and New Hampshire have done, as long as the state process is equally protective and the arbitration results are made public. Or states can elect a defined payment standard in place of the binding arbitration process, as long as it is no higher than 125 percent of the relevant Medicare rate or a comparable standard at the Secretary of Health and Human Services’ discretion.

Senator Hassan’s bill improves options for states because currently they are unable to protect patients enrolled in self-insured employer health plans due to pre-emption by the Employee Retirement Income Security Act (ERISA). Representative Michelle Lujan Grisham’s Fair Billing Act of 2017 also proposes a similar arbitration approach, as did our 2016 white paper, which dives into significantly more detail.

It is necessary to determine a limit on payments to out-of-network providers to provide comprehensive protections against surprise billing to patients without giving providers the unfettered ability to charge whatever they want. The advantage of the binding arbitration approach is that it encourages each side to submit reasonable offers, allows for some flexibility in the rate chosen for differing circumstances, and gives the involved parties more input into what that rate should be than a rate chosen by policymakers or regulators. On the other hand, the binding arbitration approach adds administrative burden to the process, although this could be mitigated over time as the arbitration decisions are made public, which provides more guidance for settlement. Nonetheless, it’s not necessarily clear that the arbiter will always choose the “right” rate or be any better at selecting an appropriate rate than lawmakers.

Yale Professors Zack Cooper and Fiona Scott Morton have recommended an alternative approach. They suggest requiring hospitals to pay emergency and ancillary physicians directly, and to build those costs into their facility rate negotiated with health plans. This approach would more explicitly use the market to determine fair payment rates.

Areas For Further Consideration

The No More Surprise Medical Bills Act should be applauded for tackling an important problem in a thoughtful manner. As written, Hassan’s bill would nearly eliminate surprise out-of-network bills for enrollees in employer-provided health plans.

As lawmakers work to refine this legislation, they should consider expanding protections to enrollees in individual market plans and for out-of-network ambulance services. One study found that roughly half of all ambulance rides were billed out-of-network.

Additionally, the notice and consent exceptions in the bill are arguably both too broad and too narrow in parts. It is unclear that out-of-network physicians at nonparticipating hospitals should have to obtain patient notice and consent for nonemergency care before billing out-of-network. And on the flip side, for patients at in-network facilities, it may be inappropriate to ever permit out-of-network billing for ancillary services (e.g., anesthesia, radiology, pathology) because there is too great a risk that patients will sign any such consent forms without true understanding or consideration of reasonable alternatives.

Author’s Acknowledgement:

Through a grant from the Laura and John Arnold Foundation, Brookings is working to critically evaluate the prevalence, drivers, and policy implications of surprise medical billing, as well as develop potential nonpartisan policy solutions.