Federal Surprise Billing Legislation Does Not Violate the Constitution

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.

Last week, Congress took a notable step towards limiting surprise out-of-network bills when the Senate Committee on Health, Education, Labor and Pensions approved legislation addressing the issue with an overwhelming 20-3 vote.  But as policymakers come closer to enacting legislation, stakeholders have resurfaced allegations that laws limiting health care provider conduct with respect to surprise bills may be unconstitutional.  Stakeholders have claimed, variously, that surprise billing legislation may violate the Takings Clause, freedom of association protected by the First Amendment, or the Due Process or Equal Protection Clauses of the Fourteenth Amendment.  All of these challenges are likely to fail.  Put most simply: the Constitution does not protect a health care provider’s right to exploit a market failure to take advantage of consumers.

This post briefly addresses the relevant constitutional concerns.

Understanding the Nature of Surprise Bills

It’s important to remember why surprise bills occur: a consumer receives care from an out-of-network provider in situations they cannot reasonably control.  Providers in a subset of specialties will be able to treat a flow of patients based on the facility in which they practice – not the insurance company networks that they join – and so they have an incentive to avoid agreeing to in-network rate offers and instead can attempt to collect against very large out-of-network charges.   The charges that providers bill in these cases are generally divorced from a market constraint or any concept of costs or “compensatory” rates; in some specialties the median charge is four to five times what Medicare would pay for the same services, and charges 10 times greater than Medicare rates are not uncommon.  That is, providers in the affected specialties are exploiting a market failure – not available to peer physicians in other specialties – to derive unearned rents from consumers’ inability to select a provider.

Surprise Billing Legislation Does Not Violate the Takings Clause

The Takings Clause of the Fifth Amendment specifies that private property cannot be “taken for public use, without just compensation.”  A constitutionally protected “taking” can be either physical (as when land is taken) or regulatory (as when a regulation reduces the value of one’s property), but the first step in any Takings Clause analysis is to determine whether there is an actual property interest.  That is, the Takings Clause cannot be invoked just because the government has affected an economic interest; the plaintiff must, as a matter of law, own the property at issue. Property interests are not granted by the Constitution, but rather arise from state or federal law or from contractual obligations.

There is manifestly not a “property interest” in a physician’s ability to recover their billed charges through a surprise balance bill.  This is most obviously true in the context of surprise billing, which is defined by the absence of a patient’s ability to contract for the relevant service.  But it is also true more broadly across the health care system – physicians are not owed their billed charges absent some express agreement.  Charges do not reflect the cost of delivering a health care service, nor do they represent a fair market rate – they are simply a list price that the provider has chosen as a starting point for negotiations.

Even if there was, somehow, a relevant protected property interest, surprise billing legislation could not represent a taking of that property.  Whether or not a government action is a regulatory taking depends on a series of factors, including the significance of the “economic impact,” whether it affects “distinct investment-backed expectations,” and whether the government action is in the nature of an “invasion” where one individual is expected to bear societal costs, or, instead, the government is simply “adjusting the benefits and burdens of economic life to promote the common good.”  While a detailed application of these factors is beyond the scope of this piece, regulation to prevent surprise billing will not be problematic under this test.  The final factor is perhaps the most persuasive: surprise billing legislation represents a targeted “adjustment” to protect consumers from problematic economic conduct by health care providers, not any plausible sort of “invasion.”

Quite apart from surprise billing, it’s possible that some future piece of federal legislation establishing broad health care price controls could invoke the body of Taking Clause law (arising in the context of public utilities and common carriers) that prevents the government from establishing rates that are “unreasonable” or “confiscatory.” That would be a fact-specific inquiry, and merely establishing that the government’s rate is less than the physician’s billed charges would fall laughably short of proving those rates confiscatory.

The First Amendment Does Not Affect Provider Conduct Related to Surprise Billing

Another argument that has surfaced in recent weeks is the idea that surprise out-of-network billing involves conduct protected by the First Amendment’s freedom of association. The idea is that health care providers have a right to band together to refuse to accept the rates offered by insurance companies.  This claim fails to present a colorable constitutional obstacle to surprise billing legislation for a wide variety of reasons.

First, it is simply not an accurate description of provider conduct.  Individual providers may indeed want to avoid accepting rates offered by insurance companies, but they are not “banding together” to do it, so it’s unclear why the First Amendment would be relevant.  Moreover, to the extent providers did want to continue to express opposition to rate offers – individually or in groups – there are lots of other ways they can do so even when surprise billing protections are in effect, such as not seeing particular patients (for non-emergency providers) or not working in particular hospitals.  Further, the associational rights protected under the First Amendment have never been held to include the kind of economic interactions that this argument implies.  And that’s not to mention the fact that if sellers of a good had a First Amendment right to “band together” to affect the prices paid by buyers of that good, it would establish collusion as a constitutionally protected activity, not a manifest violation of antitrust statutes.

There Is No Fourteenth Amendment Obstacle to Surprise Billing Legislation

Surprise billing legislation also fails to present any plausible issue under either the Equal Protection Clause or the Due Process Clause of the Fourteenth Amendment. Arguments to the contrary are fairly inchoate, but as a general matter, claims under the Fourteenth Amendment that do not involve a suspect class (such as race) or a fundamental right are subject to rational basis review.  This means that the government would need only show that their action was “rationally related” to a “legitimate” government interest. There is little doubt that legislation to address a market failure with sensible policy tools would clear this hurdle.

More specifically, health care providers have claimed that if prohibited from collecting surprise bills, they will offer less uncompensated care to the uninsured, and therefore that legislation represents a failure to offer equal protection under the law to uninsured individuals. But experts generally conclude that such claims of “cost-shifting” are unsupported by economic theory or empirical evidence.  Further, even if true, this is still not a cognizable equal protection issue – the Equal Protection Clause can be violated when one group of people is deprived of something offered to another similarly situated group, and merely stating that a law makes some identifiable group worse off is not such a claim.  And, again, even if there was a claim it would be subject to rational basis review, which should not pose a legitimate challenge.