The Unfinished Business of Air Ambulance Bills

Editor’s note: This blog was originally published by Health Affairs on March 26, 2021. 

On December 27, 2020, tucked into the year-end coronavirus relief package and spending bill, Congress passed the No Surprises Act, largely ending the practice of surprise out-of-network medical bills. In a win for patients, the law applies to air ambulance operators as well as out-of-network providers and facilities that provide emergency and non-emergency health services. Nevertheless, the law’s consumer protections don’t go far enough to protect patients from the financial risks of an air ambulance transport.

Effective January 1, 2022, the No Surprises Act generally prohibits out-of-network providers in emergencies and at in-network facilities from billing patients for more than their in-network cost-sharing amounts (eliminating patient balance-billing) and sets up a dispute resolution process to determine the amount the patient’s health plan will pay for the out-of-network care.

If the out-of-network provider and the payer cannot agree on a rate through negotiation, the parties can pursue “baseball-style” arbitration and submit their final proposed rates to the arbitrator, who must then select one of the proposed rates. The arbitrator is directed to consider certain factors to select the winning rate, including the median in-network rates for the services in the area, the acuity of the case, and prior contracted rates or attempts to contract between the parties. In addition to these factors, the arbitrator can consider the air ambulance vehicle type (for example, fixed or rotary wing), the vehicle’s clinical capacity, and the population density of the pick-up site. Either party can present any other information they wish, with the important exception that the arbitrator is prohibited from considering both the provider’s billed or usual and customary charges and public payer rates, such as those paid by Medicare, Medicaid, or the Children’s Health Insurance Program.

The Arbitration Guidelines May Not Work For Air Ambulances

While protecting patients from surprise bills for air ambulance rides—particularly at the federal level—is a welcome able step forward, the No Surprises Act alone is unlikely to rationalize the air ambulance market. Out-of-network air ambulance bills are a particularly pernicious form of surprise medical bill, and the market distortions are even more pronounced than in other specialties. Arbitration that looks to previously negotiated rates for air ambulances will be higher than genuine market rates for three reasons: current negotiated rates are inflated by the threat of surprise billing; the highly concentrated air ambulance market means negotiated prices are further inflated by market power; and the paucity of in-network transports makes in-network data unreliable.

The standard insurer-provider negotiation model does not function properly for emergency air ambulance services, both because providers must pick up any patient regardless of payment and insurers have no ability to steer patients to preferred providers. Air ambulance transports are also rare and, even with high per-transport costs, make up only a tiny portion of health insurance spending. Thus, insurers may continue paying inflated charges for the rare air ambulance bills that do occur rather than investing substantial resources to bring these providers in network at a reasonable rate.

Given these realities, median in-network rates—which arbitrators are directed to consider—are unlikely to be a meaningful measure of efficient prices for these services. Instead, payers agreed to these rates largely to avoid surprise out-of-network liability for patients, which averaged about $20,000 over the 2016–17 period. Likely due to the infrequency of air ambulance services and the very high costs, many insurers appear to place a high value on preventing enrollee surprise bills, with one study finding that insurers allowed out-of-network air ambulances’ full charges for about half of transports, without any clear relation to the magnitude of the charge. In turn, this creates an incentive for air ambulance operators to continuously raise charges and remain out of network unless offered very high payment. Furthermore, the national market for air ambulance services is highly consolidated, with private-equity firms that appear to set their charges more aggressively controlling a large share of the market.

It is unsurprising, then, that about three-quarters of air ambulance transports (estimates range from 70 percent to 77 percent) of commercially insured patients were out of network, compared with about one in five inpatient admissions from the emergency department or elective surgeries that involved an out-of-network provider. Median charges for a rotary-wing air ambulance transport spiked over the past decade, nearly tripling from $12,500 to $35,900 between 2008 and 2017, while median in-network rates increased 128 percent over the same period.

The No Surprises Act’s guidelines for arbitrators to determine out-of-network rates—referring to median in-network rates and prior contracted rates—thus do not represent anything approaching a “market price” for air ambulance services. Moreover, to a greater extent than other services, air ambulance operators have historically used out-of-network billing as a revenue strategy, and there are few in-network rates to guide arbitrators.

Arbitration cannot fix the market failures, consolidation, and unequal bargaining power that characterize the air ambulance market. Bringing market forces to the air ambulance industry would likely involve setting up a competitive bidding process, as some of us have recommended. The alternative is to pursue price regulation in this market, but due to the myriad problems described above, arbitration based on median in-network rates is the wrong way to go about this. Instead, Congress should re-evaluate and update Medicare prices for air ambulance services (which were created via negotiated rulemaking in 2002) to better approximate efficient prices, and then use Medicare prices (or some multiple thereof) to determine out-of-network payment requirements for commercial insurers or to guide arbitrator decisions. Yet, under the act, arbitrators are prohibited from considering Medicare rates.

The No Surprises Act requires health insurance plans and air ambulance operators to submit cost and claim data to the secretary of the Department of Health and Human Services, who will then publish a report analyzing trends in the costs, use, service capacity, competition, and unfair consumer practices of air ambulance industry. This reporting and analysis can be helpful but only if Congress uses this information to improve upon the current arbitration process and to re-evaluate Medicare payment rates. Otherwise, the challenges in implementation of the act’s consumer protections and arbitration process mean that monitoring the pricing and contracting trends in air ambulance market will be critical—and insufficient.

Making matters worse, unlike surprise medical bills for services at health facilities, out-of-network bills from air ambulances have been largely shielded from state regulation by judicial interpretations that such state laws are preempted by the Airline Deregulation Act. This means that despite the fact that the No Surprises Act permits more comprehensive state laws to supersede the federal out-of-network payment methodology, states may not have the ability to apply such laws to the air ambulance market.

What Else Is Needed?

Beyond the balance billing protections in the No Surprises Act, Congress should amend the Airline Deregulation Act to clarify that it does not preempt state consumer protection laws, or the Department of Transportation and courts should correct their contrary interpretations of the Airline Deregulation Act to the same end. In the absence of a functioning market, we rely on consumer protection laws, particularly state laws, to address the market manipulation and consumer exploitation at work in the air ambulance market.

Barring balance billing is just one consumer protection. Private-equity and profit-seeking investors will continue to find ways to exploit legal loopholes to the detriment of consumers, including through the sale of dubious air ambulance “membership” programs, challenges to state efforts to create preferred call lists for emergency management dispatchers to direct calls to in-network air ambulance providers, and challenges to states’ application of workers’ compensation fee schedules or automobile insurance regulations to air ambulance transports.

Recently, the 8th Circuit Court of Appeals struck down North Dakota’s ban on air ambulance balance billing and regulation of membership programs as preempted by the Airline Deregulation Act—erroneously in our view. Such rulings are products of an excessively literal reading of narrow provisions in the Airline Deregulation Act, and their invalidation of state consumer protection laws undermine central state authorities. These judicial errors will hopefully be corrected by other courts, but in the alternative, the Department of Transportation should regulate abuses by the air ambulance industry via its consumer protection authority or Congress should amend the Airline Deregulation Act.

States have always served as the front lines of consumer protection, so it doesn’t make sense to carve out air ambulances from these state laws by treating them more like commercial airlines than ground ambulances under an overly broad reading of the Airline Deregulation Act. Nor does it make sense to place consumer protection for patients who are transported via air ambulances solely in the hands of the federal Department of Transportation, as the current laws provide.

Lessons For The Broader Health Care Market

Policy makers must recognize that when markets break down, exploitive practices soon follow. Surprise medical billing, whether by air ambulance operators or other providers, stemmed from aggregation of market power and abuse of that market power through nefarious contracting practices. Given the opportunity to exploit legal loopholes to raise revenues, certain provider groups (particularly those controlled by private equity) rushed in and drove up health care costs. This pattern exists throughout the health care system and should inform many areas of health policy, including hospital monopolies, patent evergreening, pharmaceutical price gouging, and unwarranted outpatient facility fees. Ending surprise bills is important, but health policy requires a more comprehensive approach to making markets work.

In short, the air ambulance problem points to other problems, and solving the worst abuses with narrow solutions might only prompt minor changes in a policy whack-a-mole while avoiding a broader remedy. The No Surprises Act is an important response to this abusive use of an out-of-network billing strategy, but it does not solve other market failures or health care consumer woes.

We need to sharpen available legal tools to address the problems of consolidation and anticompetitive and unfair practices in health care, including strengthening antitrust and consumer protection laws. Although a positive step forward, the No Surprises Act does not go far enough to correct either.