Surprise Medical Bills A Growing Problem Requiring Price Transparency

Doctors Rushing Patient down Hall(A version of this Health Alert was published by Forbes.)

Donald Trump’s health reform proposal during the presidential campaign promised to deliver price transparency to health care:

Require price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals. Individuals should be able to shop to find the best prices for procedures, exams or any other medical-related procedure.

Doctors and hospitals are infamously terrible at sharing price information with patients. It is a problem for both scheduled procedures and visits to emergency rooms. The root problem is not that providers are unwilling to share prices, but that prices are not formed through a normal market process. Instead they are administratively determined between government, insurers, and providers.

I have spoken with doctors who believe it would be illegal for them to disclose the price of a procedure to a patient before the insurer or government approved the claim! On the other hand, insurers’ and employers’ price transparency tools are not useful to most patients, and go largely unused.

A recent Consumers Union survey found nearly one third of Americans who had hospital visits or surgery in the past two years were charged an out-of-network fee when they thought all care was in-network. Other research from the Brookings Institution suggests this problem is getting worse.

This pushes against another trend. A survey by the Physicians Advocacy Institute and Avalere Health, a consulting firm, shows a significant increase in the number of physicians leaving independent practice and joining hospital-based health systems:

  • From July 2012 to July 2015, the percent of hospital-employed physicians increased by almost 50 percent, with increases in each six-month period measured over these three years.
  • In 2012, one in four physicians was employed by a hospital.
  • By 2015, 38 percent of physicians were employed by hospitals.

Obviously, this should be reducing, not increasing the problem of surprise medical bills. These occur when a patient undergoes surgery in a hospital in his insurer’s network, but is then surprised by an expensive bill from an out-of-network anesthesiologist, pathologist, or other specialist who attended him in the hospital.

Patients control an almost insignificant share of the dollars spent on our health care. Only about ten cents of every dollar spent on our health care is spent directly by us. The rest is controlled by insurers or governments (while we pay indirectly through premiums and taxes).

No wonder out of network specialists unwittingly inflict so much financial anxiety on patient. They really do not have an incentive to worry about the pain they cause patients’ pocketbooks, because their incomes do not depend on ensuring a patient is able and willing to pay his bill in a relatively frictionless way.

Professors Zach Cooper and Fiona Scott Morton have published a new article reporting their research on surprise medical bills in emergency rooms. Examining 2.2 million claims from a database of privately insured patients, they found over 99 percent of visits to emergency rooms were at in-network hospitals, but over one fifth of those visits generated a claim from an out-of-network doctor. At the extreme, one patient faced a bill of almost $20,000.

Professor Cooper proposes a common-sense solution: State laws making hospitals price all services, including physicians’, in a bundled contract with insurers. How much doctors charge would then be subject to private negotiation between them and hospitals.

Within the current system, it is a reasonable step. Nevertheless, it invites the question: Why are hospitals, physicians and insurers not already operating like this? The answer must lie in the overly complex regulatory morass governing how these actors interact with each other.

No other service business would try to get away with this. Remember when President Obama was trying to convince us that the Obamacare health-insurance exchanges would operate like Expedia or Travelocity? It is laughable in hindsight. Nevertheless, while most people agree that actual airline travel (which is regulated by the federal government) is miserable, buying a ticket to fly is a convenient and transparent process. A passenger does not get a bill from the co-pilot a month after his flight, stating the co-pilot was not in the airline’s network, and the passenger must pay extra!

Bundled pricing is a characteristic of a normally functioning market. In health care, that invites less, not more regulation. My own proposal would rely on solutions based on common law, not top-down rule-making.

Comments (27)

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  1. Devon Herrick says:

    Hearing stories like these makes it sound like getting an in-network versus out-of-network provider is almost arbitrary. Doctors (and people from the insurance industry) who I’ve talked to tell me it is not.

    If there is a common theme determining whether a provider is likely to be in-network or out-of-network (or affiliated with no network), it has to do with whether the provider is someone the patient is likely to meet in person.

    You will probably meet your surgeon prior to surgery. At that time you will have the opportunity to verify he/she is in your network. However, you are unlikely to meet your assistant surgeon, your anesthesiologist, your pathologist or your emergency room doctor prior to your medical need. Oddly enough, these are the specialties most likely to refuse to be in any network.

    The logical explanation for why these doctors do not join networks is that these professions are likely to earn more by refusing network affiliation. After all, they can balance bill patients for fees far higher than what Medicare would pay. Medicare generally pays physicians about 81% of what private insurers pay for most services. Within these specialties, providers may charge a multiple of what Medicare pays.

    If, on the other hand, if you actually met your anesthesiologist, pathologist or assistant surgeon and they informed you of their fees ahead of time, you may have the ability to decline their services.

    Under conditions where the patient never meets their providers, you can make a decent argument that the business law standard for a contract, a “meeting of the minds” did not take place. John’s idea (requiring the hospital to disclose a bundled fee ahead of time) and / or making it much harder for providers to collect fees where an agreement did not exist would encourage more disclosures. It would also likely to result in lower fees, when patients refuse to use the services of providers who disclose their fees are higher than a competitor.

  2. Barry Carol says:

    When a patient comes to the ER, the doctor needs to try to figure out what’s wrong with him. It may be fairly obvious or it may require significant diagnostic testing including imaging. This situation does not lend itself to bundled or packaged pricing in advance.

    The lack of price transparency has little to do with government regulation. It has everything to do with confidentiality agreements between insurers and providers that preclude disclosure of contract rates. If the local Blue, for example, is getting bigger discounts that United, Aetna, Humana, Cigna and others, it doesn’t want those competitors to know that. That’s why they insist on confidentiality agreements as part of their contracts. If it were up to me, these confidentiality agreements would be outlawed and insurers would compete on the basis of scope of coverage, deductibles and copays, breadth of network, member premiums and customer service.

    Regarding surprise bills, the reason radiologists, anesthesiologists, pathologists and emergency medicine doctors often refuse to join any insurance networks is because they know patients have no role in choosing them. This allows them to charge outrageously high fees and balance bill for them. That’s why they are often referred to as the RAPE doctors for the first letter of their specialties. In theory, hospitals could require these doctors to join all the insurance networks the hospital participates in but these doctors generate a lot of business for the hospital and the hospital doesn’t want to tick them off or they might take their business generation elsewhere. Alternatively, the hospital could hire them for a very high guaranteed salary and bonus but that would raise the hospital’s costs and it’s already operating on a comparatively low profit margin.

    Even at Medicare rates, most patients can’t afford to pay all the costs associated with a sophisticated surgical procedure out of pocket. There needs to be special rules that apply to care that must be delivered under emergency conditions. One of those rules would either prohibit balance billing or make the collection of the bill unenforceable unless there was a clear meeting of the minds on price before service was rendered. Shoving a financial responsibility form under the patient’s nose for him to sign while on the gurney in need of care doesn’t count as a meeting of the minds. Maybe the RAPE doctors should look in the mirror and ask themselves how they would feel if the circumstances were reversed.

    For what it’s worth, insurers tell me that only about 5% of total claims at most are for out-of-network care but there is a large concentration of such claims related to ER visits and surgical procedures where a surprise assistant surgeon may be part of the team.

  3. Bob Hertz says:

    Great article, John, but your short comment above is a little puzzling to me. Seems to me that we do not have enough government regulation of ER charges. I agree, the regulation can be more common-law and not a national fee schedule.

    But passing a law which allows a patient to really challenge price gouging takes government. It takes an agency like Eliz Warren’s Consumer Finance Protection Bureau, does it not?

    • Allan says:

      Why do you think everything requires another brand new government regulation? Contract law could prevail. There must be a meeting of the minds for a contract to take place. Without it there is no contract and the price is determined in court.

      Therefore, there are two ways of managing the problem. The first is that without a meeting of the minds where there was true choice the charges should reflect the average charge received. Why some judges base the payment on the average charge made by the particular doctor is an enigma to me. Perhaps they know nothing about chargemasters and what is typically collected. Judges need to be educated, but they are lawyers and many of them come from firms where the charges to their clients were just as abusive.

      The second method would be to leave balance billing up to the hospital. If the hospital wishes to pay more for the services of a specific doctor let it be. The hospital is responsible for the doctors practicing within its walls. The hospital knows that patients are unaware of the charges they may encounter once treated. Without informing the patient that they might be balance billed and how much the hospital should eat the charge.

      • Barry Carol says:

        Both meeting of the minds and holding hospitals responsible for balance bills are fine theoretical constructs but neither one is current law. Under current law, these out-of-network doctors can balance bill patients and use aggressive collection tactics to extract as much as possible up to the full amount of the balance bill from any given patient even though there was no meeting of the minds on price.

        According to one recent study based on the claims of one large insurer whose name was kept confidential in exchange for access to its data, fully 22% of emergency room patients faced balance bills. In one case, the balance bill exceeded $19,000!!

        To change the law requires GOVERNMENT action, preferably at the federal level. States could enact changes that affect their state but some will probably choose to do nothing leaving their citizens continually exposed to the same obnoxious and unfair billing tactics. Sometimes we need some government regulation. This is one of those times.

        • Allan says:

          Sorry, Barry, but you are wrong. A meeting of the minds is necessary under contract law today and in the past. It is not theory. The supplier can bill all he wants, but that is what courts are for. The courts determine whether the contract was valid and if not to determine payment if any.

          We all know that people face balance billing. That doesn’t mean those bills are ever collected though judges seem to have leaned in favor of the physician in determining validity and price. That is where a change needs to be made in attitude and if necessary in law.

          We know your default answer is more federal government control and regulation which is how we got into this situation in the first place. Your types of polcy are the cause of the problems we are trying to correct.

          • Barry Carol says:

            Balance billing by out-of-network doctors for hospital based care remains a huge problem nationwide. Doctors will probably say that the patient signed the form agreeing to be responsible for all charges and most patients probably couldn’t afford to sue even if they wanted to because it would be both costly and time consuming. The status quo is untenable for patients, period.

            If most of these bills aren’t collected, why are doctors so aggressive in pursuing them including the use of collection agencies? Even if the bills go uncollected, there is often considerable damage to patients’ credit rating because they couldn’t pay an outrageous bill that they shouldn’t have gotten in the first place. I’ll bet very few of these disputes ever see the inside of a courtroom.

            • Thank you all for these comments. I would also add that not all visits to the ER are “emergencies.” I have written about people in the ER who have given up waiting and walked out!

              With respect to a patient on an gurney who signs an agreement to pay whatever the bill is, I agree that would be under duress and is an abomination.

              The whole hospital billing system is atrocious.

              • Barry Carol says:

                Why haven’t there been class action lawsuits rendering hospital financial responsibility forms invalid for care that had to be delivered under emergency conditions and why weren’t bills for which there was no meeting of the minds on price declared unenforceable contracts and therefore uncollectable?

                • Allan says:

                  I have seen bills dropped or reduced for those reasons.

                  • Allan says:

                    I should add that I have had my own bills dropped for those reasons and even helped my own patients when they faced similar problems.

                    A huge number of people settle their disputes.

            • John Fembup says:

              “Balance billing by out-of-network doctors for hospital based care remains a huge problem nationwide.”

              Barry, I know this was once a big problem, I thought it had signficantly abated. Or not? I haven’t seen recent information, and can only judge by my own experience.

              In my own plan, so long as I obtain service from an in-network hospital, the services of any hospital-based physician are reimbursed at the in-network level. That includes my favorite list: Radiologists, Anesthesiologists, Pathologists, and Emergency Room Specialists.

              I’ve been assuming that all the major insurers have adopted about the same reimbursement methods. Bad assumption?

              As to aggressive pursuit of unpaid balances, my guess is that the aggressiveness comes from collection agencies not the physicians offices. Physicians are probably satisfied to sell their aged receivables to collection agencies for X cents on the dollar and then be done with them.

              • Barry Carol says:

                John — If an out-of-network doctor knows he will be reimbursed at an in-network rate while preserving his right to balance bill, what incentive does he have to join an insurer’s network?

                What used to be called the Ingenix division of United Health and now part of Optum maintained a database of usual and customary rates that it used to set or calculate rates to be paid to out-of-network doctors. Ingenix was widely accused of setting arbitrarily and unreasonably low rates and was later taken over by New York State. NY ultimately set out-of-network reimbursement rates for NY providers at 140% of Medicare.

                • John Fembup says:

                  “If an out-of-network doctor knows he will be reimbursed at an in-network rate while preserving his right to balance bill, what incentive does he have to join an insurer’s network?”

                  Hospital-based physicians – that’s who I’m talking about – have no incentive to join insurers’ networks anyway. Reimbursing them as out-of-network won’t change their behavior, it only punishes their patients.

                  Besides, patients have no choice in the selection of hospital-based physicians. Isn’t that why their balance-billing generated complaints from the beginning?

                  I hesitate just to assume that all insurers deal with the reimbursemment of hospital-based physicians roughly the same way my insurer does. Still my insurer is a major player; why would it be far out of step with other major players?

            • Allan says:

              You ask a lot of questions without looking up at least some of the answer. See way below. You also state things that may not be true or true only occasionally.

              There is always a cost when going to court whether it be time or money. The cost is for both sides. That is why people try to guess what the ruling is likely to be for in that way they can save time and money. That means one has to initially push for rulings in the fashion desired and if necessary laws that make that ruling more likely.

              You want to sit back and see the system serving you and your ideas that is not going to happen.

              I’ll answer one question and you can look the rest up.

              “If most of these bills aren’t collected, why are doctors so aggressive in pursuing them including the use of collection agencies?”

              Because all the doctor has to do is have his secretary transfer the bills to the collection agency that collects a fee based upon collection rates. Factoring is another way physicians collect on bills, but in this case before they are paid.

              • Medicare also requires it because if you don’t go through the entire process of forgiving a debt Medicare categorizes it as violating its most-favored-customer clause.

  4. Bob Hertz says:

    Allan, I do think that at least one or two new laws must be adopted nationally. Otherwise wouldn’t we be waiting for a few patients to have enough money to go to court, and then a few judges to create a new precedent, and then others to follow?

    So I guess my question is, if tomorrow morning a judge wanted to disallow an unconscionable charge, could they do it? Could they force the hospital to eat the charge?

    • John Fembup says:

      “Could they force the hospital to eat the charge?”

      Confiscation of one’s labor is slavery, Bob.

    • Allan says:

      My guess is that the judge has the power to determine the fee after the fact if he declares the contract did not have a meeting of the mind. I cannot see how the judge could order the hospital to pay.

    • Allan says:

      There are plenty of groups that like to take things to court without charge. It is a matter of the issue. Certain laws could be passed to make the contract more understandable, but I don’t believe in government telling anyone what they should charge for their intellectual property, property etc. Furthermore such government action doesn’t work well in the long term.

  5. Bob Hertz says:

    Allan, I do not even know how to start a search of legal cases, but if any law student reading this blog can find a single case where a judge used the “meeting of the minds” principle to reduce a medical bill, I will be surprised.

    I am on Barry’s side with this one.

    The form which patients sign (sometimes from a gurney) to authorize all potential charges is a legal abomination in my opinion.

    • Allan says:

      Think of it this way Bob, what does the judge say when he rules that no contract existed?

      Go to the free dictionary

      “meeting of the minds
      n. when two parties to an agreement (contract) both have the same understanding of the terms of the agreement. Such mutual comprehension is essential to a valid contract. It is provable by the express provisions of a written contract, without reference to any statements or hidden thoughts outside the writing. There would not be a meeting of the minds if Bill Buyer said, “I’ll buy all your stock,” and he meant shares in a corporation, and Sam Seller said, “I’ll sell all my stock to you,” and meant his cattle. (See: contract)
      Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.”

  6. Bob Hertz says:

    Allen is correct that quite a few bills are dropped or reduced, both by doctors and by hospitals.

    I have assisted numerous persons in getting their hospital bills reduced. Some states call for mandatory reductions if the patient is under about 300 per cent of poverty.

    The medical billing system for persons under age 65 sometimes feels like the stereotypical Middle Eastern bazaar, where each vendor starts with an impossible high price, but then gradually drops the price if he feels resistance.

    It is hard for me to believe this non-system is better than a binding national fee schedule as exists in most other advanced countries, including France and Germany. But I am not a physician, so truthfully I do not know.

    • Allan says:

      Bob, a binding fee schedule means the best doctor in the world is paid the same as the worst doctor with almost no experience. Is that something you want to see?

      Is everyone entitled to see the best doctor in the world? If so how does one manage who gets to see him first?

      • John Fembup says:

        If practicing physicians all earn the same fees, seems to me a useful part of their preparation would be to award them the same grades in Med school. Because all Med students are equally good students. That’s fair, right?

        And after all, when they graduate and become licensed M.D’s they practice their art with equal skill. So paying all docs under the same binding national fee schedule also seems eminently fair.

        I don’t know to whom exactly this is fair – but it really feels good to advocate for fairness. And goodness is better than badness.

        [Many people, including Bob Hertz and Jimbino, seem to believe that all doctors always and everywhere practice with equal skill. Therefore it’s logical and fair to desire a binding national fee schedule, and to value medical care solely on the price charged. Of course, on the wee off chance that someone, somewhere believes all docs do not practice with equal skill, then those hypothetical persons would probably see a binding national fee schedule, which deprives better docs of the fruits of their labor, as the soul of badness. And ironically in that case, those hypothetical equality-deniers would have accepted the basic premise of managed care. Oh but let us not indulge in hypotheticals.]