It is no secret that physician groups and insurance companies often disagree about fair prices for medical care, but as hospitals increasingly turn to outside help to fill their emergency department (ED) staffing needs it is the patients who are getting caught up in the cost crossfire.
When receiving care within their insurer’s provider network, patients do not need to sweat the difference in expectations since in-network providers have agreed with an insurance company about rates in advance. But in emergencies, patients have little say in which ambulance arrives, which ED it rushes to, or which doctors provide care.
And even if they do wind up at an in-network facility, there is still a chance of being treated by providers who do not participate in the same insurance plans as the hospitals they serve. In a National Bureau of Economic Research study, Yale researchers revealed that in over 1 in 5 emergency visits, patients attended in-network hospitals but were treated by out-of-network physicians.
And in some cases, it is virtually guaranteed that emergency treatment will be performed by out-of-network doctors. A Center for Public Policy Priorities study, for example, revealed that over 300 Texas hospitals do not have a single in-network ED physician available with at least one of three of the state’s largest insurers.
These scenarios put patients at risk of what the insurance industry refers to as surprise billing and what providers tend to call a surprise coverage gap. Also known as balance billing, it occurs when insurers and out-of-network doctors pass the disputed payment amount along to patients who unknowingly received out-of-network care.
Recent reports also indicate that an additional source of surprise billing comes from ambulatory care or ambulance rides. This happens for similar reasons. Ambulance companies are often not part of in-network care for most commercially-insured patients, according to a report from Kaiser Health News. Additionally, ambulance fees are not currently regulated by the federal government, leaving it to the states to determine how these fees can be billed. Currently, only 21 states have laws on the books designed to prevent surprise ambulance billing.
It hurts patients in the pocket when they have to pay these unexpected out-of-network prices, Jesse M Pines, MD, professor of Emergency Medicine and Health Policy at George Washington University told First Report Managed Care. But balance billing also hurts patients and patient outcomes because it could lower the likelihood of seeking care during future emergencies.
“Tragedy of the Commons”
The problem in the current health care landscape, according to Dr Pines, is that in most situations providers and insurers are stuck in a win-lose scenario. There is a fixed amount of money up for grabs, and both parties are looking to maximize their own gains. Insurance companies do so by narrowing their network of providers while ED provider groups increase their negotiating power through consolidation. As those negotiations break down, patients often bear the burden.
According to Dr Pines, an apt analogy is the “tragedy of the commons,” a concept that originated in an essay written in 1833 by economist William Forster Lloyd and refers to the effects of unregulated grazing on common land. There is a finite amount of grass on the field, and each cow is trying to eat as much as it possibly can.
“They end up killing all the grass because each of the cows is working in their own self-interest,” Dr Pines said, and it is not unlike today’s health care environment. “Because the provider cow and the insurance cow are both trying to maximize for their own interest, you’re never going to really align incentives there,” he said.
When payers are trying to put barriers in place of payment and providers are trying to maximize billing, it creates enormous inefficiencies as all involved attempt to get the best deal possible.
“But in the end, none of that actually benefits the patient,” he said. “It just creates enormous administrative costs.”
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While there are not any direct federal laws in place that protect consumers against balance billing by out-of-network providers in EDs or in-network hospitals, a recent Commonwealth Fund study found that 21 states have stepped in to address the issue.
Some prohibit balance billing by providers, others place the entire burden on the insurer, and still other states have worked out a process that attempts to arrive at rates that come as close as possible to satisfying both sides. Of those 21 states, however, only six—California, Connecticut, Florida, Illinois, Maryland, and New York—provide what the authors see as sufficient protection for consumers.
“What they’ve done is they’ve said, let’s keep the consumer out of this completely, let’s make sure we cover all the different settings in which these surprise billings arise, and then let’s have some process for coming up with a fair payment that in some way splits the difference as fairly as possible between the provider and the insurer,” Jack Hoadley, PhD, said.
A research professor at Georgetown University’s Health Policy Institute and one of the study’s co-authors, Dr Hoadley explained that states have taken differing approaches, some of which look to prevent the problem and others that attempt to solve it. But the laws vary most significantly regarding how payment disputes are resolved between insurers and providers.
California, for example, requires insurers to pay out-of-network providers a specified percentage of Medicare rates or the average in-network rate paid by the insurer in a given region. Other states, like New York, have a process in place to allow providers and insurers to engage in a dispute resolution process.
Because it is set up as baseball style arbitration where the arbitrator is required to pick either the provider’s number or the insurer’s number and cannot split the difference, it encourages both sides to be reasonable with their numbers. “And often,” he said, “it actually encourages them to say, ‘Okay, we’re this close, we might as well just split the difference and go home.’”
Looking ahead, Dr Hoadley and his coauthors suggest the solution to balance billing is not likely to come from Washington given the current political climate. As a result, states could be better positioned to take on this task in the short term.
As a result of this climate, Texas passed a new law in September to tackle the issue of surprise billing.
Under the new law, freestanding EDs will be required to notify patients of their insurance networks and how their facility fits into those networks of care.
The law will allow EDs to post this information via a website, but patients who receive services must also be provided with written confirmation of their insurance network status.
Lawmakers ultimately designed the law to protect patients from deceptive practices by EDs.
Band-aid on a Bigger Problem
According to Dr Pines, though, these fixes being implemented at the state level are essentially band-aids on a larger underlying issue.
“I don’t think that piecemeal legislation is the solution,” he said. “What we need is a broader solution that addresses the misalignment of incentives between insurers and providers.”
A useful model in this regard is Kaiser Permanente, where contractual relationships align incentives for efficiency across providers, facilities, and their insurance arm. The system is designed so that each entity benefits when the other is efficient, and everyone loses when a budget is exceeded. And yet this is a challenging model to mimic on a much larger scale.
“I don’t think anyone’s figured out how you sort of replicate the Kaiser model outside of Kaiser itself where everyone benefits from better population health,” Dr Pines said.
The broader question, then, is how can incentives between providers and insurers be created through legislation?
“I think the ultimate goal there is to move to a capitated model,” he said.
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