Yale researchers estimate that health care spending for individuals with employer-sponsored insurance could be reduced by approximately $40 billion each year if specialists at in-network hospitals were not permitted to bill out-of-network.

Their study, published in the January 2020 issue of the journal Health Affairs, analyzed the billing practices of anesthesiologists, pathologists, radiologists and assistant surgeons who are hospital-based and are not selected by patients.

“When we think about why we spend a lot on health care in this country, it’s issues like this that are what’s leading us astray,” said Zack Cooper, the study’s first author and a Yale associate professor of health policy and economics. He explained that out-of-network billing impacts not only individual consumers facing unexpected payments but also overall health care spending.

Physicians and hospitals independently negotiate agreements with insurance companies. If a health care provider — such as a physician or hospital — reaches an agreement to participate in an insurer’s coverage network, that provider is “in-network” for individuals covered by that insurance company. If the provider does not participate in that network, the provider is instead “out-of-network.” Because there are two separate agreements, patients seeking treatment at an in-network hospital can be treated by an out-of-network physician.

When individuals must receive treatment from out-of-network physicians, they can be exposed to significant financial risk. Treatment by an out-of-network provider leads to three potential payment situations. First, an insurer may cover all of the charged bill — but higher charges can lead to higher premiums. Second, the insurance company may provide assistance up to a standard rate, and the individual then pays the difference between the standard rate and the rate charged by the physician. Third, the insurance company may offer no assistance on the bill, leaving the individual to pay the entire bill.

“I think what you need to remember is that most families in the U.S. can’t afford an unexpected $500 bill,” said Cooper. “These sorts of bills can be financially devastating.”

The research team used a dataset from a large commercial insurer and determined the percentages of cases involving an out-of-network physician at an in-network hospital: 11.8 percent for anesthesiologists, 12.3 percent for pathologists, 5.6 percent for radiologists and 11.3 percent for assistant surgeons. In comparison, the researchers found that less than 1 percent of knee replacements were performed by an out-of-network orthopedist at an in-network hospital. The team chose to compare the specialists to orthopedists performing knee surgery because individuals can generally choose their orthopedists in advance.

There was a higher share of out-of-network providers in regions with fewer hospitals and regions with more economic inequality. For-profit hospitals also had more out-of-network providers than nonprofit hospitals.

After identifying the prevalence of out-of-network specialists at in-network hospitals, the team considered the cost of out-of-network treatment for individuals. Average out-of-network charges were 802 percent of Medicare payments for anesthesiologists, 562 percent for pathologists, 452 percent for radiologists, and 2,652 percent for assistant surgeons. In-network orthopedists, in contrast, were paid on average 164 percent of the Medicare rate for knee replacements.

The researchers also concluded that the ability to bill out-of-network strengthens physicians’ positions when negotiating with insurance companies, which leads to higher in-network rates. The higher in-network rates then contribute to total health care spending.

If all specialists received the same average in-network payments as orthopedic surgeons, calculated as 164 percent of the Medicare rate, the researchers estimate that total spending for people with employer-sponsored insurance could be reduced by approximately 3.4 percent, or $40 billion annually.

Drawing on her experience as former Deputy Assistant Attorney General for Economics at the Antitrust Division of the U.S. Department of Justice, Fiona Scott Morton explained in an interview to the News that the current system exposes a “regulatory loophole” that necessitates a “regulatory response.”

In the article, the research team noted their preference for a solution that requires hospitals to sell one package that bundles the fees of physicians and specialists. This would prevent an individual from receiving out-of-network care at an in-network hospital, hence eliminating the potential for surprise billing.

State legislators have also put forward solutions to end surprise medical billing. New York legislators implemented an arbitration system for insurers and physicians to settle disputed bills. California passed legislation that limited out-of-network costs based on average in-network payments and also provides an avenue for arbitration if necessary. The California strategy is often referred to as a “benchmark approach.”

Cooper noted that both of these solutions could solve the problem if designed and implemented properly.

“It turns out fixing this actually isn’t that complicated,” said Cooper. “The real issue is just overcoming the politics.”

In Congress, bipartisan legislation addressing surprise medical billing stalled before the December recess.

“The federal legislation that was designed to fix this problem was defeated by two private equity companies, who simply lobbied and advertised against this bill,” said
Scott Morton.

The proposed bills faced heavy opposition in an aggressive advertising campaign by Doctor Patient Unity, a dark money group funded by private-equity-funded physician-staffing companies, according to the New York Times. Per its reporting, one of these physician-staffing companies, TeamHealth, was acquired by the private-equity firm Blackstone Group in 2016. Yale donor Stephen Schwarzman ’69 is the chairman, CEO and co-founder of the Blackstone Group.

The chairman of the Senate Health, Education, Labor and Pensions Committee, U.S. Sen. Lamar Alexander, R-Tenn., vowed in a Dec. 16 press release to keep fighting for an end to surprise
medical billing.

“I will continue to do everything I can to keep surprise medical bills at the top of the congressional priority list until it’s done,” said Alexander.

House Speaker Nancy Pelosi, D-Cal., also identified ending surprise medical billing as a priority for the new year in her “Dear Colleague” letter released on Dec. 30.

“We also look forward to ending the financial unfairness of surprise billing,” wrote Pelosi, “which has bipartisan support in the Congress and among the American people.”

Many Democratic presidential candidates, including Sen. Elizabeth Warren, Mayor Pete Buttigieg and Mayor Michael Bloomberg, among others, have proposed policies to address surprise medical billing.

According to a 2018 survey by the American Hospital Association, there are 6,146 hospitals in the United States.

Katie Taylor | katie.taylor@yale.edu