How to Fix the Borderline Fraud of Surprise Billing

by James A. Bacon

Surprise medical billings are one of those things where people of all political stripes come to agreement. It sucks to go to a hospital within your health insurance network only to discover when you open your bill that an anesthesiologist, consulting physician or emergency room doctor at the hospital, unknown to you, did not belong to your network, and that you’ve been charged thousands of dollars more than you bargained on.

While loathing of the phenomenon knows no partisan grounds, solutions are remarkably hard to find. The General Assembly has been struggling over this issue this session, so far without success. This article in The Virginia Mercury describes three remedies being debated, each with their own pros and cons. I have a few thoughts of my own.

Surprise billing arises from the fact that insurance carriers compete by offering lower rates to customers who agree to stick within restricted provider networks. Hospitals, physicians, labs and other providers agree to charge less in exchange for getting preferential access to the carrier’s customers. It’s one of the few ways to make providers compete on the basis of price and lower costs, and not a strategy we would want insurance carriers to abandon.

The insurance lobby in Virginia has proposed a way to address the surprise-billing problem. Set fixed rates that insurers can fall back upon if they get a bill from an out-of-network provider. But docs and hospitals say those fall-back rates are too low and eliminate any incentive for insurance companies to negotiate to bring them in network.

Docs and hospitals have proposed instead creating a mechanism to resolve billing disputes through arbitration. But insurers say the process is so time consuming and expensive that it would be impractical for them to contest any but the most expensive surprise bills, tipping the scale in favor of the providers.

A third alternative, proposed by Del. Mark Sickles, D-Alexandria, and House Appropriations Chairman Luke Torian, D-Prince William, would look to Virginia’s Bureau of Insurance to resolve billing disputes. The Bureau would base decisions on a yet-to-be-calculated “market-based value” that would average how much services generally cost in a given area.

“No one knows what this will do,” Sickles told Virginia Mercury, “but I’m attempting to get a realistic price that’s attractive to doctors but no so rich they’ll never join an insurance network.”

At the moment, the state Senate supports the arbitration approach favored by hospitals and doctors. The Senate voted down a bill preferred by the insurance carriers. Congress hasn’t had any better luck in devising a compromise that works for carriers, providers and, oh, yeah, incidentally, consumers.

Bacon’s bottom line: Think of my idea as a trial balloon — a conversation starter — more than a serious recommendation. Surprise billing most frequently occurs when a hospital participates in an insurance network but providers doing business in that hospital do not. Speaking from my perspective as a consumer, such a “network” strikes me as meaningless if not downright deceptive. How are consumers expected to know the employment/contractual arrangements between hospitals, doctors and other providers doing business within the hospital? It wasn’t until very recently that I became aware, for instance, that emergency room doctors are almost never hospital employees — they belong to independent emergency-room physician practices. How would an ordinary citizen know that?

A conceptually elegant solution (from the consumer’s point of view) would be for all independent providers doing business within a hospital — emergency room doctors, anesthesiologists, visiting doctors, pharmacists, x-ray technicians, lab techs, physical therapists, contract nurses, whomever — to offer the same in-network discounts to patients as the hospital does. Now, I’m sure it would cause hospitals a lot of headaches to enforce such a proviso. Hospitals would have to go out and re-negotiate a lot of contracts with their independent providers.

So what?

I anticipate that some readers will troll me by saying, Bacon, we thought you were a libertarian who opposed government intrusion into the marketplace. Not so. I’ve always argued that government intervention is defensible in the case of the public safety and health, and sometimes to protect consumers. (Government often over-reaches, but that’s a different matter.) In my appraisal, surprise billing is borderline misrepresentation and fraud. Hospitals and insurers are representing one thing — you’ll be charged less if you seek your medical treatment at Hospital X — without notifying customers of the myriad exceptions and loopholes.

When I purchased a long-term care insurance contract, my insurance agent sat down with me and ran me through the fine print. I may not have appreciated the significance of every point he raised, but at least he informed me. But most people with private insurance get their insurance through their employer. The sign-up process is largely automated — pick a health plan, sign a form, and you’re done. Employees don’t get one-on-one sessions with insurance agents to walk them through the fine print. They think they’re getting billing discounts from in-network providers that they’re really not getting.

The way to deal with the surprise billing issue is to fix the underlying problem, and none of the proposals described by the Virginia Mercury does that.

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15 responses to “How to Fix the Borderline Fraud of Surprise Billing

  1. I dunno about trolling you but didn’t you also complain about the premium increase on your long term care?

    Isn’t this issue similar to payday loans?

    If you willingly enter into a contract – isn’t it your job to decide
    if the terms are acceptable to you and if not, then decide what
    your reasonable alternatives might be?

    And “networks” are “fraud”? HOLY MOLY!

    This is why I say Fair Weather Libertarian – and FAUX Libertarian. It’s a philosophy of convenience – that goes away when the real world intrudes!

    • Larry, Once again, you misrepresent what I wrote. I did not suggest that provider “networks” are fraudulent. I suggested that the representation of those networks is borderline fraudulent if consumers are not informed that Hospital X may be in the network but half the services provided by that hospital are not be included in the network.

      Please engage your critical reading facilities before responding.

      • Jim – your phrase was carefully constructed – I agree and perhaps I should read more carefully but then perhaps such tortured phrases so easily misunderstood should be more clearly stated at the front – sans the word “fraudulent”.

        But anytime you use the word “fraudulent” that word stands out even when you say “borderline”.

        But basically you’re complaining about something that I bet is clearly stated in the papers you sign when you go into the hospital. I know it was for me and specifically the anesthesiologist.

        So I DID read and DID understand and what choice did I really have after finding that out?

        Am I going to go “shopping” for a better deal?

        I think this points out that all of us are subject to this kind of thing – not just poor folks have “no choice” when they need a payday loan.

        Well both payday loans AND insurance networks DO have a CHOICE when it comes to government – and why the government should intrude if both of these transactions are not illegal.

    • I think your plan is a good one.

  2. The problem from my perspective is that hospitals should know which of their subcontractors are in a patient’s insurance network. If a hospital is in the network, is a patient seeking ER admission required to do a network check on every party involved in the treatment? Why should I be compelled to assume liability to hospital subcontractors that I am not informed about until after the fact? At least shouldn’t the hospital inform the patient that he will be treated by parties outside his network and there will be substantial uncovered expenses incurred?

    • Dollars to donuts, you ARE informed. It’s in that packet of papers you sign when you go into the hospital.

      If that is true – then what is the answer to this problem?

      is it government?

  3. Imagine contracting with a homebuilder to construct a house on your property. Everything seems to be going fine. The home is built to spec and you move in. Then you get the bill. The homebuilder tells you that 1/3 of the carpenters were sub-contracted so there’s an upcharge. And all of the plumbers were subbed in so another upcharge. Nobody would tolerate that. Hospitals are the prime contractors for whatever happens within the hospital – including the cost of services provided. The hospital needs to negotiate with whomever is working in that hospital.

    Hospitals in Virginia have plenty of money to buy up family practices, other hospitals, urgent care facilities outside the hospital, etc. They want vertical integration? They can damn well be vertically integrated with regard to charging in-plan costs too. For everybody operating within the hospital.

    Your plan is spot on.

  4. Love the “Home Alone” picture of Macaulay Culkin. Now if only the average victim of surprise medical billing were as outraged as that! So many just pay the damned bill and move on, without analyzing its components.

  5. This is funny No such attitudes when it comes to the poor getting ripped off by payday loan sharks.

    It’s the “market”, a “willing” transaction. A needed service that would not exit if the loan sharks could not charge outrageous fees.

    Jim B, himself a year or two back was complaining about his long term care insurance going up – like it was a “gotcha”…

    the point here is that we play the libertarian game when others OX are gored but when it comes to us , we go running to nanny government to force those “overchargers” to not “overcharge”.

    re: ” But most people with private insurance get their insurance through their employer. The sign-up process is largely automated — pick a health plan, sign a form, and you’re done. ”

    I’m betting dollars to donutes that that “form” you signed actually did inform you as to the network issues.

    If it did inform you – then what are you advocating? That the govt get involved ?

    What I’m saying is that we argue as if we can have it both ways.

    In the “free market” – whoever you are engaging in a transaction with can “inform” you on paper but if it is 10-20 pages of fine print – whose fault is it if you don’t read it? And if you do read it and you do see the network issues – what would you actually do about it? Refuse the operation? Go to another hospital? Find another insurance?

    All are options. right?

  6. The General Assembly will vote the way VHHA tells them to vote.

    • Naw. You’re missing the point. I’m asking if you were King – what would you do?

      Would you just allow willing transactions between two parties – i.e. let the buyer have the burden of knowing what is covered or not and decide based on their own wants?

      Or have the govt require more explicit notice and/or control the process?

      No blaming on lobby folks or the Dems or anyone else. I’m asking
      what you would do if you had the control to do it?

  7. Good job Jim. That’s a compromise I could live with.

  8. First off – I do not understand the rationale and purpose behind insurance company networks.

    That does not mean they are illegal or wrong or “fraudulent”, it’s something most of us do not understand – like a lot of other things we deal with and are impacted by – that we don’t really understand especially when it comes to a lot of the aspects of insurance, not only healthcare but other kinds also – the fine print almost always details these things but few of us take the time to read and understand them before we “accept” them when we decide to buy.

    Just like the TOS for a lot of “apps” that many use, few read and understand the terms because they hit the “accept” button.

    So here’s the issue.

    If we actually are presented with the terms – what exactly is our complaint?

    And further, let’s not beat around the bush on this – are we or are we not saying that government should involve itself in the issue?

    no weaseling around here. what’s the answer? yes or no?

    and just FYI – it actually could be that some health care providers – like anesthesiologists – just won’t join ANY network, they won’t give reduced rates to anyone. If that’s true, what exactly are your options?

    is it back to the idea that govt needs to step in?

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