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.