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How States can Help Combat Surprise Medical Bills

A new report from the USC-Brookings Schaeffer Initiative for Health Policy examines the prevalence, drivers, and policy implications of out-of-network billing.

A lab technician draws blood from a patient at a health center in Phoenix. (The Associated Press / Matt York, File)

Too often, patients are surprised to receive large, unexpected bills after being treated at an in-network facility or in an emergency room. 

In most instances, this happens because out-of-network specialty or ancillary physicians – whom patients have no role in choosing – are contracted by the in-network facility to deliver services such as anesthesiology or pathology.

These bills are often very large, leaving many to cope with substantial and devastating consequences.

According to a study examining data from a large national insurer, out-of-network emergency physicians charged on average about eight times what Medicare pays for the same services. (While in-network rates paid by commercial insurers averaged three times what Medicare pays.) 

While there is broad bipartisan agreement that a problem exists, a solution can sometimes prove elusive. Federal legislation to greatly reduce surprise billing has been proposed, but many states are not waiting for Congress to act, and instead, are coming up with their own solutions.

In a recent study funded by Arnold Ventures, the USC-Brookings Schaefer Initiative for Health Policy evaluates the prevalence, drivers, and policy implications of surprise medical billing.

States have several levers they can use to prevent or greatly reduce surprise billing, and several states, including California, New Jersey, and New York, have taken steps to address this issue.

A comprehensive solution to surprise out-of-network billing would protect patients and restore more normal market dynamics for contracting with emergency and ancillary clinicians. The recommended options for states include:

Option 1: Billing Regulation

Under this approach, states would:

  • Set a limit on out-of-network charges equal to a multiple of the relevant Medicare rate in line with what non-emergency or ancillary specialists with similar training are paid by commercial payers
  • Require fully insured health plans to hold enrollees harmless for any cost-sharing beyond normal in-network cost-sharing amounts for these out-of-network services
  • Apply these requirements to: 1) out-of-network emergency services 2) out-of-network ancillary clinician, hospitalist, and neonatology services delivered at an in-network facility

Option 2: Hybrid of Billing and Contracting Regulation

  • For out-of-network ambulance services and emergency services delivered at an out-of-network facility, states would implement the billing regulation approach
  • For other services, such as an ancillary clinician, hospitalist, and neonatology services delivered at an in-network facility, states would bar independent billing, thereby implicitly requiring that insurers pay for these services entirely through payments to the facility at which they practice.

By enacting either of these approaches, states could help protect privately insured state residents from surprise out-of-network bills. And depending on the design, states also have the potential to reduce health care spending and insurance premiums, resulting in additional savings to consumers.


State approaches to mitigating surprise out-of-network billing

Why does surprise out-of-network billing happen and what are the potential policy responses? Read the analysis by the USC-Brookings Schaeffer Initiative for Health Policy