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The Surprising Force Behind Surprise Medical Bills

They’re part of a strategy by private equity-backed physician firms to extract maximum profit from patients. But with voter demand for change high, Congress is working on a solution to end the practice.

An anesthesiologist works with a patient at the University of Maryland Medical Center. More than half of U.S. patients have gotten a surprise medical bill or know someone who has. (Patrick Semansky/Associated Press file)

The TV ads are gripping and emotional, airing in pricey, high-profile time slots such as the World Series and the Democratic presidential debates.

Faces of insurance executives shrouded in darkness. A worried mother crouched at the hospital bedside of her unconscious daughter. The incessant beep beep beep of a heart monitor. 

(Insurance companies) are spending millions on something called government rate setting that they claim will stop surprise billing,” a woman’s voice narrates. But, as always, it’s more money for them and less care for us.” 

On its face, the advertising campaign seems aimed at protecting patients from surprise billing practices, which have outraged Americans and left countless families on the hook for exorbitant bills from out-of-network hospitals and medical providers. 

But in reality, the ads have been paid for by Doctor Patient Unity, a dark money group funded by private-equity backed physician staffing firms. It has a vested interest in maintaining the status quo. 

Once the group’s identity was revealed, a little-understood problem driving the rising costs of U.S. health care was laid bare. Surprise medical bills that have impacted more than half of Americans — either directly or by affecting someone they know and love — aren’t a mathematical mistake or a medical miscalculation. Instead, they are part of a strategic approach by private equity-backed physician firms to extract maximum profit from patients.

After legislation stalled earlier this year, Congress is once again working to advance policy solutions to end surprise billing practices, and private equity-backed firms continue to attack the proposed reforms as they seek to maintain their grip on a market that has allowed them to slap patients with expensive bills for medical treatments and services that they justifiably — but wrongfully — assumed were in-network and covered by their insurance providers. 

Every day Americans walk into hospitals, outpatient clinics, and surgical centers thinking they have good health insurance … It’s only after they receive care they discover a dark secret in the U.S. health care system: Even if you’re receiving care at an in-network facility, you can get with a surprise medical bill from an out-of-network doctor.
Hunter Kellett, Alexandra Spratt, Mark E. Miller “Surprise Billing: Choose Patients Over Profits,” Health Affairs

Private equity’s stake in doctor’s groups has ballooned in recent years as investors have acquired physician staffing firms and emergency services such as ground and air ambulance companies — often in smaller transactions that fly under the radar of regulators — then use their growing market power to wield influence and drive up costs, according to leading researchers Dr. Rosemary Batt, the Alice Hanson Cook Professor of Women and Work at the ILR School at Cornell University, and Dr. Eileen Appelbaum, co-director at the Center for Economic and Policy Research, whose work has been supported by Arnold Ventures. 

In an effort to cut costs by outsourcing services, hospitals have contracted with these private equity firms, like Envision Healthcare (which owns EmCare) and TeamHealth, to provide certain patient care services, in particular emergency care and anesthesiology, according to Drs. Batt and Appelbaum. Private equity firms focus on specialties where patients typically do not get to choose their doctor and may inadvertently be treated by a physician not in their insurance network,” Batt noted. 

Although these firms contract with hospitals that are in-network, many opt to remain out-of-network so that they can levy more expensive medical bills. Researchers at Yale University have also found that they use the threat of going out-of-network to extract higher in-network rates from insurance companies.


Amount private equity groups have spent on ad campaigns and lobbying against surprise billing reform

The result has been dramatically higher rates of surprise billing, as well as increased charges for care, in markets where private equity-backed physicians dominate. Drs. Batt’s and Appelbaum’s studies of widespread takeovers of specialty doctors’ practices by private equity giants KKR and Blackstone, as well as some smaller buyout shops, have helped spur momentum on legislation to end surprise billing that has garnered widespread support despite coordinated and vocal attacks by private equity-backed physician groups.

I think our research has been very effective in helping people truly understand the real forces at work behind surprise medical bills, and I think we’ve been very successful in changing the minds of many people in Congress about this issue,” Appelbaum said. And we were able to accomplish it with only a tiny fraction of $30 million-plus that private equity has plowed into ad campaigns and lobbying against reform.”

Congress is now poised to take action on the matter that has united people across party lines. A bipartisan poll in November found that 94 percent of U.S. voters say Congress should take action to protect patients from surprise bills. Support for legislative action is so strong that voters are ready to hold their lawmakers accountable for failing to do something.

As lawmakers continue to negotiate the final details of a proposed solution, it’s important that any reform lowers costs for consumers — and resists the powerful lobbying efforts of private equity groups.