How Arbitration For Surprise Medical Bills Leads To Runaway Costs & Higher Premiums

By: Avik Roy

Read the full story at Forbes.

Congress is making progress on surprise medical bills in the emergency room, a problem that is affecting a growing number of patients. But health care lobbyists in Washington have been working overtime to undermine these reforms, by demanding the use of arbitration to increase patient costs.

A good bill in the Senate

First, the good news. Last July, a bipartisan bill passed out of the Senate’s Health, Education, Labor, and Pensions Committee (HELP) that would effectively end patients’ exposure to surprise medical bills for emergency care.

Here’s how surprise medical bills come about. Increasingly, doctors that work in emergency care aren’t employed by hospitals. Instead, they’ve become independent contractors, negotiating with insurers on a separate basis from hospitals. These doctors have used their negotiating leverage to extract exorbitant prices from insurers for their services. And still other docs extract even higher prices that insurers won’t accept. These out-of-network doctors then bill patients directly for their services, leading to surprise medical bills not covered by insurance.

The Senate HELP bill, the Lower Health Care Costs Act of 2019, would require these out-of-network doctors to accept the local market rate for their services, defined as the median in-network rate negotiated between insurers and ER doctors. It’s not an ideal solution, as even in-network rates for emergency services are quite high, but it’s certainly an improvement on the status quo.

Why private equity firms are lobbying for arbitration

The increasingly lucrative nature of out-of-network emergency care has attracted the attention of private equity firms, who have been snapping up the staffing agencies that charge extreme prices. The Blackstone Group bought TeamHealth for $6.1 billion in 2016, and Kohlberg Kravis Roberts & Co. bought Envision Healthcare, the parent of ER staffing agency EmCare, for $9.9 billion in 2018.

Over the summer, those two companies financed over $28 million in advertisements opposing the Senate bill, and campaigning for arbitration as an alternative to market-based rates.

The lobbyists love arbitration for a simple reason: it leads to higher prices. In New York, the largest state where arbitration is used for surprise bills, arbitrators are instructed to use the 80th percentile of hospital list prices as the benchmark for their decision. These hospital list prices are a lot like paying full fare for an airline ticket; they often come out to 10 or 20 times what Medicare pays emergency rooms for the same services. By benchmarking out-of-network prices at such a high rate, the New York law incentivizes ER doctors to raise their prices even higher, knowing that by doing so, the benchmark for arbitration will also go up.

In addition, if you want to arbitrate a claim in New York, you have to pay the state a fee of $395. There are about 12 million out-of-network emergency-room bills in the country each year for people with private insurance; applying these fees to every surprise bill would increase health care costs by $4.7 billion annually.

A successful model in California

By contrast, California has adopted an approach to surprise billing that closely resembles the Senate HELP bill. In 2017, the Golden State passed a law that benchmarks the payment to certain medical specialists at the greater of the insurer’s local average in-network rate, or 125 percent of Medicare’s reimbursement rate.

While the California Medical Association complained about the law, because it would reduce profits for these medical specialists, a study of 23 million claims by the USC-Brookings Schaeffer Initiative for Health Policy found that the California law reduced the share of out-of-network billing in affected specialties by 17 percent, on average. Surprise bills in the ER dropped by 5 percent.

The California bill worked because it eliminated the incentive for these medical specialists to stay out-of-network and issue surprise bills, because the prices they could charge were similar to local in-network market rates.

Why do some politicians want to increase patient costs?

Some members of Congress have given into the private equity-backed ad campaign. The bill that passed out of the House Energy & Commerce Committee uses a median in-network rate benchmark, similar to the Senate HELP bill. But Reps. Raul Ruiz (D., Calif.) and Larry Buchson (R., Ind.) successfully inserted an arbitration loophole, under which ER docs could send to arbitration any surprise medical bill larger than $1,250.

It’s not surprising that Ruiz and Buchson represent the ER physicians’ point of view on this issue; Ruiz trained as an emergency room physician, and Bucshon as a cardiothoracic surgeon. Members of Congress who trained as medical specialists are among the most vocal advocates of arbitration; their peers in the private sector have the most to gain from undermining surprise billing legislation.

The sole purpose of arbitration is to enable those who benefit from the status quo to keep charging higher rates to patients and insurers, raising health insurance premiums and reducing patients’ disposable income. It’s a classic case of millionaire physicians and their investors and lobbyists having more influence in politics than they deserve. When it comes to surprise billing, the lobbyists’ goal is to end the surprises, but not the bills.

And rest assured that those bills would rise more over the long term, because instead of getting a shocking surprise in the mail, you’d get a higher insurance premium: taken out of your paycheck pre-tax, without you noticing it until you realized, years later, that every dollar of wage growth you thought you earned was instead eaten up by rising health insurance premiums.

In America, tens of millions of Americans are uninsured, and tens of millions more struggle to afford their premiums and deductibles. We need to be doing everything we can to make health care and coverage less costly. Politicians who support arbitration will only succeed in making things worse.

Read the full story at Forbes.