Making The Case For States To Reduce Out-Of-Network Charges

There has been increased attention to unexpected bills due to out-of-network charges among the commercially insured population. For example, a recent Brookings report examined where and how "surprise medical bills" can occur in context of U.S. health care. Zack Cooper and Fiona Scott Morton, in a just-published New England Journal of Medicine article examined out-of-network emergency-physician bills from in-network hospitals using claims data from a large commercial insurer. The authors found that even when insureds went to an in-network hospital, they received a bill from an out-of-network provider 22 percent of the time. Cooper and Morton also reported that out-of-network emergency department (ED) physicians charged an average of almost 800 percent of Medicare so the "surprise bill" is not a trivial difference.

Some states have already acted to protect their residents. California enacted legislation protecting patients who receive out-of-network non-emergency care at an in-network facility. Under the legislation signed by Governor Brown, health plans would pay non-network physicians the plan's average contracted rate or 125 percent of the Medicare rate, whichever is greater. Californians were already protected from balance billing in emergency situations. Florida passed similar legislation in 2016, which prohibits billing for out-of-network charges for emergency services and billing for out-of-network charges when the services were provided at an in-network facility and the patient did not have a choice of an in-network provider.

In New Jersey, Assembly Bill No. 1952, which is intended to protect consumers from surprise medical bills, is now under consideration. The proposed legislation places limits on out-of-network charges when emergency services are provided or the out-of-network services are "inadvertent." Inadvertent services are defined as services that arise when an individual utilizes an in-network facility for covered services and in-network services are not available.

While there are existing consumer protections in New Jersey, some versions of the bill offer new protections to self-funded plans. If the provider and insurer or individual cannot agree on a reimbursement rate for these services within 30 days after the insurer is billed for the service, any party may initiate binding arbitration. The arbitrator can either find that the requested fee is reasonable and order payment or the arbitrator can fix the amount owing within a range of 100 – 250 percent of Medicare.

Evidence for State Action in New Jersey

While New Jersey contemplates legislation to address surprises medical bills, the RAND Corporation last week released a report, sponsored by Carepoint Health Inc. a for-profit hospital system operating in New Jersey, analyzing the proposed New Jersey legislation. RAND assumed that "revenues from involuntary out-of-network services accounted for less than 20 percent of commercial revenues but almost 40 percent of profits from treating the commercially insured." In addition, they concluded that if a limit of between 90 and 200 percent of Medicare rates for involuntary out-of-network hospital care was imposed, between 48 and 70 percent of the hospitals in New Jersey would operate at a loss.

On a first pass, the RAND study results are troubling, suggesting that hospitals, at least in New Jersey, are using out-of-network billing practice to remain solvent. However, as with almost all aspects of the U.S. health care system, the implications are more nuanced. Although RAND recognized that there are 71 hospitals in the state, the analysis was conducted by Metropolitan Statistical Area (MSA) because the Truven dataset used for their analysis does not contain a hospital identifier. A hospital-level analysis provides important insight into the source of out-of-network charges and implications for hospitals.

The Cooper and Morton report is insightful in their finding of 99 percent of ED visits at in-network facilities in their data. This suggests that large commercial insurers are doing a reasonably good job contracting with hospitals such that insureds almost always end-up at an in-network hospital emergency department. The issue then is that the providers of services within the ED are sometimes not in-network.

Here, using the Health Care Cost Institute's (HCCI) claims data from Aetna, Humana, and United Healthcare, we expand on current research by examining the distribution of out-of-network inpatient claims. The HCCI data in New Jersey includes approximately 37 percent of the commercially insured population under the age of 65. We had ready access to a dataset that contained 2014 calendar year inpatient facility claims from MSAs with employer-sponsored insurance populations of at least 100,000 where HCCI data included at least 10 percent of that population. The inpatient claims were limited to non-federal, general acute care facilities with 10 or more beds. Admissions to hospitals more than 150 miles from a patient's ZIP code, hospitals with fewer than 25 admissions, and any non-acute care conditions (e.g. mental health or substance abuse) were excluded from the analysis. The resulting dataset included 726,118 inpatient claims from 1,555 hospitals.

There are 981 (63 percent) facilities with no out-of-network claims. These facilities accounted for 44.3 percent of all inpatient claims in the dataset. For 60 hospitals located in New Jersey, 33 had no out-of-network inpatient facility claims and these hospitals represented 38.2 percent of all inpatient claims in our dataset (see Table 1). Therefore, if the 2014 HCCI data are generalizable to all of New Jersey, the proposed legislation would have no impact on these 31 hospitals' inpatient facility claims at all since they had no out-of-network inpatient facility claims. The results are even more striking in California and Florida where facilities with no out-of-network claims accounted for 86.6 percent and 47.8 percent, respectively.

Table 1: Aggregate in- and out-of-network inpatient hospital admission summary statistics

	All States	California	Florida	New Jersey
Number of hospitals	1,555	144	138	60
Total hospital admissions	726,118	43,511	70,632	38,856
Number of hospitals with out-of-network admissions	574	26	36	27
Percent of total admissions out-of-network	0.7%	1.1%	0.3%	1.6%
Number of hospitals with no out-of-network admissions	981	118	102	33
Percent of total admissions at hospitals with no out-of-network admissions	44.3%	86.6%	47.8%	38.2%

Source: HCCI, 2016.

Among the hospitals with out-of-network claims it is also important to note that there is variability in the percentage of out-of-network claims. For example, in both California and New Jersey the median percent of out-of-network inpatient claims among hospitals with out-of-network claims were 6.8 percent and 0.3 percent, respectively. However, in California there were a small fraction of hospitals where nearly all inpatient claims were out-of-network. And in New Jersey, there were a few hospitals where 100 percent of inpatient claims were out-out-network. In both states this is only a fraction of the hospitals and admissions.

Our analysis finds evidence that the consequences of a statutory cap on out-of-network charges in New Jersey may be well targeted and limited to only a small number of hospitals. While we acknowledge that the HCCI data are not necessarily representative of all hospital-insurer contracts and that we did not examine the separately billable physician component of inpatient facility services, we believe that it is difficult to square the RAND findings with these results. We would welcome other data from other insurers in the state to more comprehensively address the question. However, the results do suggest that understanding the impact of out-of-network charges as well as any policies aimed at minimizing or eliminating surprise medical bills likely requires detailed provider level analysis.

Table 2. Hospital-level out-of-network inpatient hospital admission summary statistics

	California	Florida	New Jersey
Number of hospitals with out-of-network admissions	26	36	27
Average percent of out-of-network admissions (standard deviation)	23.9% (31.6%)	1.1% (1.5%)	15.6% (32.8%)
1st percentile of hospital-level percent of out-of-network admissions	0.1%	0.0%	0.0%
Median of hospital-level percent of out-of-network admissions	6.8%	0.3%	0.3%
99th percentile of hospital-level percent of out-of-network admissions	96.4%	6.8%	100%

Source: HCCI, 2016.

Further Considerations for States

Surprise billing effectively subjects consumers to a price lottery; this practice should be eliminated. Patients are entitled, at best, to know what they are likely to pay ahead of time or at worst only have to deal with reasonable bills following care. State legislative action is critical to prevent these surprise bills. Employers, employees, and payers (insurers, employers, and employees) should not have to deal with a few intransigent providers who refuse to negotiate reasonable commercial terms when the evidence suggests that this is the norm in health care. Efforts in California and Florida demonstrate the types of actions states can take.

While movement toward a solution in New Jersey should be applauded, the implications of any policy should be thoroughly evaluated. First, the policy should be evaluated in terms of the empirical evidence in context. Second, consumers should not be required to enter into arbitration to realize fair prices. Hopefully the fact that the arbitration scheme exists will be sufficient to reduce unreasonable provider charges. However, there is an opportunity cost to arbitration, for providers, insurers, and consumers. Thought should be given in New Jersey and other states as to whether legislation creates consumer protection or further consumer burden.

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