New Jersey legislation to cap the amount hospitals can charge for involuntary out-of-network services would lead to operating losses at hospitals across the state and could cause some to take on severe cost-saving measures, including staff layoffs or mergers with competitors, according to a study commissioned by a for-profit hospital system.
In an emergency, patients often don't get to choose where an ambulance takes them. Some inevitably end up at an out-of-network hospital and rack up a massive medical bill.
Under New Jersey law, patients who involuntarily receive emergency care from a hospital outside of their health plan's network are responsible for paying only the portion of costs they would have been charged for similar in-network care. The rest of the bill is footed by that patient's health plan.
Insurers argue that because the state doesn't regulate how much hospitals can charge for out-of-network care, insurers are forced to pay whatever the hospital demands, even if excessive.
Legislation being debated in the New Jersey Assembly, known as the Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act, or A1952, seeks to cap what hospitals can charge for involuntary out-of-network care between a range of 90% to 200% of the price that Medicare pays for the same service.
According to a study conducted by RAND Corp., hospitals rely heavily on the payments from involuntary out-of-network services, which are about double the rate of in-network services. While such involuntary charges account for less than 20% of hospitals' total commercial revenue, they make up almost 40% of hospital profits for treating commercially insured patients.
The study, which was commissioned by for-profit New Jersey health system CarePoint Health, estimates that implementing the legislation would reduce New Jersey hospital payments from commercial health plans by 6% to 10%. That would lead to an operating loss at 48% to 70% of hospitals, depending on how high the cap is set, researchers found.
If the cap on out-of-network charges is limited to 90% of Medicare rates—the lowest end of the range—less than a third of hospitals in the state would remain profitable, the study estimated.
“Hospitals live off the margins from these out-of-network payments,” said Soeren Mattke, senior scientist at RAND and lead author of the study. “If you take them away as the law proposed, you put a good chunk of them in an operating loss.”
The legislation would also weaken the hospital's power to negotiate with insurers over rates for in-network services, researchers said. Without the looming threat of high out-of-network charges, health insurers are likely to seek lower in-network rates.
If the cap is implemented, “It's possible that some (hospitals) may have to close,” Mattke said, though he added it's difficult to predict how providers will react. Most will have to find ways to cut costs, such as layoffs or closing the community clinic, he said.
Surprise out-of-network medical bills have gained attention from lawmakers nationwide, and there's a growing trend among states to limit what hospitals and doctors can charge for out-of-network bills incurred voluntarily. Several states, including California, Connecticut, Florida and New York, have passed legislation to protect patients from surprise bills and require health plans and hospitals to set up an arbitration process to work out any payment issues.
“Different states have solved that problem in different ways, and some have put more of an onus on providers and more on health plans or split the difference,” said Mark Hall, a senior fellow at the Brookings Institution. New Jersey's proposal of arbitration and payment caps, he said, is “a thoughtful approach.”
The bill has been highly contentious. It was the second-most lobbied piece of legislation in the state in the first half of 2016, following only behind the state budget bill, according to the New Jersey Election Law Enforcement Commission.
The New Jersey Hospital Association argues the legislation unfairly favors health insurers.
“We cannot yield on a bill that props up insurance companies to the detriment of the hospitals and physicians that care for the people of New Jersey,” Betsy Ryan, president and CEO of the New Jersey Hospital Association, said in an Oct. 27 statement about the legislation.
A spokesman for CarePoint Health, which paid for the RAND study, declined to comment on the bill but said “it was important to commission an unbiased study” to study “out-of-network legislation and its impact on the well-being of community healthcare in New Jersey.”