If you are among the 1 in 5 hospital patients who’ve been slammed with a surprise out-of-network medical bill, the old African proverb applies: When elephants fight, it is the grass that suffers.
The elephants in this case are the physician staffing firms, the hospitals that hire them, and the insurers that refuse to pay their usurious rates. Congress, in a rare display of bipartisanship, is considering legislation that would rein in a system that benefits everyone but patients.
The issue is most egregious in emergency rooms. Decades ago, the ER was a loss-leader for hospitals, a necessary community service that was expensive to operate and hard to staff.
But as ER visits grew and became the gateway for half of hospital admissions, inside staffing of ERs gave way to outside specialty groups with the emergency, anesthesiology, radiology and neonatology physicians needed for a properly run ER. It became a highly profitable business. Today, two large national firms, EmCare and TeamHealth, owned by the private equity firms KKR & Co. and Blackstone Group, respectively, dominate the field.
Hospitals turned to them and their regional competitors for good and bad reasons. On the positive side, they brought the flexibility that allowed for affordable, around-the-clock operations. They took over the complex ER billing process. And they often improved the quality of care and the hospital’s reputation.
The questionable trade-offs included stepped-up use of imaging and diagnostic tests and higher admission rates, which boosted hospital revenue. A recent study by Yale University’s Zack Cooper and colleagues showed facility payments rose 11% and ER patients were 23% more likely to be admitted to the hospital after EmCare took over operations.
Insurers, which were already narrowing networks to hold down costs for their employer clients, countered by refusing to sign in-network contracts with the outside staffing firms. Those firms, in turn, established exorbitant rack rates—five to six times Medicare charges in some cases—which were never paid. Instead, insurers paid the customary rates offered in-network providers.
That led the staffing firms to send out those enormous “balance-due bills” that have shocked patients and generated headlines across the country. With 4 in 10 families reporting they’ve received a surprise medical bill in the past year, the issue became the top concern of healthcare consumers, according to last fall’s Kaiser Family Foundation poll.
At least six states have passed legislation curbing balance billing, with over 40 considering some form of regulation. Demand for a more comprehensive federal approach is rising because state bills don’t protect employees of multistate companies, which are covered by ERISA.
Several reforms are on the drawing board. One proposal would create a bundled payment for ER services that includes both physician and hospital charges. That would put the onus on hospital officials to negotiate rates acceptable to insurers for in-network status.
Another approach, tried in some states, would establish binding arbitration for insurers and staffing firms if they can’t reach an agreement. The arbitration-set rates would enable the staffing firms to participate as in-network providers.
Some states are looking at price controls. In California, it’s the greater of either the average corrected rate or 125% of Medicare. Others, like Illinois, have passed a law that allows consumers to simply ignore the bills, although few know such laws exist.
Sometimes, complex problems have simple solutions. Why not just ban balance billing and let the hospitals, their staffing contractors and insurers sort it out? If all parties respond by raising prices and, therefore, premiums on employers, go to plan B, which is price controls.
Hospital groups, under fire for abetting the practice, have come out strongly against bundled payments for ER services. In their letter to the House Education & Labor subcommittee, they said it would jeopardize patient access to care.
“The ban,” they wrote, “is the solution to surprise bills, and one that we support.”