A Less Confusing, Market-Oriented Solution to Surprise Billing

With fewer than than two dozen legislative days left in the year, some lawmakers are holding out hope for bipartisan action on two broad health care issues between now and January 1, 2020: surprise bills and prescription drug costs.

National Taxpayers Union has been active on both fronts, warning that well-intended proposals from both parties may actually harm patients and taxpayers in the long run. In particular, the surprise billing issue appears to suffer from a lack of prudent, responsible, market-oriented ideas to solve the payment disputes that occur between providers, hospitals, and insurance companies.

Some lawmakers toy with government rate-setting through a “benchmark,” which could have disastrous implications for patients - particularly those in rural or underserved populations. Others argue for the Department of Health and Human Services (HHS) to force parties into arbitration. NTU supports an alternative that relies on private actors to resolve their disputes, while protecting patients from being caught in the middle. It also allows the Federal Trade Commission (FTC) to serve as a backstop for consumers, utilizing existing regulatory authority rather than granting new, unpredictable powers to HHS.

These proposals come from three health care experts - David A. Hyman and Benedic Ippolito at the American Enterprise Institute (AEI), and John Goodman of the Goodman Institute for Public Policy Research. Below we share why we think their ideas are preferable to the incumbent proposals, what questions remain, and where policymakers should go from here.

The Contract Solution

In a comment on surprise billing submitted to the Cato Institute this fall, Hyman and Ippolito proposed a “contract-based alternative” to “baseball-style” arbitration.

The contract solution:

“would require all providers at an in-network hospital to either contract with the same insurers as the hospital or secure payment from the hospital (who will bundle those costs as part of their in-network facility fee).”

The solution, therefore, would give out-of-network providers three choices: 1) contract with the same insurers as the hospital they work with; 2) secure payment for their services from the hospital they work with; or 3) leave the hospital they work with and take their services elsewhere. This leaves the private entities at the center of surprise billing - doctors, hospitals, and insurance companies - responsible for payment dispute resolution, rather than the federal government (under a benchmark) or a government-approved arbitrator (under the arbitration proposal).

There are several advantages to this approach, including a few explicitly identified by Hyman and Ippolito:

  • It’s a targeted solution that neither punishes out-of-network providers that are charging reasonable rates with a rate-setting benchmark nor punishes all parties with a timely and costly arbitration process.

  • It offers market actors a choice; while a benchmark would gut providers’ leverage in contract negotiations, and arbitration would lead to uncertainty and winner-take-all scenarios, the contract solution gives providers two solutions and lets them handle negotiations from there.

  • It puts equal pressure on all actors. Providers are pressured to contract because they can no longer balance bill. Hospitals must negotiate if insurers and providers can’t reach an agreement or risk losing those providers. Insurers must negotiate with providers or risk having to reimburse hospitals at higher rates if hospitals charge higher facility fees.

Of course, some questions and considerations about the contract solution remain:

  • What are the consequences if providers come to an impasse in negotiations with both insurers and hospitals? What if those doctors exit hospitals and create a supply shortage for emergency rooms?

  • As Hyman and Ippolito consider, does this alternative give insurers a leg up in negotiations, since they know providers have to turn to either them or to hospitals for payment? Does it give hospitals a leg up in negotiations, since they can fold physician fees into their broader facility fees?

  • Does this unduly shift costs from previous payers of surprise bills to all patients (through either higher premiums because of expanded networks, or higher premiums and cost-sharing because of higher in-network facility fees)?

If some actors continue to abuse the system at the expense of patients and taxpayers, then there may be some limited opportunities for the FTC to step in with its existing authority. More on that below.

The FTC Backstop

This proposal, which NTU has highlighted before, comes from health policy expert John Goodman of the Goodman Institute for Public Policy Research. Here’s how Goodman explained his idea in an August 2019 column for Forbes:

"I’m not an expert on what the Federal Trade Commission is empowered to do, but it sure looks like false and misleading advertising falls under its jurisdiction.

Insurers sell policies by claiming that certain hospitals are in their network. Hospitals boost their admissions by convincing patients they are in the insurer’s network. When the unwary patient gets surprised at billing time, it turns out these claims weren’t exactly true."

While Goodman suggests FTC use its “Truth in Advertising” enforcement authority to crack down on surprise billing, others have considered allowing the FTC to rely on its authority to enforce Section 5(a) of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The former focuses on insurers selling health plans to consumers and hospitals selling their services to patients, while the latter focuses on the actual practice of balance billing patients.

Of course, important questions remain about the FTC approach. First and foremost is whether FTC should probe surprise billing practices based on its “truth in advertising” authority or on its power to prohibit “unfair or deceptive acts or practices.” Both directions come with advantages and drawbacks, which we discussed in part in September.

From there, Congress must consider how it would place prudent guardrails on the FTC’s authority to investigate surprise billing, so that the legislature is not merely kicking its policymaking power from elected officials to unelected bureaucrats (like House Ways and Means Committee Chairman Richard Neal (D-MA) attempted to do). After all, what we are proposing is for FTC to serve as a backstop to investigate surprise billing practices that continue to occur after implementation of the contract-based alternative. FTC should not become the de facto policymaker on payment dispute resolution.

Despite the outstanding questions, the FTC’s existing authorities could serve as a reasonable backstop to prevent patients from being caught in the middle of surprise billing disputes. This approach has the added advantage of avoiding new, complex, and significant regulations from HHS that could come with unintended negative consequences.

A Third Way

Overall, we believe that a “contract-based alternative” combined with an FTC backstop is a viable third way to resolve surprise billing disputes. This approach accomplishes the most important goal for policymakers - protecting patients from balance bills - while avoiding a new regulatory regime that puts the federal government in charge of private contracts between health care stakeholders. Even though the debate in Congress has been dominated by just two proposals thus far, we hope lawmakers will consider this alternative.