Better Paths Forward on Surprise Billing

Surprise medical bills are one of the top health care issues facing Congress. Surprise billing generally occurs in one of two scenarios: 1) a patient is taken to an out-of-network facility in an emergency situation, or 2) a patient visits an in-network facility, but receives items or services from out-of-network doctors and practitioners while there.

Though several bills introduced in the House and Senate this year aim to reduce or prohibit the practice, the issue gained new momentum in July when the Senate Health, Education, Labor and Pensions (HELP) Committee advanced the Lower Health Care Costs Act of 2019. The bill, S. 1895, prohibits medical practitioners from balance-billing patients and creates a region-based in-network benchmark rate that insurers will use to reimburse out-of-network practitioners in surprise billing situations.

Health insurers generally favor the benchmark approach present in S. 1895, while doctors generally prefer an arbitration process where practitioners and insurers would negotiate payment in surprise billing situations. NTU believes both proposals contain serious flaws. Benchmark rates, even set at a regional level, amount to government price controls. These controls could put undue pressure on doctors, forcing them to decide between unsustainably low payment rates and a halt to providing services to a particular hospital or emergency facility (which, in turn, could lead to staff shortages at those facilities). 

Arbitration, on the other hand, is federally-mandated interference in private contracts between two or more parties. The devil would be in the details under such a system, including who is allowed to be an arbitrator, what factors an arbitrator must weigh in determining payment, and how much flexibility the arbitrator has to propose payment rates that differ from what a practitioner or insurer are offering. If arbitration would favor doctors and other practitioners, then another concern with arbitration is that it would put undue pressure on insurers. If health insurance companies are responsible for a new set of surprise payments under an arbitration system, then they will likely be forced to raise premiums on every customer to meet their new costs.

NTU believes there are better options available to policymakers, even though the benchmark and arbitration proposals have dominated the discussion thus far. Below, we review a few alternatives available to lawmakers or to federal agencies.

FTC’s Truth In Advertising Enforcement - A Third Way?

John Goodman, the President of the Goodman Institute for Public Policy Research, recently proposed an “FTC Solution” to surprise billing in a column for Forbes.

Goodman explains:

“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.

...An insurance company should not be allowed to list a hospital as being in its network unless (a) it makes a good faith effort to negotiate a fee arrangement with every provider who practices there, and, failing such an agreement, (b) makes a good faith effort to negotiate a reasonable payment after the treatment is rendered.

A hospital should not be able to claim it is in an insurance plan network unless: (a) it makes a good faith effort to negotiate an insurance fee arrangement with every provider who practices there, and (b) it posts online in real time any provider who is not covered by an insurance contract, and it gives patients a reasonable estimate of the extra costs they can be expected to face as a result of treatment by a non-network provider prior to admission.”

A few benefits to this FTC approach:

  1. It focuses on the bad actors in the system by exempting from enforcement insurers and hospitals that make “good faith effort[s]” to make arrangements with out-of-network providers who practice at a particular facility.

  2. It relies on existing federal authority, rather than creating new, untested authorities for the government to set prices (under the benchmark proposal) or mandate arbitration. 

  3. It seeks to incentivize insurers, hospitals, and providers to correct the issue, rather than interfering with their current contract negotiations or disputes.

A separate but related proposal would have the FTC rely on their authority to enforce Section 5(a) of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” There are concerns with either the Truth in Advertising approach of the “unfair or deceptive acts” approach, as raised by Georgia State University College of Law’s Erin C. Fuse Brown:

“One challenge of a federal designation of surprise billing as an unfair trade practice is determining whose conduct would be targeted by such a ruling. For example, if the FTC determined that it is an unfair trade practice for self-funded plans to charge members higher cost-sharing or refuse to hold members harmless for surprise bills, who would bear the risk of noncompliance, the employer that maintains the self-funded plan or the third-party administrator that handles the administrative functions of plan design, network participation, and claims processing? Perhaps both, where the employer plan sponsor can be deemed to engage in an unfair trade practice if its third-party administrator does not abide by these requirements, whether contractually or in practice.”

Any proposals that give FTC an enhanced oversight role in surprise billing situations should be designed with care, especially given how many existing agencies are already involved in health care regulation (such as the Department of Health and Human Services, the Centers for Medicare and Medicaid Services, the Food and Drug Administration, the Internal Revenue Service, and more).

NTU has long been involved in efforts to reform and monitor the FTC, and some of our recommendations would serve as prudent guardrails for any new FTC authority over surprise medical bills:

  • Focus on, as George Mason University’s James Cooper put it, a “narrow domain” of conduct that is undeniably and clearly harmful to consumers due to its detrimental impact on competition, and is “unlikely to generate any cognizable efficiencies”

  • Offer accessible, affordable, and neutral ways for companies - especially those without “deep pockets” for lawyers or protracted court battles – to challenge unjust FTC actions

  • Consider creating a “Consumer and Business Advocate” at the FTC, to independently assess how FTC serves stakeholders

Though this FTC option presents a promising alternative to the current ‘benchmark vs. arbitration’ debate, any legislation affirming FTC authority over parts of the health care industry should come with some of the aforementioned guardrails. These recommendations would help the Commission strike the all-important balance between combating deceptive or anti-competitive behavior, and ensuring “the next generation of dynamic, inventive businesses” still have the flexibility to offer new products and services in the free health care market.

Ban Balance Billing and Let States or Markets Determine Dispute Resolution

One bill introduced this year - H.R. 861, the End Surprise Billing Act of 2019 - would effectively ban surprise billing, by placing new requirements on hospitals and emergency facilities as a condition of participating in Medicare. H.R. 861 would prevent hospitals or providers from charging a patient more than their in-network cost sharing in the case of same-day emergency services. For items or services that are planned ahead of time, the hospital is required to disclose whether the facility or any provider is not within the patient’s network, provide an out-of-pocket cost estimate for the patient, and obtain their consent to provide those items or services. Where the bill differs from the Lower Health Care Costs Act and other legislative solutions to surprise billing is that it does not detail a payment dispute resolution process like a benchmark rate or arbitration.

In the absence of federal legislation or federal regulation, then, it seems payment disputes would be solved in one of two arenas: state governments or the markets. Indeed, a Health Affairs blog post from February 2019 noted that “[t]hree approaches” have “predominated” the prior federal proposals addressing payment disputes (emphasis ours): “establishing a case-by-case, ‘baseball-style’ binding arbitration process; using a benchmark based on Medicare or commercial insurance payments; or deferring to states to decide on a process.” One major gap in letting states settle this process is that states cannot regulate large, self-funded group health plans - the federal government regulates these plans under the Employee Retirement Income Security Act of 1974 (ERISA). About 61 percent of workers covered by a health insurance plan were in a self-funded plan in 2018, according to the Kaiser Family Foundation. This means that ERISA regulates health insurance products for a large proportion of Americans.

In the absence of federal and state legislation or regulation, payment disputes would be settled by major players in the private sector: health insurers, providers or provider groups, and hospitals or facilities. NTU consistently advocates for market-based solutions to the country’s major challenges, and we believe generally that financial disputes in the private sector should be left to private actors to solve. However, it’s worth noting that payment disputes between insurers, providers, and hospitals - without a resolution process defined in statute or by an agency - would likely lead to significant litigation and uncertainty for all involved. Rising legal costs, in turn, could raise premiums for the insured, lead providers to charge higher prices for their services, and lead to staff shortages at hospitals that contract with out-of-network providers. In other words, merely protecting patients from surprise billing without addressing the inevitable payment disputes could lead to higher costs for patients (and taxpayers) across the board.

Address Network Complexity

A separate Health Affairs post, by West Virginia University professor Simon F. Haeder, University of Wisconsin-Madison professor David L. Weimer, and UC Irvine professor Dana B. Mukamel, addresses two root causes of surprise billing that few policymakers are currently discussing: 1) inaccurate provider directories and 2) inadequate networks.

The authors write:

“First, consumers may face unexpected out-of-network charges because of their reliance on inaccurate provider directories. That is, consumers may seek care from what they think is an in-network provider based on the directory they received from their insurer, but later find out that the provider has either left the network or was never part of it to begin with. Provider directory accuracy may seem pedestrian, but it can be a major problem for consumers. And the problem is ubiquitous and significant.

...Second, current proposals addressing balance billing are solely focused on circumstances in which consumers are ‘surprised’ by the out-of-network treatment and associated costs. Yet, there may be even more frequent circumstances where consumers are confronted with potentially inadequate networks that do not offer reasonable access to providers. Specifically, providers in the network may be too far away, may not have convenient service hours, may not offer timely appointments, may not offer services in the consumer’s language, or may not be accessible via public transportation. This may force consumers to knowingly seek care, especially urgent care, outside of their network, understanding full well that they will face higher charges.”

In a related, forthcoming paper from these three professors, they make three broad-based recommendations when it comes to regulating provider networks:

  1. Require that insurers keep accurate, verified, and up-to-date provider databases, so that customers can accurately shop for services

  2. Avoid “top-down government enforcement approaches” to “the intricate details” of the market, and instead provide consumers “with more, easily accessible, and understandable information to inform their choices about insurance”

  3. Define “appropriate floors for minimum levels of access,” but rely on qualitative rather than quantitative standards

Though NTU doesn’t agree with every proposal outlined by the authors - for example, they express openness to “forced bundling of hospital services, forced arbitration, or price setting” - we believe they are right to consider the factors that led patients into surprise billing situations in the first place.


The problem of surprise billing will require thoughtful deliberation from policymakers. Many patients put into surprise billing situations did not know they were visiting an out-of-network facility or seeing an out-of-network provider, and in some cases patients did not have a choice in the matter. Their surprise bills can lead to financial uncertainty, lost savings, or even bankruptcy. However, a dire problem is not well-served by poor solutions. A benchmark rate is just one small step in government price-setting, and could lead to provider shortages. Arbitration, meanwhile, raises a number of questions about the government’s role in picking the mediators and setting the terms for private disputes.

We believe that there are alternatives for policymakers outside this current dichotomy, and that the above proposals deserve to be part of the debate. All rely on either existing government authority or market forces, rather than new, expansive powers at the federal or state government levels. Patients and taxpayers would be far better served in the long run by these approaches than by either price-setting or federally-mandated arbitration.