Out-of-Network Billing for Hospital Care Boosts Spending by $40B

Patients receiving care at in-network hospitals face a significant risk of out-of-network billing for services performed by hospital-based anesthesiologists, pathologists, radiologists, and assistant surgeons, according to a new study from Yale University.

The study to be published in the January edition of Health Affairs found that at in-network hospitals,  11.8 percent of anesthesiology care, 12.3 percent of care involving a pathologist, 5.6 percent of claims for radiologists, and 11.3 percent of cases involving an assistant surgeon were billed out of network.

However, the study of claims data from a large commercial insurer, found that out-of-network billing occurred in less than one percent of cases in which out-of-network orthopedists performed knee replacements at in-network hospitals.

The findings indicated that ability of to bill out of network among physicians who patients cannot avoid at in-network hospitals “undercuts the functioning of health care markets, raises health care costs, and exposes patients to significant financial risk,” researchers from Yale stated.

Physicians with the ability to engage in out-of-network billing without losing patient volume negotiated significantly higher in-network reimbursement rates from private insurers compared to physicians who could see lower volumes, the study showed.

For example, on average, orthopedists performing knee replacements received 164 percent of Medicare rates. Meanwhile, in-network rates were about 367 percent of Medicare rates for anesthesiologists, 343 percent for pathologists, 195 percent for radiologists, and 176 percent for assistant surgeons.

“Because these physicians have a strong outside option in negotiations, they are able to negotiate high in-network payments with insurers,” researchers explained.

These artificially high in-network rates increased spending for employer-sponsored insurance by approximately 3.4 percent. Barring the four specialties from out-of-network billing and reducing their in-network rates to those paid to hospital-based orthopedists – 164 percent of Medicare rates – would save about $4 billion annually, the study showed.

Out-of-network billing that results in expected patient costs has come under the microscope of state and federal policymakers who have been trying to develop a solution that would protect patients from these surprise medical bills. However, lawmakers have failed to agree on how to solve the problem. Even a bipartisan fix pitched in Congress earlier this month has not garnered enough support to move forward, according to national news sources. The bill that would have created an arbitration system for surprise bills, a solution favored by providers who fear the other popular solution – setting benchmark rates for out-of-network care – could lower their payments for providing care to privately insured patients.

Developing an arbitration system and establishing regulated rates for out-of-network care both have their pros and cons, researchers from Yale stated in the Health Affairs study. But policymakers should consider regulating contracts of physicians who work in hospitals and who are not selected by patients, they advised.

Their preferred policy approach would require hospitals to sell a bundled package of services that includes the fees for emergency department physicians, anesthesiologists, pathologists, radiologists, and assistant surgeons. Under this approach, hospitals, for example, would bill for anesthesiology services and then be responsible for recruiting anesthesiology providers to work in their facilities.

Researchers stated that the bundled services solution to surprise billing would eliminate the possibility of patients seeing an out-of-network provider at the in-network hospitals and it would protect patients without having them take action. The solution would also restore a competitively set rate for physicians, the researchers explained.

“Any policy addressing out-of-network billing must achieve two aims: protect patients from financial harm and introduce a competitively set price for physician services or identify the amount insurers must pay providers if a policyholder is treated by an out-of-network physician,” the authors concluded in the study. “Our proposed policy solution—requiring hospitals to sell a package of facility and physician services—would protect patients, restore a competitively determined price for physician services, and lower commercial health spending.”