Benchmark proposal for balance billing could lead to higher costs

By Pete Sepp, President, National Taxpayers Union & NTU Foundation

Federal lawmakers of all political stripes are eager to ban the practice of balance billing—when a patient is charged above their in-network cost-sharing after receiving emergency or critical care. While a ban on balance billing is an easy political decision for most policymakers, what to do with inevitable disputes between insurers, doctors, and hospitals over payment has proven more difficult. Unfortunately, the leading proposal from Congress for resolving payment disputes would lead to more restrictive networks for patients and, ultimately, higher costs for both patients and taxpayers.

The idea, currently written into the Lower Health Care Costs Act (S. 1895), passed by the Senate Health, Education, Labor & Pensions Committee in July, and the No Surprises Act (H.R. 3630), is often called “benchmarking.” S. 1895 and H.R. 3630 ban balance billing, and the “benchmark” for payment disputes serves as a rigid price control on what an out-of-network provider will receive for their services following emergency situations (beyond any in-network payments). The bill defines this benchmark as the “median in-network rate” for “the same or a similar service that is provided by a provider in the same or similar specialty and in the geographic region in which the service is furnished.” S. 1895 and H.R. 3630 leave it to federal bureaucrats at the Department of Health and Human Services (HHS) to determine the methodology health insurers must follow to determine the “median in-network rate.”

National Taxpayers Union (NTU) has acknowledged before why price controls could be tempting, even for lawmakers who otherwise support free markets: in the near future, they appear to deliver lower costs to consumers. Unfortunately, whether it’s “Medicare for All,” Speaker Pelosi’s draft prescription drug plan, the Trump administration’s flirtation with an international pricing index for drugs, or “benchmarking,” price controls only lead to shortages and deadweight costs that hurt patients and taxpayers in the long run.

Benchmarking would put a price control on out-of-network care and put downward pressure on the rates insurance companies pay hospitals and doctors within their networks. While patients and health insurers could welcome this result at face value, stakeholders should closely consider the unintended consequences.

Hospitals at Risk of Closure

According to a 2014 study from Michael Wilson and David Cutler published in Health Affairs, 2009 emergency department (ED) profit margins were 7.8 percent overall, and 39.6 percent on privately-insured patients. While these may seem like healthy margins, care for the privately insured was the only thing making up for significant losses that EDs incurred treating Medicare patients (-15.6 percent), Medicaid patients (-35.9 percent), and the uninsured (-54.4 percent).

There’s reason to believe that the benchmarking proposal will put particular pressure on hospitals in poor and rural areas. Around one in five rural hospitals are at high financial risk, according to a 2019 analysis, particularly in states like Mississippi, Georgia, Michigan, Iowa, and Kentucky.

The sponsors of S. 1895 seem to acknowledge as much, writing in the legislation that the HHS “Secretary shall consider adequate access to services in rural areas and health professional shortage areas” when regulating how insurers determine their “median in-network rate.” Unfortunately, S. 1895 does not bother to provide any more guidance to HHS other than that they “consider adequate access.”

The provision tacitly acknowledges that rural hospitals are even less well-equipped than others to handle operating their EDs at a loss. Any hospital closure impacts the availability and provision of care in a community, but closures would have an especially detrimental effect on poor and rural areas.

Doctors Feel the Squeeze

California already passed legislation that bans balance billing and institutes a price control on out-of-network care, and doctors there are sharing the negative consequences the new laws have had on them and their patients.

According to an August 2019 piece in The American Journal of Managed Care, recent contract negotiations in California between health insurers (on the one hand) and doctors and hospitals (on the other) have been characterized by insurers having “an incentive to lower or cancel contracts with rates higher than their average as a means of suppressing [out-of-network] prices.” This is hardly an abnormal reaction on the part of insurers—it is a predictable consequence whenever government imposes artificial constraints on pricing decisions. Doctors, in turn, have new concerns about recruiting and retaining high-quality peers. Some are dropping out of hospital call lists, which the author notes “could be especially problematic in safety net hospitals where physicians may rely on high commercial payments to cross-subsidize relatively low Medi-Cal rates.”

In other words, benchmarking in California could lead to doctor shortages at hospitals in some of the most at-risk areas of the state. It could also lead to narrower networks for patients, if insurers simply refuse to contract with certain doctors or medical practices. While California “has relatively strict network adequacy requirements,” not all states do. Even strict network adequacy requirements, which can raise costs for patients in the form of higher premiums, would not solve recruitment problems, or the trend of doctors dropping out of hospital call lists.

Taxpayers Pay More

While it’s clear fewer hospitals and fewer doctors would have a severe impact on patients, several consequences of a federal benchmark proposal would also have a negative impact on taxpayers:

– The more hospitals that close or approach closure, the higher the costs could be for taxpayers who subsidize coverage and care for patients most impacted by these closures. Often, the patients most at risk are covered or subsidized by federal health programs like Medicare, Medicaid, and the Affordable Care Act.

– Alternatively, lower profit margins for privately insured patients could lead hospitals and doctors to demand higher reimbursement rates from the federal government and states for Medicare and Medicaid patients. If governments assent to higher rates, costs go up for taxpayers.

– With doctor shortages, two outcomes could raise costs for taxpayers: 1) If insurers are forced to enter into more or far-reaching contracts with doctors to achieve adequate networks, it stands to reason they will make up for the added costs by raising premiums. Higher premiums not only impact patients, but taxpayers who subsidize coverage in the individual market. 2) If policymakers decide the U.S. needs to incentivize more people to become providers, or lower the costs for students to become providers, taxpayers will likely subsidize some of those costs.

Better Paths Forward

While the surprise billing debate on Capitol Hill has been dominated by just one or two approaches, lawmakers don’t have to work in a box. NTU has laid out better paths forward on surprise billing, such as reducing network complexity and cracking down on advertising practices that are opaque. We stand ready to work with Congress on a solution that protects patients but avoids a heavy government hand that will only lead to worse outcomes. Benchmarks, like other government price control proposals, will only lead to shortages for patients and deadweight costs for taxpayers. Those would be surprises far worse than the ones Congress is trying to fix.

_______________________________

This content is paid for and provided by National Taxpayers Union and published by WP BrandStudio. The Washington Post newsroom and WP BrandStudio were not involved in the creation of this content. Learn more about WP BrandStudio.

Content From