Surprise! The Doctors at Your In-Network Hospital Are Out-of-Network

Guest Post by Erin C. Fuse Brown

Nick Bagley has written a great post at the Incidental Economist responding to Elisabeth Rosenthal’s recent article in the NY Times on out-of-network emergency physician billing.  This phenomenon arises when a patient goes to an in-network hospital, but the physicians staffing the emergency room are out-of-network. As a result, patients get balance-billed by the out-of-network physicians for large amounts that are not subject to their deductible or out-of-pocket limits.  I wanted to pile on to the moral outrage and add some thoughts about legal solutions.

(1)   DOL and HHS should issue rules to include out-of-network physician services provided at an in-network facility (not just emergency rooms) in calculations of an individual’s out-of-pocket maximum.

Nick suggests that the Department of Labor require out-of-network emergency services to count toward the ACA’s out-of-pocket spending cap. HHS should do the same for plans sold on the Exchange. Emergency rooms are an easy target, because in an emergency most people have little choice but to go to the nearest ER or the one to which the ambulance delivers them. My 2-year old fell and hit her head when we were traveling out of town, and I can personally attest to the difficulty of trying to figure out whether the nearest ER is in-network even for a law professor who writes about the perils of balance billing.

However, the out-of-network doctor problem goes beyond emergency care. Even for non-emergencies, you could dutifully select an in-network hospital and in-network surgeon to perform your hip replacement or bypass surgery, but the anesthesiologist or the other physicians working on you may be out-of-network, and you would be stuck with a large out-of-network charge. So the regulatory solution must reach beyond emergency services. 

(2)   States should pass laws prohibiting balance billing by out-of-network physicians for covered hospital services.

A handful of states have adopted laws that prohibit out-of-network providers (including physicians) from balance-billing patients for the amounts not covered by insurance.  Of these few state laws, an even smaller subset extend beyond emergency services to other types of medically necessary services.  Some states like New York and Colorado require the health insurance company to hold the plan member harmless for out-of-network bills, but the plan must absorb the out-of-network bills, which ultimately translates to higher premiums.

(3)   HHS and state insurance commissioners should strengthen their requirements and oversight for health plan network adequacy.

I agree with Nick’s analysis of regulatory approaches and gaps to assure network adequacy for health plans. But, stronger network adequacy requirements for health plans may strengthen the hand of the emergency and other hospital-based physicians in negotiating prices with plans. If health plans must contract with all hospital-based physicians at in-network hospitals, then plans will not be able to resist price demands of these must-have physicians.

(4)   Direct rate regulation is needed to cap or limit prices from rising as the changes above dilute the price-constraining effects of narrow networks.

All of these solutions highlight the tension between the benefits of narrow networks to keep prices down and the costs of narrow networks to individuals. If we require broader networks, we lose the price-controlling effects of narrow networks.  So we would need another mechanism to keep prices in check in the form of rate caps or direct rate regulation. Our lone existing example of all-payer rate setting from Maryland does not, however, include physician rates. To control physician as well as hospital prices, perhaps we must look to a more comprehensive single-payer model like Vermont’s.

Narrow networks are proliferating as one of the remaining cost-control strategies for health plans that can no longer use underwriting and risk-selection to keep premiums down. I have written before about the hidden costs of narrow networks, and the NY Times article puts the problem in sharp relief. Narrow networks continue to be praised in some quarters as an effective means of keeping health care spending in check. But with all these downsides, it is time to start considering other more direct means of containing health care prices.

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