Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode!

Dan Gorenstein: About a year ago, a paper published in JAMA Internal Medicine reported an alarming trend. The number of unexpected, or surprise hospital bills, was growing.

The study authors said more than 40% of hospital visits now came with some kind of surprise charge, and the size of the bills was growing too.

President Trump has pledged to halt the practice.

Trump clip: What we call a surprise bill. Not a pleasant surprise. A very unpleasant surprise. So this must end.

DG: Congress has introduced four bipartisan bills to stop what is considered one of the most predatory practices in medicine.

But each has stalled.

Nicholas Bagley: It’s totally ridiculous that we didn’t get this problem solved before COVID hit. It is unconscionable that we haven’t gotten it solved after COVID hit.

DG: Today, is Congress any closer to halting surprise billing?

From the Annenberg Studio at the University of Pennsylvania, I’m Dan Gorenstein, and this is Tradeoffs.

DG: More than $500 for a COVID test, $3,000 to diagnose a cold, almost $110,000 to treat a heart attack.

Each year, patients with insurance go to the hospital or doctor believing their care is covered — only to receive a bill for hundreds, even thousands of dollars.

NB: It is an abusive billing practice. It is a practice that no one of good conscience can possibly defend and no one of good conscience does.

DG: Nicholas Bagley is professor of law at the University of Michigan Law School.

So Nick, you’ve said “a patient can do everything right and still face substantial surprise medical bills.” How does that work?

NB: The patient has insurance. That insurance includes a particular hospital in that insurer’s network. And so that insurer has negotiated prices that it will pay. And the hospital has promised not to charge you any extra. So you go to the hospital that’s in your network, you go in to get care. A couple of months pass, you receive a bill from some doctor that you may or may not have agreed to receive services from, at least explicitly. And that bill can be wildly inflated because it’s not negotiated by your insurer. It’s just whatever the doctor wants to charge you.

DG: These doctors are not in-network doctors, and the latest research finds they charge patients anywhere from $600 to $2000, on average, in surprise bills.

Capturing the true scope of the problem, though, is imprecise.

Estimates range from 10% to 40% of ER or hospital visits for patients with private insurance come with a surprise bill – also called a balance bill.

DG: Before we get into steps to curb this billing practice, let’s talk about how it’s come about in the first place, Nick. Is this something that hospitals want to be doing? How does this happen mechanically on the back side?

NB: Hospitals don’t directly employ many of the physicians that work at them. Most will contract with a particular agency that then employs doctors [and] organizes emergency room care for your hospital. And that company can like the hospital, negotiate with an insurance company to receive a particular rate for the services that they provide. But sometimes the emergency room companies say, why would we agree with an insurance company to a cut rate on what we prefer to charge? We can refuse to participate in that insurer’s network. And by staying out of that network, it gives us room to send these bills to patients. Hospitals hate it because they’re in the networks, their patients come to them, and then the hospital is at the receiving end of their complaints. But from a patient’s perspective, it’s all very confusing.

DG: A Kaiser Family Foundation survey found more than two-thirds of Americans fear surprise bills. Many can’t afford to pay them. And most people agree they shouldn’t have to.

And the business practice has no love on Capitol Hill. So, Nick, I’m a little puzzled about this. Why haven’t any of these bills passed Congress?

NB: The bills that have been floated have one common feature. They say to patients, “hey, we recognize you did nothing wrong. And so we’re going to protect you from these surprise bills. You’re not going to be on the hook for anything more than your deductibles or copayments. That’s it.” But that leaves a really difficult backend question: How do you resolve the fight that still exists between insurers and the doctors over what they’re owed? That’s where this has really gotten bollixed up.

DG: The legislative solutions proposed in Congress to combat so-called ‘surprise billing’ are a mix of two big ideas:

One: insurers reimburse out-of-network providers at a set amount, usually the in-network rate.

Insurers like this option because it keeps reimbursement rates in check.

Hospitals, providers and physician groups oppose the plan because it essentially forces them to take a pay cut.

The second type of policy fix: arbitration — providers and hospitals can charge the fee that they want, insurers reimburse what they want, and if providers balk, an arbiter settles the dispute.

DG: It seems like the various parties — insurers, hospitals and physicians — do not see eye-to-eye on how to handle this. Fundamentally, Nick, the tension is over, as you said, money. Does each side have sort of a good case to be made?

NB: I think this is a really hard conversation to have because insurers are the traditional, you know, bogeyman here, the ones who we like to complain about, you know, denying us care or charging us, you know, high deductibles or the like. But they’re really not bad actors here. The bad actors here are the specialty physician groups that have a lot of market power, and that market power enables them to engage in a lot of unfair and abusive practices. And it’s an uncomfortable thing to say because we like doctors. 

DG: Insurers own part of this problem too. Although relatively rare, insurers can design narrow networks that leave hospitals or particular doctors out, opening the door for providers to charge these surprise, out-of-network bills.

So going back to Washington here. Given that there really is bipartisan support that this is a terrible practice, what is it that’s tripping lawmakers up?

NB: It’s how to fix it.

Everyone agrees that this practice shouldn’t be allowed, but the question of how to split the pie, between the physician groups and between insurers is a really thorny question. And it requires Congress to basically pick a winner. It’s a really tough spot because every member of Congress has very vocal emergency room physicians in their districts, every one of them has anaesthesiologists in their districts with very well-organized and powerful lobbying groups who are making their voices heard. And their voices are amplified by the fact that a lot of these companies that employ the specialty physicians, those companies are backed by private venture firms

News clip: They call them venture capitalists or private equity groups, I call them Wall Street firms, that have basically bought these physician practices.

DG: Research shows that private equity firms continue to buy up physician practices and grow their hospital staffing businesses.

And armed with deep pockets, these groups have thrown their weight around Congress.

In 2019, physician groups owned by private equity shelled at least $5 million to block surprise billing legislation.

With Washington gridlocked, states have gone after the practice themselves.

In July, Georgia became the 30th state to pass some level of surprise bill protections.

While state laws vary in scope, Nick says even the most robust are limited.

NB: If you are employed by an employer that self-insures. This is a technical concept, but basically any large employer is going to self-insure, well then that employer’s insurance product for you is regulated by the federal government, not by the states. The states only have jurisdiction over insurance companies that are selling insurance within their borders. And that means that all of these state laws are circumscribed in how much they can do. Something like 60% of all people who receive insurance through their employers, work for self-insured firms. So to protect them from surprise bills, you’re really going to need federal legislation.

DG: Do you have a feeling that Washington is getting closer to being ready to pick winners and losers when it comes to surprise billing? Because right now the losers obviously continue to be consumers.

NB: I think there’s enough consensus around the basic decision that we want to protect patients that Congress will eventually do something. 

I think they recognize that somebody who gets COVID shouldn’t be also forced to suffer under the burden of surprise bills. I think that kind of narrative could help shift the terrain a little bit when it comes to coming up with a legislative solution. I really don’t know, though, if Congress has the wherewithal to get something done.

DG: In theory, the run-up to the election is a good moment to pass legislation that gives lawmakers in both parties something to bring home.

But a continued stalemate over a fix appears likely as we head into the fall.

Surprise bills being the latest lesson in just how hard it is to reform health care, even when everyone agrees there’s a major problem that needs solving.

I’m Dan Gorenstein and this is Tradeoffs.