'Will the Federal Ban on Surprise Medical Bills Work?' Transcript

February 25, 2021

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: Something kind of miraculous happened late last year. 

Congress actually passed a major piece of health policy legislation.

News clip: A pandemic relief bill signed last month also includes a ban on surprise medical billing.

DG: Protecting people from surprise medical bills was the rare bipartisan issue but it still faced intense industry opposition and took five years to get done. 

In other words, it’s a classic political compromise.

Today, we return to the Research Corner with University of Minnesota health economist Sayeh Nikpay who shares three big numbers from the research to help us understand what we can expect from this new law.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein, and this is Tradeoffs.


DG: Sayeh, you are an associate professor at the University of Minnesota and the Tradeoffs contributing research editor. How’s that for a title? Effectively, that means you’re our go to health economist. How are you, my friend?

SN: I’m doing well. I’m trying to be a professor and get my work done and also apparently teach elementary school at the same time. It’s pandemic living!

DG: We are excited to have you on to talk about surprise bills, something that we’ve talked about on the show before. But for people who don’t know or have forgotten, Sayeh, can you just give us a quick refresher? What is a surprise bill? Why are they a problem?

SN: So let’s say that you’re cooking. I’ve actually done this a couple of times this pandemic. You’re cooking and you slice your finger open. 

DG: Ouch.

SN: You did your homework beforehand. You know your in-network hospital is. Okay, so you’re like, great. I get in the car, bandage up my finger and I run there. And I am seeing a bunch of doctors, they’re all dressed the same. And somewhere in the process of receiving care for that, that chopped up finger, there’s a doctor in there who actually is out of network. And, you know, once I get home, I think, great, that’s all done. My finger’s healing. I can go back to chopping onions. And then pretty soon I receive a bill not just for the services that I expected to pay for that were in-network, but also for some services that were out-of-network. And this is a nasty surprise.

DG: And Sayeh, how big of a problem is this? How often do the chop-fingered folks get the surprise bills?

SN: So in the emergency department where we really have the best numbers, it’s about one in five patients who end up receiving a surprise bill of some kind. And, you know, more than half of the people who got one of these bills, they end up paying about 480 bucks for those services. But they can get really high. I mean, there are stories about people who pay over $100,000.

DG: And we’ve really seen this, right? I mean, Republicans, Democrats, they’re outraged. I think 32 states have passed their own laws limiting this practice in one way or the other. But those laws still, left a lot of people exposed, so now we’ve got this new law, the so-called No Surprises Act, which goes into effect next year in 2022. Can you break this down for us, Sayeh? How does this new law work? 

SN: Okay, so there’s two big things to point out here, Dan. 

First, the overall goal of the No Surprises Act is to protect all insured patients in the country from having to pay these surprise bills. But someone still has to pay these bills when out of network care happens…so the second thing the No Surprises Act does is it sets up a process for insurers and the docs or providers to come together and determine how much docs should get paid by the insurance companies And they do it in a very specific way. They use something called baseball style arbitration.

DG: Taking a page out of Major League Baseball’s playbook.  

SN: Yeah, Dan. I’ve got to warn you, I’m no baseball fan. So I thought we could actually ask Tradeoffs producer Ryan Levi to step in and, explain this part of the story given his deep love for the sport. 

RL: Hey Skip, I’m ready. What do you need?

DG: Oh Levi, no need to suit up here. Just looking for a little primer on baseball arbitration.

RL: Sure thing, skip.

DG: Oh my god.

RL: So here’s the thing. In baseball, if you’re a young ballplayer and your team can’t agree to a contract deal, you go to arbitration. The player makes an offer, the team makes an offer, and each side makes their case to neutral arbitrators. And the key thing here is the arbitrators have to choose one of the offers. They can’t pick a number in the middle. The idea is that this makes it less likely that either side will offer up some ridiculous number. And it encourages folks to try to work out a deal on their own instead of leaving it up to the uncertainties of arbitration. Make sense?

DG: Yeah, I think we’ve got it. Thanks. Ryan, why don’t you go hit the showers, I guess. 

RL: Go Twins! 

DG: Twins?

SN: Twins!

DG: Okay, Sayeh Now several states have also taken this baseball approach to settling these bills. And you went right into the research because you wanted to see how those states fared with similar kinds of surprise bill solutions. 

SN: Yeah. And look, there are lots of states that have passed some form of protections, but not all of these policies are that old. So the evidence can’t really tell us what’s going to happen in the long run, meaning like five, 10 years down the road. But it does give us a window into what could happen in the first year or so under the new law. And I’ve got three major findings from the literature that I really want to share with you that help me think about this more clearly.

DG: When you say three findings, does that mean three big numbers?

SN: Sure we can call them big numbers.

DG: Perfect, so what’s what’s your first big number here?

SN: Ok, the first big number is 88 percent. And this comes from a 2020 paper by Zack Cooper and his colleagues at Yale, Fiona Scott Morton and Nathan Shekita. And it uses actual patient medical claims to find out what happened after New York passed its surprise billing law in 2014. So before the law, almost 15 percent of people saw an out-of-network provider when they went to the emergency department. But after the law passed, that dropped to about two percent, actually less than two percent. That translates to an 88 percent decrease. So this is really good news because if you don’t see an out of network provider, guess what? You can’t get a surprise out of network bill.

DG: Right. And so that’s important because obviously the main goal of any surprise bill law is to protect patients. And this 88 percent drop in New York suggests that’s actually happening.

SN: Exactly. This law that was meant to cut down on surprise billing actually cut down on surprise billing. 

DG: Hey, hey!

SN: I know. I know. So let me explain why we think it’s happening. 

So before New York bans surprise bills, the emergency medicine docs in this paper could play hardball with insurers, if we’re doing baseball. Okay, so one of these emergency medicine docs in this paper could say either pay me what I want to be in network or I’ll just go out of network and I’ll just bill at higher rates. And a bunch of the time that’s what happened. And that’s why people got surprise bills, because the emergency medicine docs could do it. But now patients under this law are protected and these bills, instead of going to patients, have to go to arbitration. And that’s a riskier proposition for the docs. It’s time consuming and they actually are not sure how much they’re going to get paid on the other end. So under this policy, it’s just financially safer for a lot of these doctors to to just sign in-network contracts. And that kind of shift is likely why Zack and his colleagues found an 88 percent drop in the probability that people see it out of network ED doc. And not only that, this new playing field might have forced some of these docs to actually accept lower in network rates when they did come back.

DG: This is potentially even better news, right? Because if insurers are paying in network rates, that means our insurance premiums are likely to go down, too. So the natural question there is, do we have any research on the impact of this sort of baseball style arbitration system has on premiums?

SN: I wish we did. Unfortunately, we don’t have any studies that are published yet on this particular topic that’s so important. And I would love to see this study, but we do have the next best thing, or at least to me, it’s the next best thing which happens to be my second big number, which is 1 percent.

DG: 1 percent. Okay, what are we talking about here?

SN: Basically the Congressional Budget Office and I will admit I am a fan girl of the Congressional Budget Office. 

DG: Who’s not?

SN: Yes, they’re amazing. When they drop their numbers, we all go running. Right. So the Congressional Budget Office actually evaluated a version of the No Surprises Act. And what they concluded was that we could possibly expect to see that No Surprises would result in some providers maybe moving in-network and getting paid lower rates, and that could maybe lower premiums between about 0.5 and 1 percent. That doesn’t sound like much, but it is historically really hard to reduce premiums. And, this suggests that this policy could actually reduce the amount that consumers are paying for premiums.

DG: When we come back, Sayeh’s third number and what we still don’t know about the impact this new law could have. 


DG: We’re back, Sayeh, talking about the federal No Surprises Act. Research from states suggests this new law should lead to a dramatic drop in surprise bills. And if that happens, consumers could even see a dip in their monthly premiums.

But here’s something I still don’t understand. If these laws protect patients from paying surprise bills and are also pushing docs back into insurance networks, then why do we need that whole baseball arbitration thing?

SN: That’s a great question. So imagine this.

You get in a car crash and the damage is really bad, requires a specialist to fix. But there’s only one hand specialist in all of Philly, and she’s not in your insurance network. The hospital calls in that specialist to fix your hand, which is great, so you can keep emailing the day away (or whatever it is you do). But you weren’t awake to consent to the surgery.

Under the No Surprises Act, you now only owe what you would have paid if that doc were in your network and the insurer picks up the rest of the tab. But the insurer might think that amount is too high. And that’s where the arbitration process is going to come in handy. 

DG: Handy, Sayeh, really? 

SN: Listen, what can I say? I’m a health economist. I’m not an entertainer, although I am getting to know this law like the back of my hand.

DG: Got it. Look, as goofy as that all was, that makes sense. And I as a patient, care about how much my insurer ends up paying for my surgery, because as we’ve sort of discussed, the more my insurer pays, the more premiums will climb. Eating away at that CBO projection you were talking about. 

SN: Exactly. 

DG: Do we know anything about how the actual arbitration process itself has worked out in these states?

SN: We do. And this is actually the piece that was most interesting to me, because it’s a little wonky, it’s a little in the weeds, which, you know, I like. And importantly, this was the part that I knew the least about going in. So I called up a researcher who’s done a ton of work on surprise billing and some on arbitration in particular.

Benjamin Chartock: So my name is Benjamin Chartock. I am an associate fellow at the Leonard Davis Institute of Health Economics at the University of Pennsylvania. And I’m also in my fourth year of the PhD program in health economics at the Wharton School.

SN: So Ben says that the big take home is that the information that you give arbitrators to help them make decisions really influences how much the doctors get paid. Arbitrators in this process are allowed to consider a lot of things in how they make their decisions, how complex the services, how highly trained the doctor is, where and when it happened. But there are really only a few hard numbers that the arbitrator has to basically decide if they’re going to take the doctor’s proposed bill or what the insurer is saying they’d like to pay.

DG: And so I’m sensing this is where your third big number comes in.

SN: Yes. So a few states, including New York and New Jersey, use this arbitration process. And the number here that I’m going to introduce is the 80th percentile of billed charges. That’s our third and final number.

DG: Okay, 80th percentile of billed charges — a lot to unpack there. Plus, you know me and math. Let’s take this slow.

SN: Absolutely. I’ll start with Ben who actually had a really good way of explaining billed charges.

BC: You can think really loosely of charges as the sticker price of the car when you go into the dealership. I’ve never bought a car, but I hear from television and the movies that no one actually pays what the sticker price for the car is. They negotiate it down with the dealer.

SN: So in health care, a billed charge is just a sticker price that hospitals or doctors have assigned to a service like a procedure like your hand surgery Dan and billed charges are almost always negotiated down by insurance companies. So the 80th percentile of billed charges in this example, that’s the sticker price that’s higher than 80 percent of all the other sticker prices for this kind of hand surgery in the Philadelphia market. Does that make sense?

DG: I think it does. Basically, one of the few actual numbers that arbitrators have to help them make a decision is a number at the high end of what doctors in the area charge for the service. That sounds, though, like it could end up leading to some pretty big awards for the doctors.

SN: Yeah, and this is exactly what we see in a paper published this January by Ben and his co-authors, Loren Adler, Bich Ly, Erin Duffy and Erin Trish. So they found that two-thirds of the time, Dan, arbitrators in New Jersey who had this 80th percentile number in front of them picked the offer closest to it. 

BC: These are just sticker prices they post on the window. They’re not what’s paid. And so what this arbitration system has done in New Jersey is it’s actually taken these sticker prices and made them part of compensation. And they’re determined only by one side.

DG: So Sayeh listening to this, the real world consequence here is because the providers can set these billed charges, however high that they want. Having arbitrators use that number to decide these cases in New Jersey has led to those high costs that we are all worried about in the first place.

SN: Exactly. So Ben and his colleagues found that because of this, a lot of those arbitrated awards in New Jersey ended up being several times more than usual rates negotiated by providers and insurers.

DG: Does the federal law end up copying this problem or are they trying to guard against it?

SN: So we don’t actually know what all the details of the federal arbitration system will look like. But we do know from the text of the law that it forbids arbitrators from looking at billed charges. And instead, one of the factors that it tells them to consider is median in-network rates. So that’s the middle of the road price that insurers in an area pay for a particular service.

DG: So this median in-network rate should be a lot lower than the 80th percentile of billed charges?

SN: Oh, yeah, almost certainly. And we’ll have to wait until 2022 to see what happens. But what Ben and his colleagues paper tells us is that the information that you give arbitrators ends up being really important in the final decision you get.

DG: The last question for you, Sayeh. Obviously, we’re not going to know what this law will do until it’s in place. And even the state evidence is still pretty limited as of right now. What’s the research or study that you wish we had but don’t yet have that could really help inform how to think about these laws?

SN: Okay, well, two things come to mind. One is just a study that looks at something like patient credit scores or other financial metrics. Right. Are they in debt, maybe even some measures of emotional well-being. Because if patients are being protected from these huge bills, we should see that they’re doing better financially and potentially happier with their financial situation. 

Two, we know that private equity backed companies use surprise billing as a money making tool. This law may make that a stinker so if those companies dump these docs, do those docs band together, or get scooped up by hospitals? Either move could lead to consolidation and research is pretty clear that drives up prices.

And there’s actual language written into the law directing the federal agencies to be on the lookout for this kind of outcome.

DG: Sayeh Nikpay, thanks for joining us at the Research Corner. 

SN: Thanks for having me, Dan. 

DG: Always a pleasure.