Dan Gorenstein (DG): In 2020, Congress passed a law with a terrific name: the No Surprises Act.

It had twin goals: save patients from unexpected medical bills and cut health care spending.

It’s worked for patients. Ten million ‘surprise’ bills were avoided just last year.

The plan to save money – by introducing baseball-style arbitration to doctors and insurers haggling over payment – well, that … is a work in progress.

Baseball music 

Today, on Opening Day, why arbitration may be ‘striking out’ in health care.

Grab your glove and some Cracker Jax. From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein, this is Tradeoffs. 

*********

DG: For years, Americans faced massive, unexpected bills after being rushed to the emergency room for a heart attack or a broken leg.

They’d get this ‘surprise bill’ because they’d see a doctor ‘out of network’ meaning not covered by their insurance plan. In those cases, insurers paid what they wanted and doctors billed patients for the rest.

News clips of surprise bill amounts 

DG: States started to crack down on the practice in 2015 and then Congress four years ago.

To help us understand this unsavory history and get a better handle on how federal arbitration is working we called up Ben Chartock. 

Ben Chartock (BC): I’m assistant professor of economics at Bentley University…:27 I’ve been studying, uh, surprise billing for about ten years now. I first got involved with surprise billing when I was working at the Federal Trade Commission 

DG: Right, you’ve been studying this for a decade. Ben, some quick table setting so we are all on the same page. Remind us how Americans used to end up caught in the middle of a fight over health care prices in the first place?

BC: Sure. So there were thousands and thousands of people who would go to the hospital for an emergency where they unexpectedly and out of their control, see a provider who isn’t in their insurance plan [then] come home and have a second emergency around their kitchen table when they got a surprise bill a couple of months later.

DG: And to be clear, the No Surprises Act largely stopped this. 

Patients are now protected from surprise bills though, as a footnote, patients do still get surprise ambulance bills.  

So, Ben, when doctors and insurers are in a stalemate over payments they go to arbitration – just like baseball players. 

BC: That’s exactly right.

DG: And that’s because Congress was inspired by Major League Baseball’s system to negotiate salaries.

Baseball organ 

Narrator: And here’s a quick primer on how it works: players and teams each make an offer. Then an arbitrator– picks one amount .. no splitting the baby. That forces both sides – in theory – to pick a more ‘middle of the road’ number. 

DG: In other words, the more self-serving the offer…the lower the chance of getting picked. 

BC: Yea, so they’re trading off getting chosen with not earning so much money. 

DG: Now, states including Texas, New York, California and New Jersey were actually the first to the plate – years before the federal legislation was passed.   

Arbitrators get a handful of details about the case: like the procedure, how sick the patient is and the doctor’s experience. 

And then they get one number – that serves as a guide for the price. Ben, I’m calling this the magic number. These magic numbers look different from state to state. Why is that?

BC: So, that’s a function of the political economy of each and every individual state. Some states have stronger support for the insurance groups, some states have stronger support for the hospital groups, et cetera. And so you see in different states across the country, relatively different baby no surprises acts with very different magic numbers.

DG: Right. In 2017, California chose a magic number that is better for insurers. It’s close to what Medicare pays. 

In 2018, New Jersey picked one that’s better for doctors. 

So to understand how these arbitrators worked, [Ben] we’ve asked you today to bring us a case from the great state of New Jersey. Thank you for that. And can you just take us inside the negotiation.

BC: Sure, so I’m looking at a dispute between an insurer and a provider in New Jersey. And the dispute is over a visit to the emergency room. 

Now, I’m not sharing the details of exactly what went on in this visit for patient privacy, but this is your run of the mill emergency room visit.  

So in this particular example, the insurer offered to pay $222.66, and the provider offered to get paid $992.

DG: Wait wait wait. Hold up. 

DG: The insurer was offering to pay $222.66, but the doc wanted to be paid $992. 

BC: That’s correct. 

DG: Is that sort of a common type of spread? 

BC: I think that spread is fairly common, that there’s a large gap between what the insurer and the provider think is a reasonable amount for an out of network bill. 

DG: So in this particular case, the arbiter is looking at $992 on the one hand. $222.66 on the other. 

BC: Yep. 

DG: What does the arbiter do?  

BC: The arbitrator in this case found in favor of the provider and ruled that this visit should be reimbursed at $992.

DG: Ok and just to underscore the point here while New Jersey picked a magic number that favors docs that does not mean docs win most of the cases.

Ben, I know you’ve studied this, how important did the magic number turn out to be in arbitrations, not just in New Jersey, but in all of the states you studied?

BC: In some research I did with my colleagues at Brookings and USC, I found that the arbitrator was picking the bid closer to that magic number more than nine out of ten times.

DG: And what does that tell you? 

BC: It formed an expectation to me that arbitrators are really, really sticky to the magic numbers.

DG: Fast forward to 2020 when Congress is debating a national arbitration system for No Surprises Act.  

Doctors and insurers both see a big opportunity to get a nationwide magic number that works in their favor. Docs want it to be like New Jersey – where the number is based on the price they slap on the service – think of it like the sticker price for a car. Insurers of course, want it lower – closer to the negotiated rates. 

Congress strikes a compromise. They chose the middle of the road price that insurers pay doctors. 

Ben, given how this magic number worked for states, how did you think it would work at the federal level?  

BC: So I’ve been waiting for a year and a half to see the data from the No Surprises Act. And I was expecting to see that the disputes resolved themselves pretty in alignment along what the magic number was. And that does not seem to be what’s happening.

DG: It turns out Ben – was surprised. Sorry. Had to do it! 

After the break … why the magic number is working differently at the national level and whether we’ll ever save money. 

MIDROLL

DG:Welcome back.

In some ways the ‘No Surprises Act’ hit a home run.

Patients are protected.

And according to the national insurer trade group AHIP,  8 out of 10 of these disputed bills are getting resolved before arbitration.

But that still leaves hundreds of thousands of arbitration disputes, 13 times what federal regulators expected. And it’s one of two ways the bill may be ‘striking out.’

We’ve been talking with Bentley University health economist Ben Chartock about this.

So, Ben, let’s start with all these cases. Why are we seeing so many?

BC: So economists have long known that when something new comes around, it takes some time to figure this out. I expected to see the same thing here as individuals involved in arbitration learned about it, it would start to shake out. And so there’s naturally going to be a process of understanding that takes time, meaning a fair amount of cases.

DG: It’s worth pointing out that three physician groups – that are owned by private equity firms – were behind nearly 60 percent of the disputes in the first half of 2023.

And – probably no coincidence – at least one of these companies was reported to have relied on surprise billing, when that was legal, to drive profits.   

DG: So Ben, the second way that the ‘No Surprises Act’ may be ‘whiffing’ is with prices 

As you alluded to before the break, arbitrators are not sticking as close to that magic number as Congress expected.

In fact, we’re seeing them pick a range of offers, from the magic number to 10 times above the magic number. Ben, those high awards are happening because of something unexpected – the rules of the game shifted.

After the 2020 law passed, doctors and insurers went to court challenging how the magic number is calculated and how arbitrators factor it into decisions. I’m curious Ben, are you surprised at this gamesmanship?

BC: Not at all. The stakes are incredibly high for two reasons. One, there are lots of out of network bills. And so the dollars on these out of network bills themselves are worth going to court over if you think you can scrape off a couple percent more off one way or another.

DG: All these changing rules seem to be leading to bids and decisions above the magic number.  

Ben, you brought us another case to demonstrate this. This is over a bill for the average emergency room visit. Let’s walk through this example.

BC: I’m actually going to talk about two distinct disputes between the same insurer and the same provider. And in each of these disputes, the insurer offers the same amount and the provider offers the same amount. So on paper…they look the same. So the insurer Cigna offered to pay $216. And the provider, SCP health, offered to take $574. 

DG: And just so I’m following along, we’re talking about two different cases. But in each instance, Cigna, the insurer, is offering to pay $216. And the provider, the doctor, is asking to get paid $574. Two entirely different cases, but both each asking for the same amount of money. And both in the same market. 

BC: Not only that, they have the same magic number. The magic number here is $173. So it’s worth pointing out that both the offers are above this magic number. Now, what did the arbitrators do? In one case, they ruled on behalf of the insurer, and in the other case, they ruled on behalf of the provider. 

DG: In one case, $216 and the other $574. 

BC: That’s correct. 

DG: Ben why did you bring us these two cases?

BC: Because they are reflective of the actual results we see from the No Surprises act, which is offers that are above the magic number, as well as offers that are far apart, where for the same procedure, sometimes one side is chosen and sometimes the other side is chosen. So I just see these numbers as widely reflective as a small example of what’s going on nationally.

DG: One other thing in the data that caught my eyes is that physicians are winning a lot. In the first half of 2023, they won 77% of disputes.  

For a reference point, that winning percentage puts the docs on par with the 1906 Chicago Cubs – Go Cubs – one of the best teams of all time. Go Cubs!

Even better than the famed Murders’ Row Yankees with Babe Ruth in 1927.

Archive radio of Yankees game

DG: Baseball jokes aside, Ben why are they winning so much?

BC: My uncertainty thermometer is high. Because there’s a lot of action in the courts, there’s a lot of factors that the arbitrators are considering. And there’s legislative uncertainty and marketplace uncertainty. So these results that I’m seeing, um, they’re not necessarily what I expected, but I’m certainly still digging to understand why.

DG: Fair enough. Regardless of why here’s the thing the Congressional Budget Office projected the law would eventually lower prices for this disputed care and more broadly for the entire private health insurance market.

The theory went – insurers would respond by lowering the monthly premiums we all pay by as much as 1 percent starting in 2025. But since early arbitration awards are much higher than expected, savings are starting to seem more like a fantasy than reality.

Ok. So if the private equity physician practices – and other providers are ‘winning’ as much as they are – is it time to scrap the policy and try something else?

BC: Um, I tend to think that we need a little bit more time before we throw in the towel on this. I think it’s still possible that a dispute resolution system like this might ultimately shake out to solve some of the problems it was initiated to address, even if the initial results, um, make some people somewhat queasy. 

DG: Back in 2020 Congress considered a way to guarantee lower costs. Just setting a price for this out of network care.

But they ultimately went with a lighter touch approach – this arbitration system. If that’s the route they want to stick with here, it seems like they should look to the West Coast for inspiration. Because the arbitration system in Washington State seems to be working pretty well. Ben, what’s in the water in Washington State?

BC: A lot of things are in the water in Washington. In all seriousness, I think of Washington as the high water mark for what the federal No Surprises Act could look like, one that’s very seldom used. When it is called into play, it has rates that are really reflective of where the market is at, and one that both parties seem to be reasonably satisfied with, and has the initial benefit of protecting consumers from surprise bills. I see a lot to like there.

DG: What are a few steps Congress could take, Ben, to tweak the federal system so it works. So it functions more like Washington’s. 

BC: I think they could get more information out to the public faster. Information is like the oil in the car. It’s not part of the engine, but it’s an essential lubricant to make the process function. And so everyone needs to know how this law is working at a regular interval to make informed judgments about both what bids to do and what changes need to be made.

DG: Ben, thanks very much for taking the time to talk to us on Tradeoffs.

BC: Thank you, Dan, I appreciate it. Thank you. 

DG: After we spoke to Ben, a new analysis from the Brookings Institution found the awards for doctors are so high that the law may end up actually increasing insurance premiums. 

Will lawmakers tweak the arbitration system? Try to make the magic number more important? Discourage all the gamesmanship we’ve seen?

Congress … batter’s up.

I’m Dan Gorenstein, this is Tradeoffs.

Tradeoffs’ coverage of health care costs are supported, in part by Arnold Ventures and West Health.