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Health Care Complexity: Surprise Medical Bills Explained

edEzriel Edward Kornel, MD, FAANS
Assistant clinical professor of neurosurgery, Weill-Cornell Medical College
White Plains, NY

It’s no secret that health care is an unbelievable complex subject. One of the most complex issues facing the health care system is that of surprise medical bills. Surprise medical bills happen when:

  • Patients receive emergency care by an out-of-network provider (one not included in their insurance plan);
  • Patients are unaware that one or more of the providers of their non-emergent care were out-of-network; and
  • Patients choose out-of-network care without understanding the low rate of payment provided by their insurance plan.

All of these situations result in higher than anticipated bills for which the patient is responsible.

If a patient has good insurance, why does this happen? The fundamental cause of surprise medical bills is that not all providers “participate” in every insurance plan to which an individual may subscribe. As most folks know, insurance companies offer multiple plans often with widely varying physician panels as well as hospital and service inclusion. These are referred to as “narrow networks.” Just how narrow and thus how limited the choice of the patient is variable but concerning. Most plans, such as HMO’s, only reimburse providers who are contracted with their plan. The result:

  • Many plans have few or no specialists represented; or
  • The distances required to travel are unreasonable.

In New York, the vast majority of Affordable Care Act (ACA) exchange insurance plans do not include an out-of-network option. Complicating this issue is that at present, the insurance companies decide at what rate to reimburse out-of-network providers. So even for individuals who have opted to pay more for plans that offer out-of-network benefits, the remaining amount for which the patient is responsible is substantial and far greater than the patient had anticipated.

How can surprise billings be limited for a given patient under the current system? One option is opting to have all care through a hospital where all the health care providers are employed. When receiving any care in one of these facilities, there should be no surprise billing.  However, the majority of hospitals do not employ all their health care providers. Rather, they contract with certain provider groups such as emergency room practitioners or anesthesiologists. Such groups may not participate in all the same plans as the hospital. Furthermore, it is essential to understand that not all independent providers who have staff privileges participate in all plans.  In an emergency situation, an “on-call” physician will provide the patient’s care. In this setting, the patient does not have the luxury of determining if the provider is part of their plan and is unlikely to be able to switch their emergency care to an in-network provider.

For non-emergent situations, the patient should be able to ascertain if any of the providers will be out-of-network. If their care does include out-of-network providers, the patient should try and understand the costs they will incur for the out-of-network portion of their care. However, this is where it becomes even more complex. There are many different ways that insurance plans pay for out-of-network services. Both the percentage amount the patient must pay and the basis for this proportion vary considerably, so it is impossible for the provider to know how much the insurance company will pay them. Thus impossible for the patient to find out even an approximate for which they are responsible.

Let’s take a hypothetical surgery for which Medicare pays $1,500, with a usual and customary charge of $10,000.

  • Example 1: Insurance Company A will pay 60 percent of a charge based on 150 percent of the Medicare rate. Patient Responsibility: $10,000 less $900 (60 percent of $1,500) = $9,100
  • Example 2: Insurance Company B covers 70 percent of the established usual and customary charge. Patient Responsibility: $10,000 less $7,000 (70 percent of $10,000) = $3,000

This might then be further complicated and impacted by deductibles, co-payments and other factors.

How can the problem of surprise billing be solved to the satisfaction of both consumers and providers? One approach would be to have a single-payer system in which all providers get paid the same established rate, as occurs with Medicare. This, however, would have a profound effect on the way health care is delivered in the U.S. and inevitably limit choice of health care providers for most people. In this country, the majority do not want such a profound change. They want to know that they have a choice of health care providers and health care facilities.

Different states, as well as the federal government, are coming up with a variety of solutions. For emergency care, the insurance plan must reimburse at least the in-network rate even if the provider is out-of-network. In this circumstance, the provider may balance bill the patient but may adjust the balance. In some states, such as New York, the provider must charge what is considered a “fair” rate and the insurance company and patient have an opportunity to dispute it if they think the amount of the charge is unfair. When it comes to non-emergent care, providers are required in New York to inform the patient of out-of-network status and to give them a close approximation of their fee — though it is impossible for them to tell the patient exactly what they will owe until the insurance company has reimbursed their established amount for that particular plan. Furthermore, and most importantly, New York law now requires that insurance companies with out-of-network options offer an out-of-network plan that reimburses based on established usual and customary rates. All of this does give the patient some idea of how much they might end up owing; thus lessening the surprise and generally reducing the amount of the “surprise.”

This complex problem is a work in evolution being address by the federal government, state government, consumer groups and provider groups. There is no such thing as “free” care. It must be paid for either by the government, by insurance companies or by the individual. The solution certainly is a combination of all three. Additionally, we must also do more to change the current health care delivery system, its arcane rules, narrow networks and lack of transparency, only exacerbates this issue. As physicians, we can, and must, do better.

Editor’s Note: We encourage everyone to join the conversation online by using the hashtag #HealthReform.

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