At the NBC presidential debate in Las Vegas, Democratic candidates made all sorts of promises about how they’ll use federal power to reduce the cost of health care, either through “Medicare for All” or a “public option.” But this month, in a key House committee vote on surprise medical billing, Democrats showed that they prioritize the views of health care lobbyists over those who seek lower costs.
Surprise medical providers often charge 30x what Medicare pays
What is a surprise medical bill? A common type of surprise bill happens when a patient goes to the hospital—say, for a medical emergency or a surgical procedure—and the patient receives services from a physician or other health care provider that has refused to contract with the patient’s health insurer.
The out-of-network provider then directly bills the patient for that care at an extremely high price, with bills sometimes in the tens of thousands of dollars. (Last year, I wrote about my own near brush with surprise medical billing, when my local hospital tried to stick me with an out-of-network pediatrician to examine our newborn son.)
The prevalence and cost of surprise billing varies around the country; the practice is endemic in Texas, Florida, New York, and New Jersey. I recently obtained a confidential analysis of a national health care claims database that found that in 2018, 27 percent of privately insured patients who went to an in-network hospital were stuck with a surprise, out-of-network bill, averaging $3,500 per hospital admission.
The same analysis found that in 2018, surprise medical bills cost patients $37.2 billion: $15.7 billion in higher premiums (or $400 per year for the average family of four), and $21.5 billion in out-of-pocket expenses. The biggest contributors were emergency rooms ($12.5 billion in total surprise bills), clinical laboratories ($6.8 billion), anesthesiologists ($4.3 billion), emergency physicians ($3.6 billion), and ambulances ($2.9 billion).
In short, surprise medical bills are a classic example of a market failure. When you’re unconscious, you have no choice in which physicians see you, or to which company your blood samples are sent. If you’ve just had a stroke, you’re in no position to pick the most cost-effective doctor to treat your condition.
Emergency room physicians and anesthesiologists know this, and it has therefore become increasingly common for these categories of doctors to refuse to contract with insurers because that way the doctors can charge higher prices. The claims database analysis found that, on average, out-of-network emergency room physicians charged 4.4 times the median in-network rate. Out-of-network anesthesiologists charged 5.5 times the median in-network rate, and out-of-network clinical lab companies charged 6.7 times more.
And, to be clear, the standard prices that providers charge are hardly cheap. A study of health care prices by Johns Hopkins researchers Ge Bai and Gerard Anderson found that the median billed charges reported by emergency room physicians and anesthesiologists were 4.0 and 5.8 times those of Medicare, respectively.
Putting the two multiples together, this means that some out-of-network emergency room physicians are charging 18 times what they accept from Medicare for the same services. Some out-of-network anesthesiologists are charging 32 times, on average, what they accept from Medicare. These multiples are insane.
The triumph (as usual) of health care lobbyists
Both the Senate and the House have prioritized surprise billing reform in the 116th Congress. The opening bid from the GOP-led Senate Health, Education, Labor and Pensions (HELP) Committee was to use the private insurers’ rates—the median in-network rate—as the benchmark for surprise medical bills. As we discussed above, median in-network rates are 4 to 7 times higher than Medicare’s. So the Senate HELP bill was an improvement, yes, but not a complete solution.
The specialists who engage in surprise billing should have been overjoyed by the Senate’s preemptive concession of using in-network rates, but instead the specialists decided that it would be an unfair imposition for them to be paid at 4 to 7 times Medicare’s rates. So they and their lobbyists, alongside the private equity firms that back them, got together to try to sink the Senate legislation altogether.
On February 12, the House Ways & Means Committee—the key committee for legislation on employer-sponsored health insurance—passed H.R. 5826, a bill euphemistically called the Consumer Protections Against Surprise Medical Bills Act of 2020. Unlike the related Senate HELP legislation, which used market-based principles to lower patient costs (i.e., the median in-network rate as a benchmark), the House bill would federally impose an arbitration system favored by the lobbyists, because lobbyists know that arbitration leads to far higher prices for health care. (Health care providers spent over $200 million on lobbying in 2019, according to Opensecrets.org.)
Under the House bill, there would no limit on the size of surprise medical bills that health care providers took to arbitration, and no limit on the frequency with which those providers gummed up the works with frivolous arbitration requests. Providers and their lobbyists love arbitration because in New York, where it has been tried, health care prices skyrocketed; providers make more money when prices are high.
After the Ways & Means Committee voted on their version of the bill, the committee boasted of the support it has received from—you guessed it—the American Hospital Association, the Federation of American Hospitals, and the American College of Emergency Physicians. The Congressional Budget Office estimates that, relative to the surprise billing package passed by the Senate Health, Education, Labor, and Pensions Committee (HELP), the Ways & Means bill will increase the deficit by $7.1 billion over ten years.
The CBO’s numbers are likely optimistic; once patients are insulated from the rising cost of emergency health care services, providers are likely to become even more aggressive about price increases.
Democrats undermine the case for either ‘Medicare for All’ or the public option
So what does any of this have to do with “Medicare for All” and the public option, the two main Democratic proposals for health reform? Everything.
The core idea behind both “Medicare for All” and the public option is that health care would be cheaper in America if we replaced private health insurers with a government health insurer. In “Medicare for All,” all private insurance companies would be abolished and replaced with a single, government health insurance agency (hence the term “single payer”). With a “public option,” the idea is that a government health insurer would compete with private insurers.
In both cases, the government health insurer would resemble the traditional Medicare program, paying Medicare’s rates, or something close to them, to doctors and hospitals in order to save costs. (Private insurers have generally allowed providers to raise prices more rapidly than inflation; today, the average hospital charges private insurers 2.4 times what it’s paid by Medicare for the same services.)
This is why there are no surprise medical bills in the Medicare Advantage program, which deploys private insurers to administer the Medicare benefit. Under MA, if a patient receives health care services out-of-network, the provider is only allowed to charge what Medicare will pay, and nothing more.
So you’d think that Democrats in Congress who have come out in favor of Medicare for All or a public option—effectively, all of them—would be eager to deploy Medicare or Medicare Advantage rates to reform surprise billing. You’d be wrong.
As I detailed above, in the Democrat-controlled House, the Ways and Means Committee capitulated to lobbyists. Democrats on that committee abandoned their alleged fealty to Medicare and its lower prices.
And if Democrats can’t get together and deploy Medicare rates in the surprise billing arena—where there is an obvious case of market failure—there’s no chance that they will be able to introduce a Medicare-like public option into private insurance markets. And if a real public option has zero chance of becoming law, the chances of Medicare for All are less than zero.
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INVESTORS’ NOTE: Private equity firms whose companies impose surprise medical bills include Kohlberg Kravis Roberts & Co. (NYSE:KKR), which owns Envision, EmCare, and Rival Air Medical Group Holdings; Blackstone Group (NYSE:BX), which owns TeamHealth; ValorBridge, an owner of ApolloMD; New Enterprise Associates, an owner of Radiology Partners; and Welsh Carson Anderson & Stowe, a part owner of US Acute Care Solutions, US Radiology Specialists, and US Anesthesia Partners. Mednax (NYSE:MD) is another for-profit physician staffing company.
