Health Reform WK-EDGE Concerns about surprise medical bills grow as coverage becomes more complex, Part 1
Friday, April 28, 2017

Concerns about surprise medical bills grow as coverage becomes more complex, Part 1

Thirty-two percent of insured individuals who had problems paying medical bills reported receiving care from an out-of-network (OON) provider that their insurance did not cover, while 69 percent of those individuals said they were not aware that the provider was not in their plan’s network when they received the care, according to a Kaiser Family Foundation (KFF) survey published in January 2016. Betsy Imholz, special projects director and a surprise medical bill expert at Consumer Reports, noted in a January 17, 2017, article that "the problem is only growing worse as our healthcare system grows more complex and more insurance companies narrow the network of doctors they contract with or shift to insurance plans that eliminate coverage for out-of-network services."

A medical bill that an insured individual receives from an OON provider when the individual is unaware that the provider is out-of–network is referred to as a "surprise medical bill." OON providers may charge patients whatever they choose and may bill the patient for the amounts that were not paid by the patient’s health plan referred to as a "balance bill". This two-part Strategic Perspective identifies the situations in which surprise bills arise and discusses study findings on the impact of OON provider billing and the charges of providers that are most likely to be OON. Part 2 of this Strategic Perspective, which will publish in Health Reform WK-EDGE on May 3, describes steps federal and state governments have proposed and have taken to take to contain surprise medical bills, including provisions included in the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

When and How Do Surprise Medical Bills Arise?

According to a March 2017 KFF report on surprise medical bills, such bills may arise from an emergency situation when the individual does not have the ability to select providers. Often, emergency room (ER) physicians do not participate in the same health plan networks as the hospitals where they work. In addition, the patient may have had no ability to choose the hospital or the ambulance provider. In situations when a patient receives planned care such as surgery from an in-network provider such as a hospital or ambulatory surgical center, other providers involved in the surgery may not be in the same network. In many nonemergency situations, it is the in-network provider rather than the patient that arranges for other treating providers. Such providers may include anesthesiologists, radiologists, pathologists, and surgical assistants.

Network providers. As the 2017 KFF report explained, providers that participate in a network generally receive a negotiated fee that reflects a discount from their full charges. Participating providers may not bill patients the difference between the amount allowed by the health insurer and their full charge. OON providers are not limited to a negotiated fee, they may bill for any cost-sharing amount as well as any additional balance.

Medicare rules. Under the Medicare program, nonparticipating providers must submit claims to Medicare on behalf of their Medicare patients. Medicare pays the patient for its portion of covered changes, not the nonparticipating provider. The provider can charge the patient more than the Medicare-approved amount, but there is a limiting charge that prohibits the provider from charging the beneficiary more than 15 percent over the amount the Medicare pays. Providers that are not participating in Medicare are paid 95 percent of the physician fee schedule amount. Providers are prohibited from balance billing Medicare beneficiaries who have full Medicaid coverage or who receive Medicaid coverage under the qualified Medicare beneficiary (QMB) program.

Medicare rule for private contracting. The Balanced Budget Act of 1997 (P.L. 105-33) established private contracting for physicians and practitioners to opt out of Medicare in limited circumstances. The private contract only applies to the services provided by the doctor or other provider who asked the Medicare beneficiary to sign it. Medicare does not pay any amount for services furnished by a doctor or provider under a private contract even if it is a covered service. If the services are provided under a private contract, physicians and practitioners may charge their Medicare patients amounts that are not limited by Medicare allowable amounts and balance billing rules. The beneficiary must pay the full amount of the provider’s charges for the services.

Studies on Out-of-Network Billing

In the last two years, studies have been conducted to determine the patterns of OON provider billing in terms of charges and the financial burden placed on patients that receive surprise medical bills.

AHIP study. In September of 2015, the America’s Health Insurance Plans’ (AHIP) Center for Policy and Research released a study that examined the implications of affordability of charges billed by OON providers. The study found:

  • OON providers often bill amounts that far exceeds what Medicare pays for the same service in the same geographic area.
  • For the 97 procedures studied, a pattern of average billed charges submitted by OON providers ranged from a low of 118 percent of Medicare fees to a high of 1382 percent. The average out-of-network charge was 300 percent higher when compared to Medicare fees.
  • There was a wide variation in out-of-network charges from different providers for the same procedure.
  • For many procedures, there were regional patterns in the ratio of out-of-network charges to average Medicaid fee at the state level.
  • Because of high out-of-pocket expenses due to balance billing, surprise charges billed by nonparticipating providers impose a significant financial burden on patients.

The study stressed the role of high value networks organized by health insurance plans to ensure that patients have access to a wide choice of affordable, high quality health care providers and protect patients from excessive out-of-network charges.

NASHP brief. A 2016 National Academy for State Health Policy (NASHP) brief examined the emergence of surprise medical billing and relevant state and federal activity. NASHP noted that even though consumers are taking steps to receive in-network services, they receive surprise bills and found that surprise balance billing is a growing trend in the U.S.

NASHP attributed the much of the provision of out-of-network services to provider outsourcing when hospitals or other large providers contract with independent or outside providers to render services within their facilities. While the hospital may be in the health plan’s provider network, the practitioner providing the service is not. NASHP said that out-of-network fees may be 20 to 40 times the rate of services negotiated between insurers and the in-network provider. In cases where multiple providers or procedures are involved without notice there are multiple bills. In addition, surprise medical billing arises when health care organizations bill separately for the use of facilities and equipment from the charges of the physicians or providers. The brief determined that patients are more likely to experience provider outsourcing in hospital ER settings when they are admitted in an emergency situation and have little choice in providers. NAHSP found this especially concerning because 65 percent of hospitals contract out medical services.

Johns Hopkins University study. A national study of surprise medical bills, written by Gerard F. Anderson, PhD, a professor in the Department of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health and Ge Bai, PhD, CPA, an assistant professor of accounting at the Carey Business School, ranked the difference between how much Medicare reimburses for treatments the doctors perform and what they charge out-of-network patients or uninsured patients (referred to in the study as "excess charges"). The study, which was published in January 2017, included over 429,000 doctors in 54 medical specialties, practicing across the United States. The researchers used utilization and payment data from CMS. The results of the study indicated that "nearly all physicians charge more than the Medicare program pays, with complete discretion to determine the amount charged."

A Johns Hopkins University announcement of the study noted that the researchers found that the average physician charges about 2.5 times what Medicare pays for the same service, but the charges are higher for doctors billing for an emergency situation or a specialist referred by the patient’s in-network physician. The average diagnostic radiologists charge is 3.8 times what Medicare pays, while interventional radiologists, emergency physicians, pathologists, and neurosurgeons charge at least four times more than Medicare reimburses, and anesthesiologists charge almost six times what Medicare pays. Specialty physicians with the lowest markups include internists, psychiatrist, and family doctors; physicians that patients most likely have personally selected and with whom they have the most interactions. The researchers also found that amount of the markup also varied by region. The study concluded that OON patients, the uninsured, and casualty and worker’s compensation insurers often pay the full charge, which can be as much as two to six times what Medicare and most privately insured in-network insurers will pay.


The studies have shown that surprise medical bills place a significant financial burden on patients. CHIR cautioned "As health plans embrace tighter networks as a tool for improving quality or reducing premiums, the potential for [surprise medical] bills may grow;" while KFF noted that "the very nature of the problem means that consumers will be hard pressed to take action to avoid surprise medical bill situations absent intervention by policy makers." Part 2 of this Strategic Perspective provides details of the provisions of the ACA that address out-of-network coverage as well as Medicare provisions that established limiting charges. It also describes the steps state legislatures have taken to increase consumer understanding and awareness of situations that may result in a surprise bill, limit or restrict costs of services performed by OON providers, and resolve billing disputes.

MainStory: StrategicPerspectives NewsFeed AccessNews CostSharingNews DualEligibleNews EmergencyServicesNews HealthInsuranceExchangeNews MedicaidNews MedicarePartBNews MedicarePartCNews PhysicianNews

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