December 16, 2020
The American Prospect
Late last Friday, bipartisan, bicameral No Surprises legislation to rein in surprise medical bills was introduced, to the surprise of nearly everyone.
After similar legislation was derailed almost exactly a year ago, Congress looks serious this time. The deal has the support of four powerful congressional committees: the House Energy and Commerce, Education and Labor, and Ways and Means Committees, and the Senate Health, Education, Labor and Pensions Committee.
The proposed legislation is designed to stop patients from being billed exorbitant fees by medical providers that are not in their insurance networks. Patients often go to a hospital that is in their network and, once there, get treated by a doctor who is not. It is most prevalent when patients are treated in an emergency room or when they require an air ambulance to transport them to a hospital for treatment. Lawmakers in both parties have been clamoring to end a practice which undermines the financial security of families at a time when health worries make them most vulnerable, and may even push them into bankruptcy.
In many ways, this year’s proposal is not so very different from last year’s. Patients would be spared from receiving the dreaded bills, and any disputes over fees being charged would be resolved by the provider and the payer. Designing a mechanism for resolving these conflicts has been the sticking point.
The struggle over payment of claims by out-of-network doctors has often been portrayed as a conflict between providers and payers. In reality, insurance companies are often confronted by private equity–owned physician staffing companies that have bought up doctors’ practices, consolidated them, and now staff emergency rooms and other departments that hospitals have outsourced. Envision Healthcare, owned by Kohlberg Kravis Roberts (KKR), and TeamHealth, owned by Blackstone, are leaders in the market for outsourced doctors.
Private equity firms use massive amounts of debt to acquire the physician staffing companies ($5.4 billion in the case of KKR and Envision; $2.2 billion for Blackstone and TeamHealth), and they charge exorbitant fees for the doctors’ services in order to pay down this debt and reward their PE investors. Not belonging to an insurance network lets these companies charge whatever they want for their doctors’ services. Using the threat that they will go out-of-network lets those that are in-network hold up payers for reimbursements that exceed what is paid to other doctors. Either way, health care costs are driven up, as are the profits of the private equity firms.
A similar situation prevails for air ambulances. Two of the three biggest air ambulance providers—Global Medical Response and Air Methods—are owned by KKR and American Securities, respectively. They are notorious for the outrageous bills they send to patients.
Insurance companies have responded to this by passing along the bills to patients, including by narrowing networks to limit the bills they will pay. Insurers have grown concentrated as well, in response to consolidation of providers. None of this benefits the recipients of health services.
Patients, employers, and insurance companies would prefer to benchmark out-of-network payments to prices paid to in-network doctors in their area for the same procedure. Private equity firms and providers oppose benchmarking, as this would reduce their profits and their ability to repay debts. They favor arbitration to resolve their claims for payment, which has historically led to higher costs and premiums.
Both the legislative proposal that was derailed last December and this year’s proposal use a hybrid model. In last year’s proposal, out-of-network providers would have been paid a benchmarked payment amount, but under certain circumstances could take their claims to arbitration. Private equity spared no expense in making sure this legislation did not pass. A mysterious group called Doctor Patient Unity launched a multimillion-dollar campaign in July of 2019 that ultimately reached nearly $54 million. It was later revealed that Envision and TeamHealth were behind this dark-money campaign.
The legislation was derailed a few days before it was to be included in a 2019 omnibus spending bill when Rep. Richard Neal (D-MA), chair of the House Ways and Means Committee, introduced a competing bill. With little time remaining in the legislative session, it was not possible to reconcile differences between the proposals, and 2019 ended with no movement. Neal reported receiving $29,000 in campaign contributions from Blackstone in his September 2019 fundraising report. He would go on to win a contested primary election against a progressive challenger, in part from the proceeds from Blackstone.
This year’s proposed legislation is not so very different from the bill that was waylaid last year. It provides that both provider and payer have 30 days to work out a payment settlement. In the event that the parties are unable to reach agreement, they may access a binding-arbitration process, referred to as an Independent Dispute Resolution (IDR) process. This process would be required to consider the median in-network rate and any other relevant information brought by either party. Thus, the bill provides for arbitration if no agreement is reached, but it requires IDR to take as the starting point the median in-network rate, and not the claim of the out-of-network provider.
This is not as straightforward as a set benchmark, and allows for more arbitration than the 2019 version, which probably leads to higher overall costs. That could dismay insurance companies, even if it improves on the status quo. Plus, ground ambulances, as opposed to air ambulances, are excluded from the restrictions on surprise billing. But the deal does move the dispute away from patients, who only have to pay any in-network cost-sharing associated with their treatment. And the subsequent reactions from industry tell an important story.
Private equity appears to have been blindsided when the legislation was introduced last Friday. It would certainly end their current position of getting to charge whatever they want for their services. Within hours, a group that calls itself Action for Health put out a statement denouncing the new bill because “the IDR entity is required to consider the in-network median rate” (emphasis in the original).
By yesterday, their message had become more ominous. Speaking of Senate Republicans, Action for Health said: If they want to keep their majority after January 5, then they must also reject the No Surprises Act. Republican voters in Georgia don’t want to socialize our healthcare system, nor do they want to see their doctors go out of business (italics in the original). Is Action for Health threatening to spend massively to defeat the Republican Senate candidates in Georgia’s runoff election in January if this legislation passes in December?
Considering that Mitch McConnell has only agreed to “review” the legislation rather than to place it in a year-end spending package, passage is not guaranteed. But agreement by the major congressional committees on a mechanism for resolving disputes over payments to providers makes approval much more likely.