New Cost-Saving Law Increases Costs
No Surprise - Another Piecemeal Market Regulation Doesn't Work
Saying “I told you so” is bad manners, but what’s the point of writing independently if you can’t indulge your vices now and then? The Centers for Medicare and Medicaid Services (CMS) released data last week showing that the biggest consumer legislative victory in recent years has created a new, overwhelmed bureaucracy and is probably raising systemic costs.
Congress and President Trump passed the bipartisan No Surprises Act in December 2020 to get patients out of the middle of disputes between providers and insurers over out-of-network costs. Introduced by Senators Bill Cassidy (R-LA) and Maggie Hassan (D-NH), the law limits cost-sharing for patients who get treated by a doctor who is not in their insurance network in a facility that is “in-network.” The health care news outlet Healthcare Dive calls No Surprises “the most comprehensive consumer health legislation since the Affordable Care Act.”
Beyond the patient’s part of the bill, the Act also established an “independent dispute resolution” (IDR) process to arbitrate payment disputes between insurers and providers when a doctor, facility or air ambulance service isn’t part of the insurers’ network.
Healthcare Dive notes that implementation “has been less than perfect.” In just the first six months of 2023, providers and insurers filed 288,810 disputes for resolution, 13 times more than CMS expected for a full year, and the volume has grown every quarter since April, 2022. Arbitrators closed 134,036 disputes in the first half of 2023, less than half of the number filed. Twenty-two percent of the closed cases were ruled ineligible for arbitration, leaving 88,868 arbitrated payment resolutions.
IDR is “baseball-style” arbitration - the two sides submit a number and evidence for their case, and the arbitrator chooses one or the other. In disputes with a payment resolution, arbitrators chose providers’ bids 77% of the time, with insurers winning less than a quarter. In 82% of the decisions, arbitrators selected an amount that was higher that the median price insurers pay for in-network care in the local market.
Not only are providers winning more than 3/4 of the cases, but the "median” price that CMS is using to measure the outcomes includes only the rates paid by insurers for their commercial products. Providers convinced Congress not to include Medicare and Medicaid rates in the formula because, according to the American Hospital Association, the government programs “historically pay far less than the cost of delivering care. We believe this legislation is an important step forward in protecting patients.”
The health insurance industry strongly backed the No Surprises Act because it wants the government to do the job that it promised the government it would do - negotiate provider rates and control costs. It’s impossible to know if the cases are settling below the astronomical “sticker prices” that providers try to collect for out of network patients, but the rules are set to try to get there. Insurers have begun complaining about supposed “abuse” of the process by providers.
The CMS report reads like a parody of narrowly focused consumer protection. It’s hard to imagine a clearer example of the life cycle of useless regulation:
As laid out in our coverage of private equity, Congress stepped in to regulate “surprise bills” because two of Congress’s own favorite policies - contracted networks and “skin in the game” - have failed to control costs for decades.
The private sector U.S. insurance system is built around having insurers set up networks of contracted doctors, hospitals and labs and pay them lower rates in exchange for a higher volume of patients. According to the Kaiser Family Foundation’s annual employer survey (Section 5) only 1% of workers covered by job-based health insurance are enrolled in plans with no network restrictions (“conventional” plans).
The only way employers and insurers can force patients to use network providers is with pain. So patients have faced ever-growing deductibles, copayments and coinsurance for out of network care. And since private health insurance networks have failed to control costs nationally, rapidly rising cost-sharing for in-network care has accompanied the punitive costs for out of network care.
Congress and a series of Presidents wanted networks. They got networks. Sometimes networks have a hospital in them, but not all the doctors who practice there. That’s entirely predictable. Thousands of doctors, hospitals, insurance companies and employers have been fighting over what to do about that for decades, while overall costs increased steadily at more than twice the rate of inflation.
Rather than actually address the systemic problems of U.S. healthcare costs, Congress passed a bipartisan law telling CMS to set up a judicial process to adjudicate a constant stream of disputes over what are normal, everyday market transactions in the health care system designed by Congress. The law has quickly become a full employment act for health care industry financial staff, corporate lawyers and consultants whose day job is helping providers and insurers price gouge and deny health care.
To even get to federal arbitration, insurers and providers first have to decide whether they are covered by state laws and need to pursue claims through a separate state process. This slide show by Manatt consultants for the AMA walks you through the winding road. They then have to assemble the evidence for their cases, which, of course, takes staff and legal time.
Arbitration decisions are made by “certified independent review entities” (IDREs). Currently there are thirteen IDREs on CMS’s approved list. Some of them consult for state and local governments, but most of them are also in the business of doing “independent” medical reviews for either hospital or insurance clients (or both!). IDREs must certify that they have no conflict of interest in a particular dispute, but they earn their living providing services to the industry, including supporting hospital and/or insurance clients trying to win other kinds of payment disputes:
The consultants charge between $375 and $800 to arbitrate disputes, with higher fees for deciding disputes involving more than one service. With more than a half million disputes at the $595 median fee for simple cases, the corporate consultants arbitrating these disputes would earn roughly $347 million this year.
Out-of-nework claims have always been subject to contentious, time-consuming negotiations between providers and insurers. The case backlog has drained the new process of any possible efficiency gains.
The providers seeking payment are hardly sympathetic victims, of course. Ten parties accounted for 78% of all filed disputes, including corporate medical practice companies in specialties where surprise billing is easiest to pull off, such as Emergency and Radiology. They include the large private equity-owned practices Envision and American Physician Partners who went bankrupt last year.
CMS insists the volume problem is solving itself because the IDREs “have scaled up their operations.”
More than a third of expenditures in the U.S.’s market-driven healthcare system go to administration, - $812 billion in 2017, according to a JAMA Network study - while Canada spends half that percentage on administration. 72% of U.S. administrative spending already goes to hospital and insurance overhead. In that context, perhaps its “no surprise” to see Congress casually conjure a third of a billion dollar annual consulting market overnight from thin air, with the primary outcomes being higher-than-expected prices and massive administrative costs that undermine the supposed consumer benefits.
The high prices and new administrative costs will ultimately be paid for by patients. Before the law went into effect, Brookings researcher Loren Adler told NPR “This seems likely to reduce premiums in addition to protecting patients from surprise bills." Now, Adler suggests premiums may rise as a result of the arbitrators’ decisions, and his research doesn’t account for whether the millions of dollars in fees and the cost of staff and attorneys for hospitals and insurers will affect premiums.
Politicians and the insurance industry keep declaring the No Surprises Act a huge consumer victory. In June 2022, Senator Cassidy said the act had “stopped 2 million surprise medical bills in 2 months.” According to an insurance industry survey, the Act “shielded patients from 10 million surprise bills” in the first 9 months of 2023. Neither Senator Cassidy nor the insurance industry asked any of those 10 million shielded patients whether the “protection” left them with medical debt from their in-network cost sharing, nor if they will be able to afford higher premiums in the future.
Mike Tuffin is President and CEO of AHIP, which used to be short for “America’s Health Insurance Plans,” but the organization now insists is one of those acronyms that don’t stand for specific words yet normal people are somehow supposed to know who they are anyway.
Celebrating his survey, Tuffin actually said “[t]he bipartisan No Surprises Act is protecting millions of American families from the indefensible practice of surprise medical billing.” The health insurance industry created networks and, by extension, surprise billing, in the first place through the exercise of raw political power. For a half century they’ve convinced politicians not to treat health care as a public good because they could take our money and “protect” us from illness, injury and preventable death by creating provider networks and bludgeoning us to use them with out of pocket costs.
The existence of surprise bills in the first place is an indefensible failure of those policies. Normal countries set uniform transparent health care prices. Congress’s and the Biden Administration’s absurd policy response doubles down on decades of failure.
A LITTLE EXTRA FOR THE DATA CURIOUS
Estimates of the size of the consulting market (source links are in the text):
CMS reports that 288,810 disputes were filed in the first half of 2023.
Although the number of dispute filings increased each quarter from the beginning of the program in April 2022, Healing and Stealing assumes that the second half of 2023 will have the same number as the first, where 2 x 288,810 = 577,620
Certified independent dispute resolution entities publish rates for disputes involving single items, “batched” disputes that include between 2 and 25 lines of disputed codes, and a supplemental charge per line if a single dispute includes more than 25 items. For the estimate, Healing and Stealing assumes each filed dispute is billed at the lower single-item rate. The estimates are thus likely lower than the actual amount that parties will have paid out if the volume continued in the second half of last year.
There are thirteen certified IDREs. C2C Innovative solutions, Inc. charges $595 for single-item cases, the 7th highest figure out of 13 and thus the median.
$595 x 577,620 = $343,683,900