The New Surprise Billing Law Is an Imperfect Win

The fix will help many consumers. But the details show just how hard bigger reform will be.

After nearly two years of fighting, false starts, and close misses, Congress has finally banned health care’s most obviously exploitative practice. Starting in 2022, it will be illegal for doctors and hospitals to send surprise bills: charges to insured patients from out-of-network providers that the patient could not choose, like anesthesiologists and emergency room physicians. Congressman Frank Pallone Jr., the chairman of the House Energy and Commerce Committee, told the Washington Post that the law is “the biggest victory for consumers since the Affordable Care Act.” It is “now up to the provider and the insurance to figure this out,” he said. “It’s not the consumers’ problem.”

There’s no doubt the ban is an enormous win. Surprise bills have become an increasingly ubiquitous part of the U.S. healthcare system, destroying the credit of some families, outright bankrupting others, and costing Americans with employer-provided health insurance approximately $40 billion each year. But the solution Congress passed will save consumers far less than it could have, and it took more than twenty months to complete. If Congress struggled to stop this notoriously grotesque practice, it suggests the government will have an extraordinarily difficult time tackling America’s broader, exploding health care costs.

When the House and Senate began looking to ban surprise bills in the winter of 2019, they focused on two possible mechanisms. The first, favored by patient advocates and insurers, involved benchmarking treatment prices—like X-rays or biopsies—to the median price that insured people pay while in network. Insurers would then automatically compensate the out-of-network physician that amount. The second, favored by hospitals and doctors’ groups, involved having outside arbiters decide what insurers will pay.

At first, both parties in Congress appeared to favor the benchmarking approach. They had good reason. Benchmarking prices is widely thought to save patients more money and better control health care costs overall. Arbitration, by contrast, tends to result in more provider-friendly rulings, resulting in larger insurance payouts. Insurers then pass on these costs to consumers in the form of higher rates, deductibles, and co-pays. Since New York State implemented an arbitration system to settle certain surprise bills, costs for New Yorkers have gone up, not down. At an event hosted by consumer advocates, Pallone worried that arbitration might simply “recirculate” lost surprise-billing charges “so that the individual pays it in their premium.”

But providers, some of who can earn handsome profits from surprise bills, aggressively lobbied Congress to switch to arbitration. Gradually, both the House and Senate obliged. First, Pallone’s bill, co-drafted with Republican Senator Alexander Lamar, added an arbitration appeal. It was then killed by an all-arbitration bill drafted by the Democratic and Republican leaders of the House Ways and Means committee. This still wasn’t enough to earn the endorsement of major doctors’ groups, including the American Medical Association. Some organizations, like the American College of Surgeons, even expressed tepid opposition. By requiring doctors to disclose their typical compensation, the ACS argued, the bill could “potentially driv[e] down physician payment.”

Providers did not get everything they wanted out of the recent legislation. It’s all arbitration, but arbiters will have to consider the median in-network rates (what would have been the benchmark) when making their rulings. Doctors will have to disclose their typical compensation. But the system is arguably closer to what providers wanted than the Ways and Means bill, and certainly closer than what patient advocates sought. In addition to being entirely based on arbitration, the law bans arbiters from considering Medicare procedure rates when issuing rulings. Medicare sets its health care prices outright, making it perhaps the most cost-effective insurer in the United States. The absence of these rates means that arbiters might settle on higher charges.

Patient advocates are happy the bill passed. But its design tempers their enthusiasm. “I don’t think this is a terrible approach,” Jen Taylor, the senior director of federal relations for Families USA, told me. “It just leaves room for certain folks to figure out how to bill more.” She worried that, over time, the legislation won’t fully hold costs down. Much like in New York, the excess charges would simply be socialized among the broader patient population.

Other analysts are more optimistic. “The legislation would still likely reduce premiums by a small amount,” Loren Adler, a health policy expert at the Brookings Institute, told me. He pointed out that part of what makes surprise bills so destructive is that they skew the balance of power away from consumers and their insurers and toward providers in cost negotiations. Surprise bills, he told me, “piss enrollees off so much, piss patients off so much, that they then complain to their insurer or employer, who are then willing to pay even more.” That ill-gotten leverage will soon dissipate.

Either way, benchmarking is the simpler and more secure solution because it just sets a rate, rather than leaving the decision to be settled on a case-by-case basis. The fact that Congress couldn’t create any outright benchmarks augurs poorly for more major health care reforms. The roughly $40 billion annual cost of surprise medical bills is significant, but it’s a small fraction of the $3.6 trillion the U.S. spends each year on healthcare, a number that’s rising far faster than the rate of inflation (or the rate of health care spending in other wealthy nations). That explosion has come despite a variety of attempts to control costs, most prominently in the Affordable Care Act. Only Medicare and Medicaid, which set the rates outright, have been held in check.

During the 2020 Democratic primary, both Elizabeth Warren and Pete Buttigieg advocated for capping many medical expenses at a multiple of what Medicare pays. But both lost to Biden. And even if the president-elect wanted to set prices across health care, he would stand little chance of getting it through this Congress—and not just because of Republicans. Chuck Schumer played a major role in killing Pallone’s benchmarking legislation. So did Richard Neal, the Democratic Ways and Means committee chairman. Schumer has strong ties to the hospital industry. Some of Neal’s biggest backers are private equity groups, which have bought up enormous doctor’s practices and aggressively surprise billed unwitting patients.

The obstacles, however, run deeper than Congress. Fundamentally, Americans tend not to fully grasp why their health care is so expensive. Right now, most Americans strongly approve of health care providers. This is for good reason. Providers save lives and, during the pandemic, many have been downright heroic. But U.S. doctors are contributors to—and beneficiaries of—our extraordinarily expensive system. They earn far more than their counterparts in Europe and Canada because Americans pay far more for health care than does anyone else, even though this does not result in better outcomes.

It’s not just doctors. Many hospitals earn fortunes from neglecting the poor while overtreating the rich. But American politics and discourse rewards them with tax exemptions and top spots on major health care rankings. A Politico investigation, for example, found that the nation’s top seven hospitals as ranked by U.S. News & World Report—all nonprofits—took in more than $33.9 billion in operating revenue in 2015, a 15 percent increase from two years before. These hospitals’ spending on direct charity care fell by 34 percent over the same time period. (The Monthly has put out its own hospital rankings, emphasizing affordability and care for the less affluent, as a counter to U.S. News.)

But until the public better understands why costs are so high, it will be easy for interest groups to kill solutions. Providers are so popular, and their fates so intertwined with patients, that lobbyists must simply argue proposed reforms will be bad for doctors and hospitals. The benchmarking bill, for example, died in part because an ad campaign suggested it would put providers out of business.

Changing minds, however, will be tricky for activists. The advertisement’s accusation was false, something academics and advocates went out of their way to explain. But the wonky fact check proved no match for the televised specter of shuttered ERs. “We want to have three-and-a-half hours to discuss the merits, and someone says ‘death panels’ and you’re done,” said Taylor, of Families USA. To win more broadly, she emphasized that reformers will need to rethink how their messaging resonates with average citizens.

It will be a long journey, but it’s necessary if the government is going to grapple with exploding prices. In the meantime, advocates say it’s important to celebrate any victory—including the end of this especially egregious practice. “This is a really important step forward for consumers,” Taylor said of the surprise billing law. “It just is.”

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Daniel Block

Daniel Block is the executive editor of the Washington Monthly.