Twenty-two percent of patients who seek treatment from in-network emergency rooms receive unexpected bills because they are treated by out-of-network doctors, according to new research by Yale faculty Fiona Scott Morton and Zack Cooper.
The average surprise charge was $622.55 and could be much higher. To put that number in context, the Federal Reserve found that 47% of Americans would be unable to pay an unexpected bill of $400 without selling assets or putting it on credit cards.
In theory, market forces drive competition and lower prices in the healthcare system. But in a complex system that is full of information asymmetries, it is hard to get incentives fully aligned. Hospitals, doctors, and insurers negotiate prices. Unfortunately, consumers, who collectively represent the largest part of the market, don’t have much leverage at the individual level. For example, while patients can choose to be treated at an emergency room that is covered by their insurer, the doctors working in that ER may or may not be in the patient’s network. This leads to a potential catch-22, as Scott Morton and Cooper point out in a Perspective article for the New England Journal of Medicine: “Patients don’t have a choice of emergency physicians and cannot avoid out-of-network doctors at in-network facilities.”
To find out how widespread the issue is, Scott Morton, the Theodore Nierenberg Professor of Economics at Yale SOM, and Cooper, assistant professor of health policy at the Yale School of Public Health, analyzed claims data from a private insurer that covers tens of millions of people. They limited the analysis to emergency room visits for people under 65 who were treated between January 2014 and September 2015, examining more than 2.2 million ER visits covering all 50 states. The total charges exceeded $7 billion.
In addition to the top-line finding that more than one in five patients at in-network emergency rooms saw out-of-network doctors, other findings may help define and solve the problem.
There was notable geographic variation in the frequency of surprise billing. In McAllen, Texas, the rate was 89%. In St. Petersburg, Florida, it was 62%. But in Boulder, Colorado, and South Bend, Indiana, there was almost no surprise billing. For the authors, the fact that it doesn’t exist everywhere suggests that “surprise billing is a solvable problem.”
Finally, in an effort to see whether the current market structure distorts pricing, Scott Morton and Cooper examined the rates charged by physicians. They found that in-network emergency room doctors were paid 297% of Medicare rates while out-of-network emergency room doctors charged 798% of Medicare rates. For comparison, in the same data set, orthopedists doing knee replacements earned 178.6% of Medicare rates and office visits to an internist were paid 158.5% of Medicare rates. “Ultimately, surprise out-of-network billing is the result of a market failure,” note the authors. “Absent intervention, emergency physicians can sidestep the price competition that other physicians face when treating privately insured patients.”
Currently, there are no federal protections against surprise billing and the “response in most states has been inadequate,” according to the authors. However, Scott Morton and Cooper do see a fairly straightforward solution: states should require hospitals to bill for all emergency-room care. “The hospital would then be the buyer of physician services and the seller of combined physician and facility services,” they write. This would provide an incentive for competition among doctors, hospitals, and insurers. And, “most crucially,” according to Scott Morton and Cooper, “patients would always be protected.”