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June 26, 2019
Nathan Bays
Economics Policy System Dynamics

Surprise! Surprise! The Surprise Billing Legislation Could Usher in Government Price Controls. Nathan Bays, Guest Columnist

As the Senate Committee on Health, Education, Labor, and Pensions (HELP) prepares to vote on the Lowering Health Care Costs Act, the issue of surprise medical bills will take center stage in Washington.

This legislative package isn’t your typical political posturing. It includes many substantive provisions that will alter the operations and finances of physicians, hospitals and other providers. The approach taken to address surprise bills by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) is reflective of the growing truism that every issue in healthcare reverts back to cost, with the patience of politicians on both sides of the aisle wearing thin.

Healthcare providers have long expressed concern about government intervention around commercial market rates. The inherent challenges of Medicare and Medicaid reimbursement and the ever-increasing need to close the gap with payments from commercial insurers reflect the consequence of this concern.

With the enactment of a benchmark payment rate—the policy du jour of the HELP committee—to alleviate surprise billing, the longstanding concerns of healthcare providers will be realized. Rates will effectively be set, and the foundational market principle of freedom to contract will be restricted, raising serious constitutional issues. (1)

Until recently, the provider community failed to grasp the impact of a benchmark payment rate. Not only will it create immediate reimbursement pressure on physicians and hospitals, simultaneously reducing the ability to effectively negotiate while ignoring physician quality or patient outcomes, it also establishes a framework for future rate setting behavior.

Efforts to stop surprise billing are no longer about surprise billing: they are about affording disproportionate power to the Department of Health & Human Services (HHS) and health insurers to set rates in the commercial market.


In July 2017 a group of academics, led by Zack Cooper from the Yale University School of Public Health, produced a paper entitled Surprise! Out-of-Network Billing for Emergency Care in the United States. (2) The paper examined the prevalence and impact of surprise medical bills in the emergency department, kick-starting the recent policy debate underway in Washington.

While efforts to address surprise medical bills initially seemed straightforward, as often happens at the intersection of policy and business, nothing is as it seems. Benchmark payment rates (favored by health plans) and independent dispute resolution (IDR) (favored by providers) emerged as leading solutions, both solving the problem of surprise billing from a consumer perspective. However, as one might expect, the policies reflect vastly different implications for patients and those who provide their care.

What Is a Surprise Medical Bill?

Kaiser Health News has a webpage entitled ‘Bill of the Month.’ (3) NBC, CBS, NPR, and numerous other media outlets have recently covered the recipients of a ‘surprise medical bill’. On May 9, President Trump held a press conference at the White House for the purpose of rallying congress to enact legislation to eliminate surprise medical bills. (4) But the question remains—what is a surprise medical bill?

Is a surprise medical bill something that you owe, and merely don’t expect? Is it a bill you receive because you believed your health plan had an adequate network of providers, but actually doesn’t? Is it something more sinister?

While there are many classifications, congress views a surprise medical bill as one that is received by a patient from an ‘out-of-network’ provider during a visit to an ‘in-network’ healthcare facility, or one received during emergency treatment, where the patient does not have provider choice. What used to be referred to as ‘bad insurance’ or an inadequate network is now a ‘surprise medical bill.’

Sleight of Hand

The Merriam-Webster dictionary defines sleight of hand as a ‘cleverly executed trick or deception.’ While stakeholders were widely agreeing that no patient should be responsible for a surprise out-of-network bill, provider rate setting swiftly and deftly became the solution.  The sleight of hand in full effect.

On June 11, the Coalition Against Surprise Medical Billing was announced, with eight members including America’s Health Insurance Plans, Blue Cross Blue Shield Association, American Benefits Council,  and the ERISA Industry Committee, among others. (5) The group—not surprisingly—believes the solution to surprise medical bills is a benchmark payment rate for out-of-network medical services, established by HHS based on the median-in network rate in the same or similar specialty in the geographic region in which the service is furnished.

A benchmark payment rate is, in effect, an intervention by the federal government into commercial markets, with no recourse for parties to seek relief if they believe the rate is inadequate or inappropriate. Further, a benchmark rate makes no distinction between high quality care, low-value care, or patient outcomes.

If you didn’t see it with your own eyes, it would be hard to believe that the same Congress that promotes accountable care organizations (ACOs), bundled payments, and MACRA, also advocates for market intervention with no regard for clinician performance or quality.

The irony of this argument was on full display in the HELP Committee in a June 18 hearing that addressed, among other issues, surprise medical bills. In a notable exchange, former Republican presidential nominee and current Utah Senator Mitt Romney appeared to support the use of Medicare rates to establish an out-of-network benchmark payment rate. When asked to respond, Tom Nickles, Executive Vice President of the American Hospital Association (AHA) responded, “…there is no difference between that and ‘Medicare for All.” (6) Nickles isn’t wrong.

In a matter of months, the arc of dialogue shifted from eliminating patient financial responsibility for surprise bills—a good thing—to IDR, favored by providers and developed as a solution by a bipartisan group of Senators, to the use of Medicare rates as an anchor for government mandated commercial rates. The latter proposed by a Republican Senator and former Republican Presidential nominee. That’s not something you see every day.

All of these issues—many of which are esoteric at best, migraine-generators at worst—show that efforts to address surprise medical bills are now about much more. The battle is over healthcare prices and market control, with patients again stuck in the middle.

Laboratories of Learning

U.S. Supreme Court Justice Louis Brandeis famously wrote that a “state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” (7) In 2015, New York set out to solve surprise medical bills, passing bipartisan legislation that protected patients, limiting their responsibility to in-network rates and cost sharing for both emergency and non-emergency services.

The New York legislation established an initial government-established benchmark rate, with binding ‘baseball style’ arbitration permitted if either providers or payers felt those rates were not fair market compensation. The alternative dispute resolution process—administered quickly and electronically—then resolves payment for out-of-network encounters.

Consumers are protected, and health plans and providers have the option to effectively take their rate (and their cause) to a third party neutral. The results speak for themselves: since passage of the law the out-of-network care rate in New York has dropped from 20.1 percent to 6.4 percent, with emergency care rates remaining stable. (8) It no longer makes sense for providers to be out-of-network as a ‘business model,’ and patients no longer have to worry about surprise bills.

Similarly, California enacted surprise billing legislation in 2016, using a benchmark payment rate similar to that being considered by Congress. While the California law has protected patients, it has also negatively impacted them and providers in numerous ways. As reflected in a June 20 letter from the California Medical Association to the HELP Committee, following passage of the law, the number of physicians in networks in California is diminishing, patient access to in-network physicians is declining, and access to ‘on-call’ physicians is in jeopardy. (9)

Congress would be wise to follow the advice of Justice Brandeis as it considers the best solution to surprise billing for consumers.

Markets Matter

It is time to eliminate ‘surprise medical bills’ from the national lexicon, and put to rest the stories of individuals who receive extraordinary bills after visiting a healthcare provider who, by all appearances or expectations, should have been in their health insurance network.

However, competitive markets and level playing fields are also important. One doesn’t need to look closely to see why health plans and self-insured employers are advocating for a benchmark payment rate—it makes it much easier for them to disadvantage providers with regard to in-network rates, or choose not to negotiate altogether. As seen in California, however, both patients and healthcare providers lose when market forces are eroded.

Markets don’t always work perfectly. When they fail, government intervention is necessary. Intervention, however, doesn’t equate to rate setting. There is some great irony that as the Trump administration pushes transparency to encourage price-based healthcare competition, Congress is pursuing legislative efforts to set rates.

Surprise medical bills have placed providers at the doorstep of ‘utility business model’ pricing. Without efforts to change the narrative—and, soon—market-driven policies will notch a major loss, leaving those who care for patients with the surprise!


  1. Conservative Legal Expert Calls Surprise Bill Proposals Unconstitutional, Modern Healthcare, June 21, 2019. Available at https://www.modernhealthcare.com/politics-policy/conservative-legal-expert-calls-surprise-bill-proposals-unconstitutional
  2. Cooper, Zack. Morton, Fiona Scott. Shekita, Nathan. “Surprise! Out-Of-Network Billing For Emergency Care In The United States.” NBER Working Paper No. 23623. July 2017, Revised July 2018.
  3. Kaiser Health News, “Bill of the Month” available at https://khn.org/news/tag/bill-of-the-month/
  4. The White House. ‘Remarks by President Trump on Ending Surprise Medical Billing.’ available at https://www.whitehouse.gov/briefings-statements/remarks-president-trump-ending-surprise-medical-billing/
  5. New Coalition To End Surprise Billing Intensifies Feud As Deadline Looms. Inside Health Policy. June 11, 2019.
  6. S. Senate Committee on Health, Education, Labor, and Pensions, hearing Lower Health Care Costs Act. Available at https://www.help.senate.gov/hearings/lower-health-care-costs-act-
  7. New State Ice Company v. Liebmann, 285 U.S. 262 (1932).
  8. New York’s Successful Approach To Protect Patients From Costly, Unexpected Medical Bills. Physicians for Fair Coverage. available at https://www.endtheinsurancegap.org/resources
  9. Stakeholders Encourage Senate To Change Surprise Billing Fix. Inside Health Policy June 24, 2019. Available at https://insidehealthpolicy.com/daily-news/stakeholders-encourage-senate-change-surprise-billing-fix


Nathan Bays has an extensive career in health policy, law, and investing, advising Leading Health Systems, early stage companies, and financial sponsors on health policy, strategy, and M&A. In addition to his advisory work, he is a Venture Partner at LifeForce Capital, a SF-based health care venture and growth equity firm.

About the Author

Nathan Bays

Nathan Bays has an extensive career in health policy, law, and investing, advising Leading Health Systems, early stage companies, and financial sponsors on health policy, strategy, and M&A. In addition to his advisory work, he is a Venture Partner at LifeForce Capital, a SF-based health care venture and growth equity firm.

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