Erin L. Duffy, PhD, MPH Adjunct Policy Researcher RAND 

California’s Attempt to Reduce Out-of-Network Billing Has Given Insurers’ the Upper Hand Interview with:

Erin L. Duffy, PhD, MPH Adjunct Policy Researcher RAND 

Dr. Duffy

Erin L. Duffy, PhD, MPH
Adjunct Policy Researcher
RAND What is the background for this study?  

Response: A patient treated at a hospital in his or her insurer’s network may be involuntarily treated by out-of-network (OON) physicians. In these cases, the OON physician can seek to collect full billed charges from the patient’s insurer and, if the insurer does not pay the full amount, the physician can bill the patient for the remaining balance. These unexpected bills from out-of-network physicians are known as “surprise medical bills” and most result from anesthesiology, radiology, and pathology services.

California implemented a comprehensive policy (AB-72) addressing surprise medical billing for out-of-network nonemergency physician services at in-network hospitals in 2017 for patients in fully-insured health plans. AB-72 limits patients’ cost sharing to in-network levels, unless patients provide written consent to billing 24 hours in advance of services. Insurers and health plans pay out-of-network physicians at in-network hospitals the greater of the payer’s local average contracted rate or 125% of Medicare’s fee-for-service reimbursement rate. WhWhat are the main findings? 

Response: AB-72 is effectively protecting patients from surprise medical bills. However, stakeholders report that an out-of-network payment standard set at payer-specific local average commercial negotiated rates has changed the negotiation dynamics between hospital-based physicians and payers.

Interviewees report that leverage has shifted in favor of payers, and payers have an incentive to lower or cancel contracts with rates higher than their average as a means of suppressing out-of-network prices. As a secondary effect, physicians facing lower rates report that they are consolidating to regain leverage. Physician stakeholders also reported worries about physicians’ willingness to work for lower wages, raising potential long-term concerns about labor supply and access to care. What should readers take away from your report?

Response: California’s 2017 policy to address surprise medical billing includes a novel out-of-network payment standard. Current federal proposals employ similar standards, and California’s experience can inform this policy making. Policy makers could use OON payment standards like AB-72 to place downward pressure on prices or use a modified approach to decrease market disruption. What recommendations do you have for future research as a result of this work? 

Response: This qualitative case study explored early stakeholder perspectives and responses to California’s surprise medical billing policy. Further quantitative research is needed to evaluate the reported changes in negotiated payments to hospital-based physicians. Additional long-term research is also needed to monitor potential changes in the supply of hospital-based physicians, including anesthesiologists, radiologists, and pathologists. Is there anything else you would like to add?

Response: State insurance regulations only apply to fully insured plans because employers’ self-funded plans are subject to the Employee Retirement Income Security Act of 1974 preemption. Therefore, there is a pressing need for federal policymaking to protect patients in self-funded plans from surprise medical bills.          

No disclosures. 


The American Journal of Managed Care > August 2019 – Published on: August 05, 2019

Influence of Out-of-Network Payment Standards on Insurer–Provider Bargaining: California’s Experience

Erin L. Duffy, PhD, MPH

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Aug 12, 2019 @ 10:27 pm

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