The cost of out-of-network bills? $40 billion annually. What to do?

Balance billing? What’s new?

Same old game, same old players. For decades it was typical for physicians will little or no contact with patients who also enjoyed high fees to not participate in any insurance, even long before participation was called “networks.”

As noted below we are mostly talking about anesthesiology, pathologists, radiologists, and assistant surgeon. Based on my experience I would add ultra specialists. I often negotiation on behalf of employees in these fee disputes.

We need to ask how any physician can justify charging significantly more than his or her peers? On the other hand, there are some physicians who don’t want to deal with the complexities of participation, but voluntarily accept the network fee.

The problem has grown worse with more restrictive networks and high deductible plans.

At least in theory physicians agree to a network fee to retain or gain patients. That is probably more theory than fact, but the advantage for physicians is a guaranteed payment with a bit less patient billing hassle. For the specialties listed above gaining or losing patients is not an issue. I know a radiologist who never leaves his home office, but simply reads the studies online.

But what is the real solution? We seem to think that protecting the patient is primary, but any negotiated or arbitrated fee higher than the standard network fee means higher premiums for all insured, the employer or plan participants.

There is one solution. Every physician in an area, even within a hospital, must accept as payment no more than the average negotiated fee for the same service and specialty. This will encourage participation if the physician can justify a higher than average negotiated fee.

An alternative is simply to follow the Medicare model. That is, no physician can bill more than a fixed percentage above the allowed participation fee. 15% in the case of Medicare. There is the risk of declining participation, but it has not proved to be a problem with Medicare.

The individual dispute resolution process will prove too cumbersome and, of course, adds more cost to the system.

Patients would save billions of dollars a year if medical specialists were not allowed to bill out-of-network rates.

An analysis of 2015 data obtained from a “large commercial insurer” showed that a significant percentage of medical services were billed out-of-network, including 11.8 percent of anesthesiology care, 12.3 percent for care involving a pathologist, 5.6 percent of claims for radiologists, and 11.3 percent of cases involving an assistant surgeon.

According to the research, reported earlier this week in Health Affairs, if out-of-network billing were eliminated, overall payments to doctors would decrease by 13.4 percent and patient spending on health care would drop 3.4 percent, or by roughly $40 billion annually.

Source: The cost of out-of-network bills? $40 billion annually | BenefitsPRO


  1. Mr. Quinn:

    After reading this post and your comment to Benefit Jack, I’d like to propose a different, incremental solution – with justifications:


    Why don’t the Insurers simply reimburse the PATIENT directly for whatever Out-of-Network services/treatments the Patient receives, at the In-Network rates – and let the Patient (and Market) work its magic?? Insurers can go ahead and reimburse their In-Network Health Care Service Providers directly, but where others (Out-of-Network) “pad the bill”, the PATIENT, rather than the Provider gets reimbursed.


    1. The Patient then has a “fair” Insurer-determined reimbursement rate/amount to cite in arbitration/litigation with those Out-of-Network Bill padders. No Court OR Arbitration Council is going to approve a $40,000 Out-of-Network Provider fee for a Patient, if their Insurer had already determined the In-Network fee would have been $20,000.

    2. Given the way Markets work, word will get around quickly the Dr. X and Dr. Y charge MORE than “standard, fair” Insurer-determined rates – and those providers will quickly find themselves with: Either work at standard rates, or NO WORK AT ALL.

    3. Every other type of Insurance – Homeowner, Auto, etc. – will reimburse the Owner directly for verified claims (or alternatively, reimburse the repair service providers directly) – EXCEPT HEALTH INSURERS. Why is that do you suppose?


    1. Follow-up – a bit more justification:

      4. This direct Patient-Reimbursement model USED TO BE the “Standard” with Health Insurers!
      When I was working in California in the 1980’s, my “family” physician did NOT accept (directly) any insurance. I went to him for my annual flight physicals (which my insurance did not pay for anyway). But on those occasions where I or my family went to him, or any other specialists, for something other than my flight physicals, he (or they) would bill ME, I’d pay them, and present the (paid) bills to my HR Department – who then passed them on to the Insurer, and I got reimbursed directly. And usually within a few days, and NEVER more than 5 business days, after I presented the bill to HR.

      5. If a Patient can negotiate a Health Care Service at a LOWER rate than the Insurer would ordinarily pay their In-Network Provider, why wouldn’t the Insurer “jump at the chance” to save themselves AND their insured premium-payers a few bucks? This is NOT an “outlandish” or impossible scenario – see:


  2. Why doesn’t the providers demand that the in-network hospitals demand that those who are contracted or assist in their network hospital bill at network rates to network patients. I believe most hospitals contract out anesthesiology, pathologists, radiologists, and assistant surgeons. Some contract out the whole radiology department. If the hospital must grant privileges to these doctors, why not demand they abide buy the hospital billing rules to have privileges.

    The anesthesiology, pathologists, radiologists, and assistant surgeons do not need steady base of patients, they just need a steady place to practice, that is the operating room in a hospital. The hospital needs the operating room utilized to make money therefore these doctors are really depended on the hospital. Now the free market might set the rates for theirs services in a giving area but if there is more than one hospital the rate might be lower in one verse another hospital and the hospital can tell the insurers this is going to be the in network rate otherwise they cannot supply doctors at the rate you want and the hospital may not be able to be an in network hospital for them.

    In my case, I can only pick certain insurance plans because there are no in network doctors or hospitals within 50 miles, but I have a hospital 5 miles away.


  3. Posted for Benefit Jack

    The answer is simple – make all medical expenses incurred from non-network providers subject to the out-of-network deductible, then raise the out-of-network deductible to substantially exceed the in-network out-of-pocket expense maximum. When all patients who can’t afford to buy medical services with their own dollars (99.9% of us) must limit their search for medical providers to those in the network, the network would then have enough bargaining power to recruit providers so as to justify the lower rates it wants to pay service providers (offering the better in-network benefits). Yes, Virginia, the only way to justify the higher in-network benefits is for some providers to agree to take less than they could charge outside the network. The goal for a PPO should be to increase the benefits spread between in-network and non-network providers. Instead, the networks tend to sign up every licensed provider who can walk and chew gum (and has not been censured) – so that the difference in benefits justified by the lower rates paid to providers is minimal.

    We call it discounts that are a mile wide and less than an inch deep.

    The issue here is simple as well – in two parts. First, there is no real incentive for certain providers to join a health network, and to limit their fees based on some insurance company/government official idea of “usual, reasonable and customary”. If they can get a supply of patients for their practice, and if they can charge them more for their services, well, that’s the American way – isn’t it?

    What stops you from going from employer to employer, or customer to customer, and charging higher fees or refusing to work for less than a desired salary? Demand, that’s what. And, it’s cousin, Supply – others are willing to work for less, to undercut you.

    Second, America limits the supply of service providers through medical school admission limits, the license process, etc. I mean, when a person doing hair braiding has to get a license from the state and complete substantial, expensive education … give me a break. See:

    Why not disrupt the process? Consider the following situation where business operations have contracted with the following individuals to play base ball:

    Name Team Annual Guaranteed Salary
    1 Gerrit Cole New York Yankees $36,000,000
    2 Stephen Strasburg Washington Nationals $35,000,000
    2 Mike Trout Los Angeles Angels $33,250,000
    3 Zack Greinke Arizona Diamondbacks $31,500,000
    4 David Price Boston Red Sox $31,000,000
    4 Clayton Kershaw Los Angeles Dodgers $31,000,000
    6 Max Scherzer Washington Nationals $30,262,700
    7 Miguel Cabrera Detroit Tigers $30,000,000
    8 Yoenis Cespedes New York Mets $29,000,000
    9 Justin Verlander Houston Astros $28,000,000
    10 Albert Pujols Los Angeles Angels $28,000,000

    So, the average guaranteed salary of the top 10 major league baseball player is > $30MM a year.

    Times change, but medical schools and hospitals and Rx manufacturers do not. There simply is a cap on the number of competitors. When looking at the projected shortage of nurses and physicians, perhaps two decades ago, I suggested that my Ohio, Big 10 public university contract with hospitals and other medical providers to open the doors wide to medical school and nursing programs to anyone who could qualify under the then current standards, offering a medical school education with no up front costs – tuition, books and fees free – in exchange for contracting at a salaried rate. This would become a kind of a farm system process – how major league baseball, football, basketball often view college athletes.

    There would be a draft, a signing day, etc. all across America – just like the football signing day we just experienced in America.

    If you want to manage cost, create competition. Change the delivery process. Force Americans to shop for big ticket items. My bet is that 90% of Americans spent more time investigating the features of their last car purchase or lease, and that almost as many spent more time investigating the features of their last cell phone purchase, than they did in selecting their most recent medical, dental or vision provider for non-emergency services.

    For comparison, I just bought an excessively large 4X, big screen TV. Turns out, my cost was less than the combination of the 42 inch TV and soundbar I bought just 5 years ago.

    Went online this AM, found out I could buy 5 Apple Mac Book Air – each one of them dramatically more capable – in total, at less cost than the first desktop computer I bought for my family (a PackardBell).

    One area that should change is that insurance companies/employers who sponsor a network should negotiate with every contracting provider, such as a hospital, to limit those who provide services within it’s doors to in-network providers (or non-network service providers willing to accept in-network fees). That is, instead of waiting for the bill to come and then negotiate, negotiate up front as part of providing privileges.

    So long as employers and taxpayers continue to subsidize the existing status quo, we will continue the status quo.


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