by Mitch Kokai
Senior Political Analyst, John Locke Foundation
[S]urprise bills are often grossly inflated. When providers are in-network, they give enormous discounts on their rack rates — known as “chargemaster” prices in the trade. If you’ve seen a bill from an in-network provider or the corresponding “explanation of benefits” from your insurer, you know what we mean. The hospital or physician may “charge” $3,000 for a service, but the insurer will disallow a huge chunk of that — say, 75 percent — and pay only $750. The real price is $750; the $3,000 charge is a fictional price plucked out of thin air.
But when an out-of-network provider bills a patient, no discount is applied. The insurer then pays the same $750, leaving the patient responsible for the $2,250 that remains. The out-of-network provider has no duty to accept the insurer’s payment as full compensation and is free to bill the patient for the balance. The phony, made-up price suddenly becomes very real. A report published in the Journal of the American Medical Association found that anesthesiologists, radiologists, and ER doctors regularly charged out-of-network patients four to six times more than they accept from Medicare for the same services. Anesthesiologists were the worst offenders.
Why are patients hit with surprise bills so often, and why are the charges so high? Providers blame insurers. Per Dr. Steven Stack, who served as president of the American Medical Association: “The real crux of the problem is that health insurers are refusing to pay fair market rates.” Insurers, in turn, accuse doctors of price-gouging and hospitals of being complicit. “[It is hospitals’] responsibility,” they contend, “to ensure [that] all physicians treating patients in their facility are covered by the same insurance contracts as the hospital.”
Insurers are right about one thing. Nothing prevents hospitals from doing what auto-body shops do. Hospitals, too, could bring all providers in-house and send out all-inclusive bills at reasonable prices. In fact, some hospitals do just that. But other hospitals seem to go out of their way to create opportunities for surprise bills.