A landmark state law aimed at preventing thousands of patients from receiving surprise medical bills from out-of-network doctors and hospitals is a consumer success but does not save insurance companies as much money as they had hoped, according to a new study.
The 2018 law created an arbitration system for medical providers and insurance carriers fighting over who should pay for out-of-network treatment. An independent arbitrator may consider the work of the physician, the seriousness of the procedure and other factors, but ultimately must choose between either the bill from the medical provider or the amount the insurance carrier is offering to pay.
An analysis of 1,700 cases decided by arbitration in 2019 found arbitrators decided in favor of the doctors and hospitals 59% of the time, according to an article by Benjamin L. Chartock from the Health Care Management Department at the Wharton School at University of Pennsylvania and published in the journal Health Affairs last week.
The mean or average cost of a disputed claim was $7,222, the study said.
Horizon Blue Cross Blue Shield of New Jersey and the managed care insurance industry fought for the legislation for eight years in New Jersey because they estimated surprise out-of-network billing was a $1 billion problem that drove up premium costs for everyone.
The study concluded the overall savings are not as significant as the industry had hoped, but changes could be made to bring down these costs.
“Although the number of cases going to arbitration in New Jersey is small relative to the overall number of medical services provided, an arbitration system that consistently awards high payment amounts has the potential to increase health care costs in the state,” the study said.
“Higher arbitration awards directly increase insurer payments, which are typically borne by patients, employers, and governments through higher premiums,” according to the study.
The law only applies to state-regulated insurance carriers, like Horizon and the School Employees’ Health Benefits Program and the State Health Benefits Plan. Federally regulated, self-insured companies, which cover the majority of New Jersey residents who have private insurance, may opt in.
A federal out-of-network measure called the “No Surprises Act” was incorporated into the omnibus spending bill that was signed into law on Dec. 27. When it takes effect on Jan. 1, 2022, the law will protect the 135 million people in the nation who are covered by private self-insurance they get from their job.
Ward Sanders, president of the New Jersey Association of Health Plans, the lobbying group representing managed care companies, said he was “not surprised at all by the results of the study.”
Sanders said he always knew the law would favor the providers — specialists like orthopedists, surgeons and emergency medicine doctors — because they are permitted to set their own prices or “charges.” These unregulated prices are the starting point in the payment discussion, he said.
“One of the goals (of the law) was cost containment,’’ Sanders said. The law is “definitely an improvement” from the old system, he said, but “the result is still high payments for providers.”
But Sanders said he is pleased the law is protecting patients, who had long complained they would learn after the fact a doctor in an emergency room or a specialist did not take their insurance, and would be on the hook for thousands of dollars.
An estimated 168,000 New Jerseyans every year receive an out-of-network bill they did not anticipate, costing them an average of $2,500, according to a report by New Jersey Policy Perspective, a progressive research nonprofit.
“The law is working in that it is taking the patients out of the middle of these disputes and that is a really good thing that should not be overlooked,” Sanders said. “It was just a mess for consumers.”
The law, signed by Gov. Phil Murphy in June 2018, was challenged by physician groups and some for-profit hospitals fought the measure, arguing that it would put them out of business. Lawmakers who opposed the bill predicted that sought-after specialists like neurologists and transplant surgeons would move their practices out of New Jersey, a bad outcome for New Jerseyans who did not want to travel outside the state for their care.
The law also required hospitals to post on their website the names, contact information and insurance coverage accepted by medical professionals with whom they employ or have signed contracts.
Sen. Joseph Vitale, one of the prime sponsors of the bill, said it may take time before the full effect of the law is felt and the number of disputes declines.
The law was designed to emulate “baseball arbitration,” requiring the arbitrator to pick between the monetary offer from the provider or the insurance carrier, Vitale said. “Each party should present what they believe is a reasonable number,” he added.
Both sides “will learn should they submit a claim or offer of payment that is not reasonable, they are likely to be unsuccessful. Once a common claim amount is established, it should become a standard going forward,” Vitale said.
The study’s authors suggested more money would be saved if arbitrators were allowed to use commercial in-network prices and Medicare payment rates. Otherwise, the law will “perversely incentivize providers to inflate their charges over time.”
In addition to the Wharton School, the study’s researchers were from the Brookings Institution in Washington, D.C. and the Leonard D. Schaeffer Center for Health Policy and Economics at USC in Los Angeles.
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