In more than a fifth of emergency department (ED) visits, privately insured patients went to in-network hospitals but were treated by out-of-network physicians, according to a new study from Yale University researchers for the National Bureau of Economic Research. As a result, many of these patients received large doctor bills, although they had no choice but to accept those clinicians’ services because of their emergent conditions.
The article’s authors ― Zack Cooper, PhD, from the Department of Public Health; Fiona Scott Morton, PhD, from the School of Management; and Nathan Shekita, also with the Department of Public Health, Yale University, New Haven, Connecticut ― suggest that state legislatures, a quarter of which have passed laws regulating out-of-network charges, are handling this situation the wrong way. They propose a policy that would regulate insurance contracts rather than charges.
The study analyzed claims data from a large commercial insurer. The data covered nearly $28 billion in ED spending on about 9 million episodes of care from 2011 to 2015.
Twenty-two percent of the patients who visited an in-network ED were treated by an out-of-network physician. Fifteen percent of all hospitals had what the researchers term “extremely high” out-of-network billing rates.
The average physician payment for an in-network ED visit was $326.70, or 266% of what Medicare would pay. The average charge for an out-of-network physician, in contrast, was $785.91, or 637% of the Medicare rate. If patients had to pay the difference, they would have each faced a bill of $448.78, the study shows.
Insured patients, the researchers note, have higher coinsurance rates when they see out-of-network physicians than when they see in-network physicians. In some cases, the physicians utilize balance billing with these patients; some plans do not cover out-of-network care at all.
Nearly every episode of care analyzed in the study occurred at an in-network hospital. The average facility claim was $6642, of which the hospital received $2850.
The Need for Outsourcing
Out-of-network physicians supply their services at in-network hospital EDs largely because of the prevalence of ED outsourcing, the study shows. Two thirds of hospitals have outsourced their ED management in order that their EDs will be available to treat patients on a 24-hour, 7-days-a-week basis. This is crucial to increase admissions. Two national ED management chains — EmCare and TeamHealth — share 30% of this outsourcing market, according to the researchers.
Hospitals would prefer that physicians not charge out-of-network rates to their patients, because this practice harms their reputations. But the ED management companies are so valuable to the hospitals that hospitals are inclined to overlook damage to their reputation, the researchers found.
For example, after EmCare assumed ED management, hospital facility payments increased by 11%. This was driven by a 5% increase in imaging test rates and a 23% increase in the rate at which physicians admitted patients to the hospital.
TeamHealth has a somewhat different strategy, the researchers note. Its physicians did not increase orders of imaging tests or the rates at which patients were admitted to the hospitals. But the use of TeamHealth for ED management led to a 30% increase in the number of cases treated per year in the hospitals’ EDs. Such cases yield a very high profit margin on privately insured patients.
Both outsourcing companies significantly increased physician charges. When EmCare took over EDs in hospitals with low out-of-network rates, they raised those rates by 81 percentage points and increased physician payments by 117%. TeamCare raised out-of-network rates by 33 percentage points and physician payments by 68%, the study shows.
The researchers note that a New York law passed in 2014 protects patients from out-of-network billing and created an arbitration system for setting out-of-network insurance payments. However, the law applies only to fully insured products, not to administrative-services-only plans that self-insured employers use. Moreover, it presupposes that patients are aware of the law and fill out the requisite forms. And benchmarking payments to physician charges, the researchers say, created an incentive for doctors to inflate those charges.
The researchers suggested that states regulate contracts rather than the price of out-of-network services. “States would require hospitals to sell and insurers to contract for an ED service bundle,” including hospital and physician services, they write. Patients would thus be protected from out-of-network charges as long as they went to in-network EDs — which most do. Hospitals and ED physicians would negotiate payment rates that all private insurance plans would have to accept.
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