Capping out-of-network hospital bills could create big savings, says RAND

Placing limits on what hospitals can collect for out-of-network care has emerged as a way to address surprise medical bills and as a tool to control rising healthcare spending.

The savings to the industry would be similar to more-sweeping proposals such as Medicare for All or setting global health spending caps, according to a new RAND Corporation report.

Because such an approach has the possibility to sharply cut hospital revenues, any cap would need to be set carefully so as to not overly disrupt hospital operations, the report said.

Modeling four approaches to setting caps on out-of-network hospital billing, researchers found there could be broad cost savings across the healthcare system by creating pressure to drive down the amount providers could seek during negotiations for in-network payment rates with private insurers.

Under strict proposals such as limiting out-of-network charges to 125% of Medicare rates, in-network negotiated hospital prices could be cut by 31% to 40%, saving an estimated $108 billion to $124 billion annually for the healthcare system.

WHAT'S THE IMPACT?

There is growing interest among U.S. policymakers to use out-of-network payment limits, not only to curb surprise medical bills, but also as a tool to control rising healthcare costs. Such policies would cap the total amount that hospitals can be paid when they are not in-network and prevent providers from billing patients for a balance.

In addition to limiting surprise medical bills, out-of-network payment caps would reduce a hospital's leverage during contract negotiations by shifting the threat-point of out-of-network services from its self-imposed charges to the level of the legal payment limit.

Some government insurance plans, most notably Medicare Advantage, already place caps on out-of-network payments, and broad limits on out-of-network payments were proposed by several Democratic presidential candidates and in proposed Senate legislation. But there is limited information available about the role that out-of-network limits play in the negotiation process for in-network prices, and the role that such limits might play in driving down payment rates nationally.

The RAND team examined the potential impact of four proposals for out-of-network payment limits: 125% of Medicare payment rates (a strict limit), 200% of Medicare payment rates (a moderate limit), the average of payments made by private health plans in a state (a moderate limit), and 80% of average billed charges in a state (a loose limit).

It used information from the 2017 Centers for Medicare and Medicaid Services Hospital Cost Report Information System – compiled and processed through the RAND Hospital Data repository – to estimate status-quo hospital operating expenses, Medicare payments, payments by private plans and hospital charges.

The analysis found that limiting out-of-network payments to 125% of Medicare would create the biggest drop in hospital payments.

A more moderate payment limit set at 200% of Medicare rates would reduce negotiated hospital payments by 8% or 23%, depending on the modeling assumptions, while using the average private payment prices in a state are estimated to reduce negotiated hospital prices by 16% or 30%.

A payment limit of 80% of average billed charges in a state would be expected to create a modest price increase of 4% or a decrease of 3%, depending on the estimation approach used.

THE LARGER TREND

In February, the House Committee on Ways and Means released the Consumer Protections Against Surprise Medical Bills Act of 2020, a measure that, if passed, would not allow patients to be charged more than the in-network cost-sharing amount. Patients would receive an Advance Explanation of Benefits that would describe which provider would deliver their treatment, the cost of services, and provider network status.

The bill prohibits providers from balance billing, a practice already illegal in some states. Insurer and provider disputes over out-of-network payments would be settled through arbitration.

ON THE RECORD

"We strongly oppose approaches that would impose arbitrary rates on providers as it would compromise patient access to care and create a disincentive for insurers to maintain adequate provider networks, particularly in rural America," the American Hospital Association said in February.

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com