March 2020, Volume XXXIII, No 12

cover story One

Surprise billing

Causes and potential remedies

he $25,000 surprise bill arrived after the patient, himself a physician, had a radical prostatectomy and was discharged from the hospital two days after surgery.

We will examine why surprises occur, the congressional fights over price-fixing panaceas, why price fixing never works, and other possible remedies that do not involve price fixing.

Surprises big and small

The post-op big surprise was created by federal regulation. If the skill of the surgeon gets you out of the hospital in two days instead of three days or more, you pay more. Why? Because under Medicare regulation, two days is not considered a hospital admission; the regulators have named this fantasy “observation,” as if it was completely different from any other hospital stay.

Why would two days in the hospital be different from three? Because Medicare is then off the hook for post-hospitalization rehabilitation care. (That is what happened to my wife’s hospital roommate; “observation” cost her a $32,000 surprise for necessary prolonged rehabilitation.) The hospital can also benefit; regulation allows the hospital to balance bill observation patients for as much as 20% of the “observation” costs and thus can supplement the low Medicare payment received. Bingo! A $25,000 surprise! Discharge quicker (or even sicker) may cut Medicare costs, but this can be a particularly cruel regulatory joke.

A second, more common type of big surprise bill scenario is described by Doug Badger, former White House and Senate health policy expert: “…even if someone goes to the emergency room at a hospital in their insurance network, if the doctor on duty that night happens to be out-of-network, the patient could suddenly be faced with a bill that is thousands of dollars—and not covered by their network insurance.”

Other common surprise balance billings may involve an elective procedure. The surprise bill may come from an independent non-network anesthetist after a colonoscopy done by an in-network doctor in an outpatient facility advertised as in-network. For a surprised network patient, who assumes that they were in-network, this amounts to false advertising.

[If you get] out of the hospital in two days instead of threedays or more, you pay more.

No surprise; the consensus is that these “surprises” are unfair. It is estimated that 40% of patients were hit with a surprise bill in 2018.

The surprise billing perpetrators

Regardless of the type of surprise billing, it seems clear that all the players involved are gaming the system, i.e., the mercenary Medicare regulators, hospital systems, and commercial insurance corporations. If networked systems of insurance corporations offer inadequate network medical coverage, patients will continue to find non-network physicians as a source of their surprise bills.

Non-network doctors are not in the networks for good reason; they do not want to accept inadequate working conditions and/or pay. The actual perpetrators of surprise billings have inferred that doctors are to blame. With good intent, Congress and the administration want to protect patients from alleged victimization.

Legislation and positions

The political response. In 2019, a bipartisan “No Surprises Act” was introduced in Congress. It mandated fixed in-network insurance carrier median prices, which non-network doctors must accept. For the first time, Congress seemed poised to impose Medicare-like provider rate-fixing mandates onto private contracts.

The winner would be the network corporation with non-negotiable pay rates and low payroll costs. The victims would be the non-network doctors and their predictable absence would decrease patient access to quality care.

No surprise; a war over how to fix prices then erupted between insurance carriers (self-described “payers”) and providers of hospital system and of doctor services.

The “payer” position. Insurance corporations, (aka, Managed Care Organizations or MCOs) favored the “No Surprise Act.” They argue that fixed rates would eliminate surprise billings. A question: would federally price-fixed services imposed on non-network clinicians eventually be imposed on in-network clinicians? Potentially, this could be a boon to low corporate payrolls, profitability, and industry stock market prices.

The provider position. The American Hospital Association (AHA) and clinicians propose instead to use more flexible government-certified independent “baseball-style” (two party) arbitration to fix payment rates.

Is there a better alternative? We’ll explore some later. Meanwhile, the price-fixing war continues.

Past price-fixing failure

Insurance corporations, whether the mini ACO (hospital-staff Accountable Care Organization) or mega MCO model, often claim that their calling is to be stewards of the nation’s medical money. Fixing prices of medical goods and services prices is thus “necessary.” Did it ever work? Not in the history of the world, nor in the history of U.S. medicine after price fixing began in the 1970s.

Federal price fixing of Medicare and Medicaid services and HMO low “negotiated” prices of clinician services for over five decades has never put a dent in medical market cost inflation. Various delay and denial barriers to care are more effective for rationing use of premium dollars. Over decades, the adverse effect of fixing low prices and other onerous regulations has put many primary care clinics out of business and driven doctors into employment in large merged hospital systems, if not into retirement.

Curiously, the battling price fixers, the corporate insurance carriers and provider hospital systems, boast that patients are spared from being involved in haggling over money, i.e., patients’ premium and tax money.

Hidden contracting between corporation giants instead of open contracting between patient and doctor ought to be a warning. It is scary, when price fixers claim they are protecting anyone but themselves, and when patient choices guided by price are suppressed by the appearance of “free” prepaid care. Lack of transparent prices for patient services is a popular part of the prepaid care game, but the results may not be pretty.

Forty percent of patients were hit with a surprise bill in 2018.

When prepaid services appear to be “free,” and patients are “nobly” spared corporate money haggling disputes, the delayed results observed have been increased demand, increased premium prices with rising deductibles, futile price-fixing panaceas, and rationing through lengthening queues for ill patients. It is the ill, once the object of medical care, who suffer onerous profit-driven rationing barriers, which often masquerade as “conserving the nation’s scarce resources.”

Any alternative to price-fixing surprises?

Can patients be protected from nasty medical care surprise billings without futile price fixing? Why not?

Emergency treatment. In emergency care situations, Doug Badger and co-author Brian Blaze note that it is neither feasible nor useful to predict the costs. They recommend that Congress should amend the Emergency Medical Treatment and Active Labor Act (EMTALA) to “…reserve rate-setting to the circumstance in which a patient receives emergency care at a non-network hospital.” Would this be a fix for surprise billings? Maybe for some, but not in carrier network hospitals, as we have already seen.

An unexplored statutory solution for Minnesota and other states would be that those carriers with inadequate personnel to cover the services in its facilities be mandated to pay the fees of non-network providers; a realistic patient protection objective.

Elective treatment. A pre-procedure contract price is the remedy to eliminate surprise billings. Badger and Blaze suggested that, “Providers who don’t give patients a good faith estimate in advance would be prohibited from balance billing for that service after the fact …. [Congress] should require truth in advertising … [and] impose penalties on insurers … who represent themselves as being in-network, if those facilities permit physicians to balance bill for services.”

One Minnesota proposal could similarly eliminate surprise billings for elective treatment through prepayment by an individual for an agreed-upon itemized bundled procedure price that is binding on the provider.

For example, a Minnesota statute could expand on the previous mandate to post the price of individual services, which unfortunately makes it impossible for an individual to add up a total cost. Instead the statute could mandate that providers (surgery centers, hospitals, clinics) post their customary prices for their 25 most common bundled procedures involving multiple providers (including anesthesia, radiology, laboratory, etc.) and not to include insuring post-procedure hospitalization costs. Specific procedures might vary from a colonoscopy or annual diabetic care or might involve a complex of bundled services for a radical prostatectomy or hip replacement.

Such a statute would have to mandate that an itemized bundle procedure price requested by an individual patient must be based on the published customary bundle price and must include what is covered and not covered. The itemized price must also be allowed to reflect the severity of the patient’s condition and health and to allow provider refusal to make a contract with the patient.

Bundled price contracting for a procedure is not new. It is already the norm for many outpatient procedures in surgery center-insurer private contracts.

A proposal for mandated customary bundled price publication could be useful price transparency for all patients, not only for a small group of patients with Health Savings Accounts seeking a cash price for an elective procedure. For example, if one clinic and/or hospital system publishes a low bundled procedure price, it is predictable that competitors will lose business. That happened to hospitals once unpublished low-cost surgery centers dotted the landscape. For providers it could be publish or perish.


Surprise billings are a symptom generated by federal Medicare “observation” regulation, hospitals gaming the regulations, and by inadequate personnel levels in carrier-run network facilities.

Statutory fixes for surprise billings should consider that insurance carrier hospitals with inadequate personnel to cover their services ought to pay the fees of non-network providers. Further, pretreatment contracts for common elective bundled procedures would preclude surprise billings. Mandated transparent prices without surprise billings might mushroom into a patient-friendly competitive marketplace for all.

Other states or even Congress, the administration, and doctors may notice that a statutory surprise billing fix is possible without futile price-fixing.

Robert W. Geist, MD, is a retired urologist. Board-certified by the American Board of Urology, he has served in leadership roles on multiple professional associations, and is a past president of the Ramsey County Medical Society, United Hospital Medical Staff, and the Minnesota Urologic Society. 


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Robert W. Geist, MD, is a retired urologist. Board-certified by the American Board of Urology, he has served in leadership roles on multiple professional associations, and is a past president of the Ramsey County Medical Society, United Hospital Medical Staff, and the Minnesota Urologic Society.