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October 30, 2019

New York's solution for 'surprise' medical bills is increasing health care costs, analysis finds

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    New York's arbitration process for addressing so-called "surprise" medical bills has resulted in higher payments to health care providers, and higher health care costs for state residents, according to an analysis released Thursday by the USC-Brookings Schaeffer Initiative for Health Policy.

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    The analysis comes as federal lawmakers have proposed several bills intended to address surprise medical bills, which patients typically face when they receive care from a provider who is not in their health plan's network even though they visited an in-network hospital. Some lawmakers and health care providers have called for Congress to implement an arbitration process to settle such out-of-network bills, but health insurers and other lawmakers have said they prefer setting benchmark payment rates for out-of-network care.

    About New York's arbitration process

    New York in 2015 passed one of the strongest laws in the country aimed at preventing surprise medical bills. State lawmakers applied the arbitration process that Major League Baseball uses to settle salary disputes between new players and their teams to billing disputes between insurers and physicians.

    Under the law, instead of charging patients for the remaining balance after insurance—a practice known as balance billing—a doctor who feels that they have been undercompensated by a health plan can request an arbitration process through the state. The insurer and the doctor each name an appropriate cost for the procedure, and an arbiter—who is directed under state guidance to consider the 80th percentile of bill charges as calculated by an independent claims database called FAIR Health—makes a final, binding decision based on which payment amount is most reasonable.

    New York's Department of Financial Services (NYDFS) in a report released last month showed a growing number of medical bills are being addressed using the state's arbitration process. According to the report, the number of out-of-network bills resolved using arbitration increased from 396 in 2016 to 1,014 in 2018. Among the 1,014 billing disputes in 2018, providers prevailed in 402 of them and insurers prevailed in 205.

    NYDFS also estimated that the arbitration process has saved New York consumers an estimated $400 million from March 2015 through the end of 2018. NYDFS' report also cited figures from a working paper showing the number of out-of-network bills in the state has decreased by almost 34%, and in-network ED physicians' prices have declined by 9% since the law passed in 2015.

    Analysis raises questions about the benefits of arbitration

    However, researchers from the USC-Brookings Schaeffer Initiative for Health Policy have raised questions about the reported benefits of New York's arbitration process.

    The researchers in the analysis released last week examined whether New York's arbitration process generated savings and evaluated other findings in the NYDFS report. Overall, the researchers found "there is no supporting evidence provided" to suggest the state's arbitration process generated $400 million in savings for consumers, and "the actual data released in the report strongly suggests that the opposite is true."

    According to the researchers, New York's arbitration process is driving up provider payments, as well as consumer health care costs, because state guidance directs arbiters to consider the 80th percentile of provider charges when determining final payment amounts. The researchers wrote, "Providers' billed charges, or list prices, are unilaterally set, largely unmoored from market forces, and generally many times higher than in-network negotiated rates or Medicare rates. And telling arbiters to focus on 80th percentile of charges—that is, an amount higher than what 80% of physicians charge for a given billing code—drives this standard still higher."

    Specifically, the researchers found arbiters on average mandated a payment amount that was about 8% higher than the 80th percentile of charges.

    Further, the researchers wrote, "It is likely that the very high out-of-network reimbursement now attainable through arbitration will increase emergency and ancillary physician leverage in negotiations with commercial insurers, leading either to providers dropping out of networks to obtain this higher payment, extracting higher in-network payment rates, or some combination thereof, which in turn would increase premiums."


    Senate Health, Education, Labor and Pensions Committee Chair Lamar Alexander (R-Tenn.) said the USC-Brookings analysis "underscore[s] the harmful cost consequences if arbitration was required nationwide." Alexander's office did not respond to a request for comment on whether the senator would support adding an arbitration process to the committee's surprise billing legislation, Inside Health Policy reports.

    Kristine Grow—SVP of communications at American Health Insurance Plans, which favors a benchmark rate setting approach over arbitration—said, "Let's protect patients from surprise medical bills and increasing health care costs. Americans deserve a legislative solution to surprise medical bills that uses a locally negotiated market-based benchmark" (King, FierceHealthcare, 10/25; Owens, "Vitals," Axios, 10/25; Alder, USC-Brookings analysis, 10/24; Cohen, Inside Health Policy, 10/25 [subscription required]).

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