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July 18, 2019

The Senate's 'surprise bill' fix could cut provider payments by 20%, CBO finds

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    The Senate Health, Education, Labor and Pensions (HELP) Committee's legislative package to address surprise medical bills would reduce average national provider payment rates by as much as 20%, according to a Congressional Budget Office (CBO) report released Tuesday.

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    The Senate HELP Committee voted 20-3 to send the Lower Health Care Costs Act to the full Senate earlier this month.

    The bill aims to tackle surprise billing by establishing a benchmark payment rate that insurers would be required to pay for out-of-network services. The benchmarks would be based on the median in-network rate in the geographical area where the care was provided. The bill, which includes 54 wide-ranging proposals, also would aim to prohibit balance billing, improve drug price transparency, and lower prescription drug prices, and it would raise the legal age to purchase tobacco from 18 to 21.  

    Report details

    CBO in its report estimated the bill's potential impact on direct government spending and revenue from 2019 to 2029, as well as estimated impacts on provider and insurer payments.

    For the purpose of the report, CBO defined surprise medical bills as those that "a patient receives unexpectedly from out-of-network providers either for emergency care or for out-of-network care from providers at an in-network facility."

    The report does not estimate what savings would occur under alternative proposals, such as an arbitration-style approach to surprise bills, which many provider groups favor. The House Energy and Commerce Committee on Wednesday advanced its own surprise billing legislation that also relies on payment benchmarks but would create a "backstop" that allows physicians to appeal to an arbitrator if the payment is more than $1,250, but they feel it is too low. According to Kaiser Health News, the arbitrator would only be able to consider the complexity and quality of care involved in the case at hand.

    Report findings

    Overall, CBO estimated that from 2019 to 2029 the legislation would save the federal government $7.6 billion, largely by "reduc[ing] the cost of health insurance subsidized by the federal government—through Medicare, Medicaid, the health insurance marketplaces established under the Affordable Care Act, or employment-based plans."

    According to CBO, the majority of the federal revenue increase would stem from the bill's provisions related to surprise medical bills. CBO estimated that from 2019 and 2029 the proposals would generate a total net savings of $24.9 for the federal government.

    Notably, CBO found that, because "[t]he vast majority of health care is delivered inside patients' networks, … more than 80% of the estimated budgetary effects of [the surprise billing provisions] would arise from changes to in-network payment rates." CBO predicted that under the bill provider payments for both in- and out-of-network providers would move toward the median in-network rates that the bill would tie to out-of-network provider rates.

    To explain why, CBO cited the example of a fictional market where an insurer reimburses in-network ED physicians at an average of 260% of Medicare's rates—a figure higher than the median rate, which CBO says might be 225%. If the bill passed into law, "this insurer would reimburse out-of-network emergency physicians at 225% of the Medicare rate," CBO writes. For that reason, "such an insurer would reduce rates for providers with rates higher than 225% of the Medicare rate even if some of those providers refused the lower payment rates and dropped out of the network."

    As a result, providers who currently charge less than the median in-network rates would be paid more if the bill were signed into law, while providers who are charging above that rate would be paid less. The net effect, the report estimates, is that average payments to medical providers would decrease by 15 to 20% nationally, although CBO emphasized that the effect would vary significantly by market.

    In addition, CBO estimated that the legislation's surprise bill provisions would reduce premiums for exchange and employer-sponsored plans by about 1% for "most years" from 2019 to 2029, compared to current law, as payment rates move toward the in-network median.

    CBO in the report also estimated that the bill's provisions to lower prescription drug costs, which rely largely on bolstering competition, would generate a total net savings of about $4.6 billion over 10 years.

    CBO also projected that tobacco use would decline by about 1% over a decade, but increasing the minimum age to purchase tobacco would increase the deficit by about $628 million.

    That said, CBO noted that the new legislation comes with some uncertainties, such as how providers and insurers might respond to the bill's provisions and how increased transparency for drug prices would affect prices and insurance premiums. According to CBO, if the legislation causes a significant decrease on prices, providers may consolidate, which would eventually lead to price increases.


    While the estimate may relieve concerns over the bill's potential impact on the deficit, the Washington Examiner reports that it also could "bolster [the] message" of providers who've raised concerns about the payment-setting approach.

    For instance, American Hospital Association Executive Vice President Tom Nickels has called the Senate's payment rate proposals "unworkable." He said, "Arbitrary, government-dictated reimbursement would result in significant unintended consequences for patients and create a disincentive for insurers to maintain adequate provider networks, particularly in rural America."

    Meanwhile, the ERISA Industry Committee said the CBO report is proof that the bill should be passed as soon as possible.

    "It would do what it is supposed to do—reduce the cost of health insurance and prescription drug costs, protect patients from surprise medical bills, increase transparency and competition by allowing people to see the best doctors at the best prices—all while lowering the federal deficit," Annette Guarisco Fildes, the committee's president and CEO, said, adding that delaying the bill would only "hurt hard-working Americans" (King, Fierce Healthcare, 7/16; Leonard, Washington Examiner, 7/16; Lotven, Inside Health Policy,7/16; Bluth, Kaiser Health News, 7/17; AHA News, 6/19; CBO report, 7/16).

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