Why Congress Can’t Stop Surprise Medical Bills
On a warm spring day in 2019, Sonji Wilkes appeared before a House Energy and Commerce subcommittee to explain how an unexpected medical bill had upended her life. Soon after her son was born, doctors discovered that he had hemophilia. He was taken to the neonatal intensive care unit (NICU) after he wouldn’t stop bleeding. The hospital was unfamiliar with his condition and lacked the drugs it needed to get his blood to clot. It called in an outside hematologist, who brought medication to staunch the flow. After pumping drugs through an IV line in the newborn’s scalp, the bleeding stopped.
Wilkes spent the following few weeks processing the diagnosis. “It’s quite a shock to find out that your almost-10-pound, healthy-looking baby boy has a lifelong disorder,” she said. But a few weeks later, she received a second shock: a $50,000 bill for his treatment—not from the outside hematologist, but from the hospital NICU.
“My husband and I were dumbfounded,” Wilkes told Congress. “We had been in an in-network facility. How could we possibly be responsible for that amount?” As it turned out, the hospital had contracted its NICU out to a physicians’ group that didn’t accept their insurance. Indeed, the group accepted no company’s insurance. They were rogue.
The family refused to pay. They had been careful to pick a hospital that took their insurance. They had checked to make sure that their specific doctor took it as well. “We felt we had made a good-faith effort to stay in network,” Wilkes, now 44, said.
It didn’t matter. Their insurer refused to cover the cost, and the physicians refused to knock it down. The doctors’ group went to collection. Wilkes’s credit tumbled. Years later, after a class-action lawsuit, her bill was dismissed. But it was too late for her score to recover, and it has caused her financial headaches ever since. “My family incurred a devastating surprise bill,” she told the subcommittee. “Failing to pass meaningful legislation means you are letting millions more families experience the fear and pain my family faced. Please get this done.”
Surprise medical bills occur when insured individuals, like Wilkes and her son, are treated by out-of-network health care providers whom they cannot choose. This can happen in a wide range of situations, from emergency room procedures to biopsy reports. At least two Americans who returned recently from China, developed coughs, and were then required to get coronavirus tests received surprise bills topping $1,000. (The government has since passed legislation that makes coronavirus testing itself free.)
Considered obviously unfair, the practice is opposed by both parties in Congress. After Wilkes finished her opening remarks, every congressperson in attendance expressed sympathy. They told her that surprise billing was a problem they wanted to solve. Wilkes found testifying empowering. “I left feeling quite optimistic,” she told me. “I remember sitting there and thinking, ‘Wow, the system really works.’”
At the time, her positivity was well founded. When Wilkes spoke before Congress, Democratic and Republican members of the House Energy and Commerce Committee were working together to craft legislation that would stamp out surprise billing. On the Senate side, members of the Health, Education, Labor, and Pensions (HELP) Committee were drafting a similar bipartisan solution.
The two committees soon reconciled their legislation. The subsequent agreement would have fixed the amount doctors could charge for surprise bills, subject to appeal, and required that insurers cover the resulting costs. Within each committee, this approach commanded near-unanimous support. “I do not think it is possible to write a bill that has broader agreement than this,” said Lamar Alexander, the Republican chairman of the Senate HELP Committee. Frank Pallone, his Democratic counterpart in the House, agreed. “I’m hopeful that this bipartisan, bicameral agreement can be voted on quickly.”
The committees announced the deal on December 8. The insurance industry endorsed it. So did consumer advocates. The White House quickly signaled support and pushed for its inclusion in a must-pass December 20 spending package. Activists held their breaths. In an era of extreme polarization, where health care is a leading political issue, the government was on the verge of passing an important medical reform.
But over the next 48 hours, hospitals and doctors’ groups came out against the proposal. The American Medical Association criticized the agreement. The American Hospital Association wrote that it would “jeopardize patient access to hospital care.” In the Senate, Minority Leader Chuck Schumer reportedly signaled that he was uncomfortable pushing forward with the fix. Three days after the deal was released, Richard Neal and Kevin Brady, the top Democrat and Republican on the powerful House Ways and Means Committee, put out their own surprise billing proposal. It was a single page of bullet points that contradicted what Pallone and Alexander had set forth. It was a classic legislative maneuver designed to derail progress.
It succeeded. Congress did nothing. The December 20 deadline came and went.
The failure prompted broad outcry. “It’s a plague on both our houses,” said Zach Cooper, a professor of health policy and economics at Yale. He denounced Washington’s inability to act despite “bipartisan agreement and support from the president.” In an editorial, USA Today blasted a feckless Congress for leaving “the surprise medical bill plague untreated.” Since the legislation failed, representatives have continued to work on the issue. But the timeline for hashing out or passing a final fix is currently unclear.
The stakes are high in this fight not only because surprise bills are so unjust, but also because it engages the most important long-term issue in health care: rising and unsustainable costs. Nearly 18 percent of U.S. GDP goes to health care today, up from less than 5 percent in 1960. Since 2009, average premiums have increased more than twice as fast as wages. Deductibles have nearly doubled. Health care spending per person in the United States is now roughly twice that of other wealthy nations, with no appreciable differences in outcomes. The main reason for those higher costs is, quite simply, that Americans pay higher prices, for everything from knee surgeries to medicines, than anyone else.
Eliminating surprise billing entirely would save people with employer-provided health insurance approximately $40 billion annually. Compared to the $3.6 trillion the U.S. now collectively spends each year on health care, that is not a large amount. What makes the legislative battle over surprise billing so important is less the savings it could produce than what the fight itself represents: a dry run for broader reform. If Washington cannot deal with a problem so obviously egregious, it is difficult to envision how it could address rising costs more broadly. But if it does eventually pass something like the Pallone-Alexander bill, Congress will have for the first time set prices for private health care. In doing so, it will have created a launch pad for much bigger reforms.
Hospitals and doctors are well aware of this. They know it could reduce their profits and their pay. That’s why they have pulled out all the stops to make sure that the only surprise-billing legislation that passes is legislation without robust controls on cost. They have many stops to pull. Hospitals and doctors’ groups are some of the largest employers in congressional districts, with ready access to elected officials. They are backed by deep-pocketed Wall Street investors who are not afraid to spend on their behalf. They perform critical services—many are on the front lines in the current fight against COVID-19—and in doing so have earned positive public reputations. And many members of Congress are doctors themselves. These representatives were typically opponents of the Pallone-Alexander bill.
I spoke to one of those representatives, Dr. Phil Roe of Tennessee’s First District, in early February. I asked what role physicians were playing in Congress’s attempts to stop surprise billing. “Well, Daniel, as human beings, we all look after our own vested self-interest,” he told me. “That’s why when one of the Washington Nats fouls the ball, line drive off, I’m ducking, because I’m looking after my own vested self-interest. It’s no different in this. We’re all doing that.”
In early 1917, the California state government proposed giving all its residents health insurance. It was one of the first attempts in the United States to provide an entire population—from the rich to the poor—with medical coverage.
Almost immediately, a group of doctors established the California League for the Conservation of Public Health to campaign against the proposal. The organization distributed public pamphlets that seized on World War I anti-German hysteria; the state’s proposed system, one of them read, “is a dangerous device, invented in Germany, announced by the German Emperor from the throne.” (Otto von Bismarck had established a system of near-universal health coverage in Germany several decades before.) In its communication with doctors, the group conveyed a different message. What the state proposed, they said, was “wholesaling medical services at bargain counter prices.” Reformers overwhelmingly lost.
For the next four and a half decades, every other attempt at establishing a broad system of health insurance met a similar end. While crafting Social Security programs, many of Franklin Delano Roosevelt’s advisers pushed for provisions that would broaden access to health care. Almost all of these incited protest from the American Medical Association, the main professional organization for physicians, and Roosevelt made only halfhearted attempts to see them through. His successor, Harry Truman, made a more serious effort—proposing and campaigning for a single-payer national health insurance plan. This provoked even stauncher physician opposition. The AMA wrote that Truman’s plan would turn doctors into “slaves,” and it spent $1.5 million in a marketing campaign to fight the legislation. At the time, it was the most expensive lobbying effort in U.S. history. After three years, the president gave up.
Liberals finally broke through in 1965 with the passage of Medicare and Medicaid, which provided health insurance to the elderly and the very poor. But their success was circumscribed to get doctors on board. They never sought coverage for other groups, remembering past fights with the AMA. They created a generous system for reimbursing hospitals and physicians. For years after its passage, Medicare proved to be a jackpot for health care providers.
When Bill Clinton won the presidency, Democrats tried to pass legislation that would cut costs and further extend coverage, but they were beaten back by a coalition of doctors’ groups, hospital groups, and insurers. After Democrats swept into power in November 2008, they again began negotiating over a health insurance bill they hoped would give nearly all Americans access to health care. But this time, they quickly moved to get doctors and hospitals on board, promising not to reduce their revenues in exchange for support. Politically, the strategy was a success. Despite extreme partisan opposition, the legislation passed.
Three out of the last four presidents of the American College of Emergency Physicians have worked for a company owned by private equity, including the current president. The president of the American Academy of Dermatology runs a private equity–funded practice.
The resulting Affordable Care Act has been very effective in its goal of giving health insurance to more Americans. Since its passage, close to 20 million people have gained coverage. This has helped change the discourse around America’s medical system. With more people insured and with insurers more strictly controlled, activists and journalists have been able to increase their focus on other flaws in American health care.
That includes surprise medical billing, which has long been a feature of American medicine. Decades ago, hospitals started contracting out the management of certain parts of their operations, like emergency rooms, to independent doctors’ practices and staffing companies because it was cheaper than hiring physicians outright. Doctors have more than made up that difference by accepting fewer insurance plans than the hospitals and charging patients out-of-network fees. This angle works best for certain kinds of physicians—specifically, the ones patients don’t choose themselves. Not coincidentally, surprise bills come far more often from ER doctors, anesthesiologists, radiologists, and pathologists than from cardiologists.
Like health care costs in general, surprise medical billing rates have been climbing. According to a study by Stanford University, the number of ER trips that resulted in a surprise bill increased by 32.5 percent from 2010 to 2016. Over the same time period, surprise bills related to in-patient hospital stays increased by 60 percent. Today, the majority of ambulance services result in some kind of surprise charge.
Health economists point to several reasons for the increase. One is that rates of hospital outsourcing are on the rise, a trend driven in part by the widespread application of digital medical records. A second is hospital mergers. Between 2006 and 2018, the United States has seen 1,095 announced hospital consolidations. In 2017, approximately two-thirds of all hospitals were part of chains, up from roughly half in 2002. Meanwhile, the physicians’ practices that staff hospitals have also merged. It’s easy to see why this would result in more surprise bills, as well as higher costs overall. Doctors’ groups have less of an incentive to cut deals with insurers if they know that patients will have to see them. Hospitals don’t need to worry as much about antagonizing customers when they are the only game in town.
Today, one-quarter of Americans say they have received a surprise bill. Even the savviest consumers haven’t been able to escape. Health policy experts told me they have been surprise billed. So did patient advocates. Roe, the physician-turned-congressman, told me that he received a surprise $3,000 bill from a pathologist after surgery to treat prostate cancer.
When Congress reconvened in the winter of 2019, surprise billing was therefore at the top of the agenda. But while all stakeholders agreed that the practice should stop, they disagreed over how. Patient advocates and insurers asked the government to benchmark prices for treatments—like X-rays or appendectomies—to the median price that insured people pay while in network. Insurers would then automatically pay the out-of-network physician that amount. Providers protested that benchmarking was an unfair government intervention in the health care marketplace. Instead, they called for surprise bills to be settled by arbitration, where a third party would decide what insurers would ultimately pay the doctor on a case-by-case basis.
Consumer advocates generally oppose arbitration. That’s because evidence suggests that arbiters tend to make physician-friendly rulings, resulting in large insurance payouts. Insurers then pass on the costs of these outsize charges to consumers in the form of higher rates, deductibles, and co-pays. Since New York State implemented an arbitration system to settle certain surprise bills in 2015, costs for New Yorkers have gone up, not down, according to a Brookings Institution analysis.
Pallone, the House Energy and Commerce Committee chairman, told a consumer advocacy conference that doctors had asked Congress to effectively “recirculate” any charges lost in a surprise billing ban “so that the individual pays it in their premium.” He balked at the request. “This isn’t about just eliminating the surprise and making you pay in monthly installments for the same amount,” Pallone told the advocates. “That’s not what we’re up to here.” In the spring, the committee released draft legislation that would benchmark all surprise billing charges.
Doctors and hospitals then went into lobbying overdrive. Their allies in Congress, including Roe, introduced alternative legislation entirely based on arbitration. In response to the pressure, the House and Senate committees rewrote the bill in mid-July. Doctors could now ask arbiters to review bills above a certain dollar threshold.
The deal still faced provider resistance. But some former skeptics signed on. Patient advocates stayed on. It was the kind of compromise that nobody loved, which is to say the kind that might just get through Congress.
The ads began in the summer. In one, emergency medical technicians wheel an unconscious trauma victim from an ambulance and into a hospital, only to find that it’s been abandoned. In others, narrators blast insurers for denying coverage and ask that listeners call on Congress to support “IDR,” or independent dispute resolution—longhand for arbitration.
At first, it wasn’t clear who, exactly, was behind these commercials. The proximate group, named Doctor Patient Unity, didn’t list its donors or members. But they were clearly well funded. They were rich enough that they could broadcast during the Democratic debates. Indeed, they were rich enough that they aired ads during the World Series. The entire campaign has cost more than $28 million.
After months of speculation about the funding source, on September 13 The New York Times unveiled the answer. The two main bankrollers were the Blackstone Group and KKR—the world’s first- and third-largest private equity companies, respectively. Blackstone and KKR own the two largest physician-staffing companies in the emergency room business, TeamHealth and Envision. Both firms are notorious for accepting far fewer insurers than the hospitals they operate in and sending out-of-network charges to those they treat. One study found that when TeamHealth set up shop in an emergency room, out-of-network billing rates increased by 32.6 percent. When Envision’s main ER subsidiary entered, out-of-network rates also shot up—sometimes to nearly 100 percent of all bills.
That private equity firms have been investing in doctors’ groups engaged in surprise billing shouldn’t come as a shock. The private equity business model is based on making above-market returns. To do so, they frequently purchase companies that have cornered their market or can do so by buying up the competition, giving them the power to raise prices. Emergency room patients are, by definition, entirely cornered.
Surprise billing allows doctors and their private equity partners not only to extract more money from patients but also to demand higher payments from insurers. “You basically piss enrollees off so much, piss patients off so much, that they then complain to their insurer or employer, who are then willing to pay even more,” said Loren Adler, a health policy expert at Brookings. Insurers then pass along higher costs to patients in the form of higher deductibles and premiums. Employers pass the cost on to workers by keeping their salaries down.
As hospitals and doctors have become increasingly involved with private equity, the line that divides them has thinned. Private equity companies now own entire hospital chains. The private equity firm Cerberus Capital Management, for example, owns Steward Health Care—the country’s largest private for-profit hospital system. Private equity has come to dominate certain specialties. Three out of the last four presidents of the American College of Emergency Physicians have worked for a company owned by private equity, including the current president, who doubles as an executive at Envision. Private equity is deeply involved in many others. The president of the American Academy of Dermatology runs a private equity–funded practice.
The scale of Doctor Patient Unity’s ad buy caught Congress’s attention. “When you’re dropping that much money, people certainly notice,” said a Democratic Senate staffer close to the negotiations. And as the commercials ran, doctors continued to meet with members of Congress. They made the same argument as private equity lobbyists: that the benchmarking bill would close hospitals and be a giveaway to insurers.
All the lobbying had an impact. In December, when Frank Pallone and Lamar Alexander released their final agreement, they expanded the number of benchmarked charges that physicians could appeal to arbiters. It still wasn’t enough for doctors and hospitals, who roundly condemned the deal. Soon, Richard Neal and Kevin Brady, the Ways and Means leaders, put out their one-page proposal. Schumer expressed unease with Pallone and Alexander’s bill. It stalled.
Both Neal and Schumer have close ties to opponents of benchmarking. Neal received roughly $30,000 in campaign contributions from the Blackstone Group during 2019. Today, Blackstone is his second-largest campaign contributor. Holyoke Medical Center, one of the major hospitals in his district, has contracted with Envision. Schumer is famously close with the Greater New York Hospital Association (GNYHA). His Senate Majority PAC has received $4.5 million in donations from the group since December 2017. According to reporting by The Washington Post, Schumer met with GNYHA representatives two days before expressing his discomfort with the Pallone-Alexander agreement.
When Neal and Brady released the full text of their legislation two months later, it was entirely based on arbitration: If providers and insurers could not agree on what to pay, a third party would decide. But it instructed arbiters to consider median in-network rates, and providers were not quite satisfied. The American Medical Association wrote that it was “appreciative” of the committee’s efforts, but it stopped short of an endorsement. The American Hospital Association was similarly lukewarm. The American College of Surgeons thanked the committee but wrote that “some areas still need to be addressed.” They were concerned that the mediation system, as designed, was not favorable enough to physicians. By requiring doctors to disclose their typical compensation, the ACS argued, the bill could “potentially driv[e] down physician payment.”
The topic of physician pay is difficult to objectively discuss. In treating the sick, doctors and hospitals offer an extraordinary service for which one can’t help but be thankful. For that reason, they retain high approval ratings. Even in the aftermath of horrific surprise medical billing stories, the families I talked to had kind words for the people who treated them.
“We’ve been really fortunate to have really good doctors, so I’m always appreciative of what they’ve done for me,” said Angela Eilers, who received a $13,000 surprise medical bill from an anesthesiologist after her infant daughter required heart surgery. She blamed insurers for the charge, and praised physicians for their work dealing with insurer requirements. “They’re just fighting the system too,” she said.
Physicians defend their compensation using similar logic. “Who is going to show up at two o’clock in the morning and see you?” Roe asked me. “It’s not going to be the insurance provider. It’s going to be the doctor.” As justification for high reimbursement, he cited the “years and years and years of training” aspiring doctors must endure. “They deserve to be fairly compensated.”
There is no doubt that American doctors must pass a grueling set of classes, exams, residencies, and rituals before they get to work something even approximating normal hours. They are highly skilled and work essential, and sometimes dangerous, jobs. They deserve compensation that is well above average.
But it’s simply a fact that American doctors make far more money than their counterparts in other high-income countries. On average, U.S. doctors make roughly twice as much as those in other wealthy democracies. There are more doctors in the 1 percent than there are members of any other profession.
Their salaries are far from the only source of high health care costs. Wall Street financiers and hospitals both make large profits by exploiting American medicine’s many market failures, including the ability to send surprise bills. These institutions jack up the cost of care and then use those excess earnings to give raises to executives and expand their reach.
Nonprofit hospitals, which receive tax exemptions in exchange for working toward the “community benefit,” are especially guilty. “They see their mission as growing and making more money,” said Shawn Gremminger, the former senior director of federal policy for Families USA and a onetime hospital lobbyist. A Politico investigation found that the nation’s top seven hospitals as ranked by U.S. News & World Report—all nonprofits—took in more than $33.9 billion in operating revenue in 2015, a 15 percent increase from two years before. These hospitals’ spending on direct charity care fell by 34 percent over the same time period. “They don’t reinvest [their money] back in the community,” Gremminger told me. “They build another patient tower, or they buy another overpriced MRI machine.”
All of this might still be justifiable if the disproportionate salaries and massive spending—the highly paid specialists and expensive new equipment—correlated with better health outcomes. But they don’t. The United States spends more of its GDP on heath care than every other state in the Organisation for Economic Co-operation and Development (OECD), and its outcomes are middling at best. America’s life expectancy, for example, is below the OECD’s median. Indeed, Americans’ life expectancy went down between 2014 and 2017, even the country’s health care spending went up faster than inflation. One of the main reasons for the growth in early deaths was the profligate prescription and distribution of opioids: in other words, because of overspending by heath care providers.
None of this has stopped doctors’ and hospital groups from asserting in letters and ads that benchmarking would result in more deaths. Politically, this is a powerful charge. “We’ve been experiencing a period of rural hospital closure,” said a congressional aid working on the issue. “So when you start seeing ads saying things like, ‘Hospitals are going to close if you prevent surprise billing,’ that scares folks.”
But the assertion is baseless. Many of the forces behind rural hospital closures—such as depopulation, or the tendency for rural patients to seek care in urban centers rather than close to home—have nothing to do with surprise billing. Others, like consolidation and outsourcing, are actually causing surprise billing. It is difficult to see how benchmarking rates would make any of them worse.
In fact, benchmarking surprise bills would have only a tiny impact on health care financing. According to research by the Congressional Budget Office, the Pallone-Alexander agreement would reduce staffing company and hospital revenues by at most 1 percent over 10 years. The Centers for Medicare & Medicaid Services estimates that hospital and physician revenues will rise by more than 60 percent over the same period of time, or by $1.6 trillion.
The truth is that surprise billing rarely occurs, or doesn’t ever occur, in most hospitals. Only a handful of specialists, like ER physicians, widely engage in it. Yet doctors’ and hospital groups are nearly unanimous in opposing the Pallone-Alexander legislation. The question is why.
As America’s health care costs continue to mount, politicians have embraced bolder and bolder interventions. The Affordable Care Act, a bill once so progressive and momentous that its destruction became the sine qua non of the Republican Party, is now widely viewed by Democrats of all stripes as insufficient. Creating a public option, a position too liberal to pass in 2010, is now the core of moderate Joe Biden’s health care plan. Democrats on the left demand a single-payer health care system, where the government would have extraordinary leverage over medical costs.
But within the party, politicians across the board are increasingly endorsing a cost reform that’s even more blunt: setting health care rates outright. It’s something that America’s two government-run insurance plans—Medicare and Medicaid—already do. Moderate Pete Buttigieg proposed capping the cost of all out-of-network bills, surprise or otherwise, at 200 percent of what Medicare pays. Progressive Elizabeth Warren’s Medicare for All proposal would have set hospital reimbursement rates at 110 percent of what Medicare offers.
Price setting in private health care is not a new concept. Writers in this magazine have been exploring the idea of administrative pricing since 2014 (see Phillip Longman and Paul S. Hewitt’s “After Obamacare” in our January/February 2014 issue). Plenty of other high-income nations, including Germany and the United Kingdom, have long set prices for health care treatments. But it’s certainly new to see it in the health care plans of prominent presidential candidates.
This shift has hospitals and doctors anxious. In letters and advertisements denouncing the Pallone-Alexander agreement, providers and their private equity partners routinely refer to benchmarking as “government rate setting.” They warn that this will lead to doctor shortages and hospital closures. “Beware,” one advertisement starkly declared.
The ads make clear something virtually every expert and advocate told me: Providers are worried that any surprise billing legislation based on benchmarking creates a slippery slope. After all, if the state can set rates for surprise bills, why can’t it set rates for all bills?
At first glance, that fear is overblown. In politics, providers usually win. In an era of extreme partisanship, where the legislative system is laden with choke points and vetoes, where passing a solution to even the most salient patient abuse is a slog, it seems unwise to expect bold reform.
But the government has intervened in health care pricing before, despite provider opposition. In 1983, faced with ever-rising Medicare payments, Congress passed bipartisan legislation that set the rates the public program would pay for various tests and treatments. And as private health care costs continue to explode, political alliances are shifting in curious ways. Employers were once implacably opposed to a public option. Now, many are embracing it as an acceptable alternative to paying for their employees’ rising premiums. Insurers, long wary of any government intervention in health care, are now actively lobbying for price controls, if only in the context of surprise medical bills. This has led some activists and analysts to argue that price setting is a matter not of if, but of when.
“We’re up to 18 percent of the U.S. economy being spent on health care,” said Gremminger, the former hospital lobbyist. “Is the inflection point 25 percent? Is it 30 percent?” Whatever number it is, he is confident we will one day reach it. He compares the health care industry to an animal “that literally, so long as there is food in front of it, will eat it.” American health care, he said, simply can’t regulate itself.
That leaves the United States with three options. It can try to put out fires, as it is doing with surprise billing, while overall prices continue to rise. It can try to change the underlying economic incentives, as public option proponents hope their bill might. But barring that, Gremminger told me, “the only thing we have left is one of the most straightforward, which is administrative pricing.
“That would be a sea change,” he said. “But I’m not sure how far away we are.”