Guerilla Billing – Missing the Gorilla in the Midst


No one likes getting bills. But there is something that stinks particularly spectacularly about bills for healthcare that arrive despite carrying health insurance. Patients pay frequently expensive monthly premiums with the expectation that their insurance company will be there for them when illness befalls them.

But the problem being experienced by an increasing number of patients is going to a covered (in-network) facility for medical care, and being seen by an out-of-network physician. This happens because not all physicians working in hospitals serve the same master, and thus may not all have agreed to the in-network rate offered by an insurance company.

This is a common occurrence in medicine. At any given time, your local tax-exempt non-profit hospital is out of network of some low paying Medicaid plan or the other.

In this complex dance involving patients, insurers and doctors, Patients want their medical bills paid through premiums that they hope to be as low as possible, Insurers seek to pay out as little of the premium dollars collected as possible, and Doctors want to be paid a wage they feel is commensurate to their training and accumulated debt.

Insurers act as proxies for patients when negotiating with the people that actually deliver healthcare – doctors. Largely, the system works to funnel patients to ‘covered’ doctors and hospitals. Patients that walk into an uncovered facility are quickly redirected. But breakdowns happen during emergencies.

There are no choices to make for patients arriving unconscious or in distress to an emergency room. It suddenly becomes very possible to be seen by an out of network physician, and depending on the fine print of the insurance plans selected, some or none of these charges may be covered.

Physicians that typically prefer banal chants of “health is care for all” and avoid deep dives into policies that determine physician reimbursement may want to pay attention to the debate because it provides a clear picture of the forces currently trying to shape the conversation about how to value physicians. The news is not good.

Practically speaking, no physician wants the hassle of being out of network. Ethically, few physicians have the stomach for bankrupting patients, and attempting to collect from the uninsured isn’t a desirable brand to cultivate. For those patients left with a balance, its actually illegal on the part of physicians to not attempt to collect. On the inevitable non-receipt of the balance, steep discounts or a write-off follows. So despite the heated rhetoric surrounding physicians ‘fleecing’ patients, the amount of real dollars collected from patients is never mentioned. While this number is hard to ascertain, a good proxy may be medical bankruptcies, which is a relatively rare event. So the amount of smoke that has been generated from, what in absolute terms, is a small fire has little to do with patients and everything to do with how we figure out what to pay physicians.

The traditional leverage physicians have employed against insurers is the ability to not accept rates offered by payers. This isn’t unusual – its fundamental to every negotiation between two parties where the laborer isn’t conscripted. A mango seller has a price below which he won’t sell mangos. The negotiation would go much differently if the mango seller was compelled to sell his mangos at some price. The problem for insurers is that the pressure from patients to have in-network doctors is intense. Patients pay steep monthly premiums so they won’t get large, potentially bankrupting health care bills when they need medical care. And so the ability of physicians to not accept a proffered rate is fundamental to the negotiation between insurer and physician. The threat of a doctor being out of network raises the in-network rates. The threat of not getting a mango belie a certain price raises the price of the mango. Not complicated.

Furthermore, physicians that deliver services during emergencies – anesthesiologists, ER physicians, orthopedic trauma, neurosurgery – have greater leverage than physicians who don’t deliver emergency care. Insurers are far more effective at negotiating with primary care physicians because a primary care physician who chooses not to accept the contract of a certain insurer effectively shuts themselves out of that network. Insurers have no such luck directing patients in times of emergencies. The demand for services in this context is ‘inelastic’, giving physicians significant latitude in negotiating contracts with insurers. This is a giant thorn in the side of insurance companies that complain high medical premiums are a direct result of the high prices they must pay for these services.

‘High’, of course, is a relative term. They think of the rates they pay relative to the rates Medicare pays. Medicare enjoys one of a kind leverage because it is a legislatively created behemoth consolidating the buying power of the entire over 65 population under a government administered and enforced program. That leverage means Medicare rates are significantly lower than private rates, and specialties with greater inelastic demand are able to extract significant multiples of Medicare rates.

Insurance companies would like nothing more than legislative help that would limit the amount they have to pay physicians. Their ally in this fight is the simple fact that health care isn’t quite like selling mangoes. In the healthcare marketplace, vulnerable patients arrive in emergency departments in extremis with little ability to make choices, and so many argue this is the very place the government needs to protect hapless citizens.

The solutions that comes from health policy/economists is also endorsed by the Senate Health, Education, Labor and Pensions committee (HELP). This bipartisan group supports federally benchmarked caps on rates that can be charged that are pegged to the median (50%) in-network rate for an area. So if a patient happens to be seen by a physician that is out of network, the insurer would pay the median in-network rate in the area. But in this plan, there would be no incentive going forward for insurers who contract at higher than the median in-network rates to stay in-network. What would be the point? Just drop the contract, since the out of network rate gets you 50% of the area in-network rates. This creates a race to the bottom that effects reimbursement rates for all patients.

Figure courtesy of @amychomd

Physicians in practice and in congress favor a different approach to get patients out of the line of fire: Independent Dispute Resolution (IDR). The IDR, implemented in New York State in 2015, seeks to take patients out of the middle by sending disputes between providers and insurance to binding arbitration. Generally, the effect is that providers and insurers settle disputes between themselves before a third party gets involved. The desire to avoid potential third-party arbitration also has the effect of increasing in-network rates. This isn’t theory. The New York legislation increased in-network provider participation, saved patients money, and lowered in-network physician rates.

Interestingly, the health policy community has taken the tack of rejecting the physician endorsed solution and accusing supporters in the provider community as greedy shills interested in profits over patients. A frequently raised point is the fact that some Private Equity firms own ER groups and are lobbying for IDR and against median benchmarking. Apparently, any policy that would result in Private Equity profiting is a bridge too far for the policy community. It goes unmentioned that in the battle between insurers and doctors, the health policy community places itself squarely on the side of health insurance company profits.

There is also remarkably little appreciation for the second order effects of decreasing reimbursement to physicians expected to be ready for emergencies. The vessel that bursts in your brain requires a team acting quickly to recognize and treat this emergency. Will neurosurgeons, anesthesiologists, and emergency medicine physicians of quality be available at 2 am? Neurosurgeons are likely to choose to avoid being on call, and recommend transferring patients to facilities with the scale and infrastructure to keep neurosurgeons on call for emergencies. Transfers to quaternary care facilities take time. Time is brain. The amount of brain damage is the difference between slight weakness of that right hand grip while drinking a glass of wine at home or a dense paralysis of the entire right half of your body that translates to a nursing home and a feeding tube.  The potential downsides of policy that reduces reimbursement to a highly specialized group and thus could reduce access are not small, but seem to be underappreciated by policy ‘experts’ bending the ear of members of Congress.

Policy experts are experts not because they have any experience trying to manage and run a physician practice, but because they are lords of the empiricism found in the peer reviewed literature of the day.  For some reason this puts them on a level playing field with the people who run practices and have to meet payroll every 2 weeks. It’s certainly possible the process of running a business is entirely too narrow a field of view, but it’s unclear that the policy experts’ field of view is more enlightening.

Zach Cooper at Yale has done a lot of work in this space, and one of his papers that is cited often is derived from claims data provided by a large private insurer. The general hypothesis of the study is that large profit hungry private firms that own ER practices flung across the nation engage in predatory activity once they acquire a local ER group. This ultimately raises costs to the patient, and thus damages societal welfare as a whole. Using the company websites of the private firms, the researchers were able to divine that the two companies (TeamHealth and EMcare) were involved in a whopping 9% of their national sample. In order to understand how the entry of these firms may impact medical charges and reimbursement, the investigators found a total of 26 hospitals the firms initiated contracts with in the time frame studied.

The authors divine many things from the raw data. To support the claim that arrival of the private groups may have increased out of network rates to fleece patients and improve their leverage for in-network rates the authors examine the data and conclude: “In Panel A of Figure 3, the raw data show a clear increase in out-of-network billing rates at hospitals immediately after EMCare entered.”  The strange thing, however, is that the raw data of the 16 hospitals there was data on that looked at OON rates after EM health enters a market, shows a clear temporal association of rates rising after EM health arrived in only 2 cases. In 4 hospitals, OON rates started to rise before EM health entered, and in the remaining cases, OON rates were either unchanged, or were seen to decrease.

The authors proceed to firmer footing when they discuss the charges billed, because the insurer they are working with has been nice enough to provide this information for every patient they received a charge for. They find that the entry of EMcare increases charges by $556.84 (96%). They note that some of this increase occurred because the intensity of coding that reflects how sick the patient is increased significantly soon after EMcare enters. The implication, of course, is made that this upcoding is improper, yet no support is provided for that assertion. It is just as plausible that physicians were undercoding the severity of patients prior to EMcare entering the market – this narrative defying possibility goes unmentioned.

The absolute amounts being discussed also bears attention.  The OON payments that were paid by insurers after EMcare entered the market increased by $402.67. Patient cost sharing payments increased by $45. Now it is possible that patients may have balances beyond these paid charges, but even this amount comes to $195.  These averages paid here exclude ~ 217,000 claims where insurers paid nothing because of a claim denial.  These numbers aren’t zero, but for emergency medical care, these numbers ($195+ $45) are still far south of the average apple watch.

The most vulnerable patients of course, don’t have health insurance, and aren’t buying apple watches.  For this group, the total potential liability could range from $578 to $1135.   It isn’t known what is actually collected from this group of patients as the administrative costs of trying to collect in this population are not small, and there is most certainly a reputational cost to bear in the community for generating these bills.

The underlying assumption that runs through the paper is that the price being paid for these services is too high because patients are unable to shop for care in an emergency.   But this ignores the fact that in our current system, it’s the insurance company that acts as an agent for the patient.  They are well aware when they sign patients up for a health care plan that an out-of-network may happen.  So while much of the focus in this debate is on the bill generating providers, one wonders how it came to be that that insurance plans are allowed to sell plans to patients that don’t offer any out of network coverage.  Should a facility be considered in-network if physicians that work at the facility are out of network? Shouldn’t patients be informed of this by their insurance company? The insurance company is fully aware of the consequences – so why is the bill that passes through to patients a surprise? The only party with foreknowledge of what may happen is the insurance company.  They have every ability to shop on the marketplace, and it is their failure to secure a contract and then communicate this to their customers that results in ‘surprise’ bills.

In order to buttress the idea of ‘high’ cost, the paper attempts to use reference Medicare payments.  Its noted that Internists are paid 158% of Medicare rates, orthopedists 266% of Medicare rates while the rates paid to the 2 ER firms in the paper are 364% and 536% of Medicare rates.  It only serves passing mention that the average amounts paid exclude 217,000 claims where nothing was paid because the claim was denied.  There is also no mention made of the difference between elective care provided by orthopedists and internists versus the almost entirely emergent care provided by ER physicians that is delivered without consideration of the patients’ ability to pay.  ER physicians are legally (because of a law called EMTALA) and ethically bound to take care of patients who arrive in the ER in distress.  This means they shoulder a far heavier responsibility for uninsured care than almost any other specialty.  Most physicians who deliver care in the outpatient setting require a payment arrangement be made prior to seeing a patient.  The ER physician has no such recourse.  Not mentioning this when discussing rates paid to ER physicians, and other physicians delivering care in emergencies is a feat of obfuscation and deception.

The researchers and other commentariat from the policy community also seem to fail at understanding the motivations of doctors in the current system. I can think of no physicians that want patients getting these bills.  In the current third party payer system, opacity is the physician’s friend.  Given the reputational cost, and the administrative cost of trying to collect these bills, physicians more so than policy wonks are highly motivated for a solution that takes patients out of the mix and generally endorse the previously mentioned third party arbitration system.

This is reluctantly analyzed by Cooper et. al., as well.  Implemented in New York in 2014, the study finds that the OON rate went from 20% in 2013 to 6% in 2015.  Unimpressed, the authors dismiss the solution as being “administratively complex and potentially costly” because it requires patients to know about and fill out a one-page form if they were to receive a bill.  This ‘analysis’ misses the fundamental point that IDR results in a huge drop in the chance these bills are being sent to patients, or that most disputes are resolved without even involving the IDR.

One is struck by the hubris of the inevitable conclusions the researchers arrive at based on data provided from one insurer and an analysis of 2 firms. As noted previously, the raw data consists of a small handful of hospitals from this already small sample, and doesn’t even tightly demonstrate the relationship of price to firm entry. Even if we assume prices rise, the conclusion arrived at is that consolidation raises prices. Water, I’m told, is also wet. No data is provided on changes to the local marketplaces in this small sample during the time studied. Profit seeking is certainly one plausible explanation, but it’s also just as possible that a greater proportion of underinsured or poorly insured patients arriving in the ER during the same time was responsible for raised rates. Apparently the policy memory is amnestic to The Dartmouth institute that changed the landscape of healthcare policy with its reports of regional variation Medicare spending. The small problem was that this dataset didn’t take into account private insurance spending. Subsequent publication of data from the economists the insurance industry uses (Cooper et. al) invalidated the Dartmouth data. Context matters.

So this battle has little to do with patients.  The rejection of the IDR in favor of an untested proposal physicians don’t endorse is part of an ideological battle waged by a group of folks that have decided health care is too expensive (it is) and that physicians need to be devalued to create a better system.  Data to support this ideology conveniently comes from those with an outsize interest in paying less for physician labor: the insurance industry that pays for healthcare in our current system.  Given that the only data the insurance companies really have is the amount that they pay for services rendered, it should perhaps come as little surprise the conclusions draw from this data is as weak as it. Importantly, this data has little bearing on what the right price for these services are, what the best mechanism to get the right price is, or what the downsides of untried, untested policies are.

There is a real argument worth having about health care prices and how they can be lowered. A number of regulatory straitjackets harm competition and creates a landscape of large players that have kept prices high. Sitting inside the guts of the healthcare system, it is easy to see rent seekers in every health care sector that proliferate. Physicians aren’t entirely blameless, and a better, more efficient healthcare system may very well see many physicians making less, but it would be wise to act more like the skilled surgeon rather than the butcher to avoid killing the patient.

Anish Koka is a cardiologist in practice in Philadelphia. 

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18 replies »

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  3. Everyone needs to grow up. What if the patient was familiarized with the usual customary and reasonable charges of his local docs? What if he was generally aware of the payments made by his insurer as a percentage of these provider charges? What if he was responsible for contracting with his insurance plan in the first place? and accordingly was aware of benefits, deductibles, co-payments, maximum oops payments, etc.? Alas, what if the claim payments went directly to the patient? What if he could select any physician and move to any location? …and self-refer to any specialist?

    One would still be covered. There would still be some paternalism. The State and Feds could still help the poor and sick. There could still be as much altruism. The only difference is that the patient would be in charge of his insurance and he would have much more flexibility. There would be less third party payment psychology. And he would know the things that he needs to know, no matter how the insurance was set up. And there would be at least some awareness of prices. And providers would treat patients with TLC so that their charges would get paid by the patient. There would be, at minimum, unequivocal shopping behavior, as the patient hunted for an insurer and selected his providers, and, as the provider or hospital rethought their prices to win over patient.

    But, everyone hates indemnity because the patient cannot be forced to pay the money sent to him for claims. The patient would tend to keep the claims money if he were not satisfied. At least some. Isn’t this good? Isn’t this galloping quality control? The benefits of treating the patient like a grown-up would probably have surprising out-weighing advantages.

  4. Even for care scheduled in advance, patients generally have no role in choosing radiologists, anesthesiologists, pathologists and emergency medicine doctors. I wonder how these doctors, along with the surgeons that Anish referenced, would feel if they were on the receiving end of these bills. Many of these charges are flat-out obnoxious and well beyond any zone of reasonableness, in my opinion. I would be interested in hearing Anish’s and Steve’s opinion regarding what percentage above or multiple of Medicare rates these experts in the field think is reasonable. Just getting a surprise bill after being sick is, in itself, extremely stressful.

    The IDR approach at least seems like an improvement over the prior status quo if the process is relatively quick and administratively workable. At the very least, there should be some entity, either the insurer or the hospital or an IDR mechanism that is on the patient’s side and helps to bring these disputes to a timely, reasonable and satisfactory resolution. It seems to me that the hospitals where these doctors practice should at least insist that out-of-network fees meet a zone of reasonableness test though how that would be defined and who would determine it, I don’t know.

  5. The basic problem with Anish’s argument — excepting that I don’t think the Dartmouth folks think they’ve been proved wrong — is that the straw man policy wonks and the straw man OON doctors/groups that he proposes are arguing about the wrong thing. The way to make this all go away is to have single or multi-payer rates that are the same for everyone. This works fine in Maryland and every other frigging country in the industrialized world. It also puts the evil profit making insurers (ok, he didn’t say evil) in a different spot because they have no need to have networks. It also leads to supply side planning needs, such as reducing specialty residency places, and probably bigger or total subsidies to medical students so they have no debt….

    But the whole surprise billing issue is a side-effect of a much larger underlying disease

  6. In a system that abhors price competition, no external oversight of rates, and surprise (gotcha) billing, it’s no wonder patients are crying foul, to put it mildly.

    I call it highwayman robbery in a white coat. Bring on Medicare for all and universal Medicare rates.

  7. I had a long talk with our chief legal counsel and also think IDR is mostly the superior choice right now. However, in response to your part about ERs I can tell you that north of Philadelphia I know at least one ER where a well respected ER group was let go so they could bring in another group that would be out of network and bill at out of network rates. It meant that the hospital no longer had to subsidize the ER docs. Since I know people on the board of that hospital my sense is that this wasn’t out of greed per se, but because they have a lot of Medicaid patients and self pay patients they weren’t generating a lot of revenue. In that situation a hospital will subsidize a group but by going with a group that can bill at out of network rates they didn’t have to do that. The downside was that patients sometimes faced unexpectedly large bills.

    I chair a department that has a number of small hospitals in poor areas and our main hospital is “on the wrong side of the tracks”. What people often forget is that if you want to staff these places you still have to pay market rates to hire staff. (There is a sub-culture of marginal docs that you can hire for a lot less, but you get what you pay for.) Its not easy to staff some of these places.


  8. The physicians set the fee schedule, often with input from their billing service if they use one. You can also hire consultants to help. They generally know current market rates. Employed physicians have their fees set by the hospital or network that employs them.


  9. The ACA worked if you got a subsidy – and no preexisting – just like employer coverage. It did not work for incomes outside the subsidy cliff as it is just private insurance.

  10. “which is why the employer channel is so appealing to begin with. ”

    It’s appealing because claims management is more efficient.

    “Force, no choice, guaranteed business”

    Don’t insurance companies compete for employer business? Doesn’t the choice depend on what the employer buys?

  11. Lol. Good question. In our current system, The fee schedule is usually some multiple of Medicare rates.

  12. Completely disagree. Insurance depends on an opaque market, if one can even use that term. Patients are far more surprised by what insurance does or does not cover than what a physician charges. Besides, insurance companies want nothing to do with a marketplace, which is why the employer channel is so appealing to begin with. Force, no choice, guaranteed business, government subsidies…a “capitalists” dream. The big block insurers cant get into the public space fast enough. They know where their bread is buttered, and it ain’t with “consumers”.

  13. If we bought insurance directly, not through employment, where would the subsidy come from to make it affordable?

  14. If insurance policies were offered directly to consumers, not through employers, we would have a transparent consumer market with less surprise and less mysterious billing. Alas, that is not the case right now. Most of us who have insurance have policies conferred upon us by employers, with very little idea or choice regarding the benefits we enjoy, and with very little incentive for insurers to keep us happy.

    There was a piece about this in the WSJ last year: https://www.wsj.com/articles/the-irs-can-save-american-health-care-1530477705