Disclaimer: As with all our articles, it is not intended to be a partisan piece and we take no political position.  We are advocates for healthcare providers and seek to study, understand, and disseminate information on the healthcare financial system.



According to KFF, a “surprise medical bill” is one where a patient receives care and is billed for services by an out-of-network provider and the patient did not know in advance that the provider was out of network.  According to the KFF study, “about a quarter or more of emergency visits in Texas (38%), New Mexico (29%), New York (28%), California (26%), Kansas (24%), and New Jersey (24%) resulted in at least one out-of-network charge in 2017, while the rate was under 5% in Minnesota (3%), South Dakota (4%), Nebraska (4%), and Alabama (4%)”.



It is generally acknowledged that no one wants to receive a surprise bill, whether a patient, consumer, providers, or a business.  There are legions of articles now documenting the impact of financial hardship as a result of healthcare costs, including the rise in bankruptcies associated with medical bills.


While they have not been shown to be the primary cause of bankruptcies, surprise medical bills are a contributor to this and have garnered a lot of political attention in recent years.  More than 1 in 6 emergency room (ER) visits results in a surprise medical bill according to the Kaiser Family Foundation (KFF) study that was just release at the end of June 2019.  In fact, “18 percent of all emergency visits and 16 percent of in-network hospital stays had at least one out-of-network charge”, according to KFF.


There are many complex and interconnected problems that result in this issue.  First, patients are not educated or conditioned to check on services prior to engaging them.  In other words, while they are likely at some point to be using emergency services, they are unlikely to have investigated to determine what if any are out-of-network at their closest facility that would result in out-of-network medical billing.  While stories of surprise medical bills are on the rise, patients are generally not aware of this issue.  While 38% are “very worried” and 29% are “somewhat worried” about being able to afford “unexpected medical bills”, this is not the same as “surprise medical bills”.  There is little or no data on the awareness of this risk, but we posit it is extremely low.  American consumers are bad at financial planning, as evidenced by the poor savings rate of the country (3% on average according to the IMF and only 31% of Americans save 10% or more according to Bankrate) and are typically living paycheck to paycheck.



Hospitals and healthcare providers in general are still cagey and reluctant to provide information and data to answer many of these questions even if patients inquire.  This author attempted at one point recently to negotiate out of network fees at a healthcare provider and found it excruciatingly difficult to even get what their fee schedule was or whether they would be willing to negotiate to a feel in the range of 120-150% of Medicare where the prevailing rates are in the 90-120% range and the state Medicaid pays about 60-70% of the Medicare fee schedule.  There are some transparency tools and online resources now available, but not all facilities have them and they are generally not helpful to patients pro-actively.  UCLA Health is a good example where they make a good faith effort to be transparent in their ER billing.


Unfortunately, it is effectively useless for the patient.  A hypothetical scenario where a patient’s partner is trying to determine what would be the fees if they ended up at the emergency room for their partner’s heart condition would not yield much benefit by the UCLA website.  The patient wants to know how much they would owe and the site is just a giant jumble of coding and fee schedule.  Even if the patient knows they have paroxysmal atrial fibrillation (which in of itself is unlikely, they are more likely to think “hear problem” “heart flutter” or “high heart rate”), how could a patient possibly do medical coding to convert “paroxysmal atrial fibrillation” into the appropriate CPT codes they are likely to encounter at the ER?  Even if they are somehow able to come up with some of the CPT codes, like 92950 and 99291, a 92950 is not even included on the UCLA website.  Moreover, what should a patient do with the $2570 fee that is listed for the critical care code?  Will the patient owe something approaching $2570 due to a out of network provider balance billing them a “surprise medical bill”, or just $50 or $250 for copay, deductible and coinsurance for their portion of the $350 allowed for the 99291 at about 110% of the Medicare rate?  The patient has no more useful information than before they started all of this work.



It is important to consider why many providers are out of network that might result in “surprise medical bills”, since many of these factors are outside the control of the providers themselves.  There has been a battle between insurance companies and healthcare providers like emergency room physicians that has raged now for decades and has been escalating.  Insurance companies have been squeezing the rates they pay to healthcare providers like anesthesiologists and laboratories until they are often paying less than the Medicare rate.  Providers have little to no ability to negotiate with insurance companies on the rate paid and have had to face a very difficult dilemma of whether to stay in network and take very poor rates, sometimes a tiny fraction of the Medicare rate or whether to drop the contract and just bill out of network.  Apache recently analyzed a laboratory billing issue where the provider was getting approximately 24% of the Medicare rate from BCBS, and they were contracted.


Emergency room physicians, anesthesiologists, pathologists, and other providers who see patients that come through the ER have been particularly abused by insurance companies because they know that the patient cannot be denied service.  EMTALA (and general ethics and societal expectations) require that patients be treated regardless of their ability to pay.  What politicians and the public had not anticipated or dealt with was the insurance companies’ willingness to use this as a weapon against those providers.  If they ER doc must treat the patient and cannot turn them away, the payer can pay as little as they want, even if it is far below the cost to treat that patient because the doc doesn’t have any choice.  As insurers kept sticking it unilaterally to the docs, many providers (including some hospitals) chose to drop their contracts and just bill out of network.  This allowed them to try and recoup more money from the patient if the insurance didn’t pay, or at the very least put pressure on the insurer to pay more so the patient wasn’t responsible for such a large bill.  Unfortunately, patients are caught in the middle of this fight.  At root, payers squeezing providers gave them little choice but to try alternate methods of supporting their bottom line.



At least 24 states have laws that protect consumers from out-of-network ER billing, and more states are proposing independent dispute resolution initiatives to enable providers and insurers to settle balance billing disputes without involving the patient. In a few rare cases, regulators have directly resorted to litigation, such as the California case in which a physician was sentenced to five days in jail and ordered to $562,500 for balance billing emergency patients.


There is a federal effort under way to protect patients against surprise medical bills.  It is currently making its way through the United States Senate, which you can read about here.  This bill would not only address surprise medical bills, but also regulate prices of prescription drugs, and create a national database of healthcare costs.  The bill would pay providers the median “in-network rate” of similar providers in the same area.



Insurance companies have exacerbated the problem dramatically.  When providers balance bill patients, most are willing to accept less than the full balance bill.  They may use the high fee as negotiation to get something more from the payer or to get something from the patient.  However, insurance companies have fought to stop the providers from negotiating and taking lower amounts.


In fact, insurance companies have made efforts to make it illegal to waive patient balances and have actually sued many healthcare providers including ambulatory surgery centers and laboratories after they waived patient balances.  Insurance companies in a somewhat ruthless manner are trying to force providers to bill patients giant balances in order to put pressure on providers to take their pitiful in-network rates or face a backlash from patients and ordering providers from enormous bills.  Whoever said insurance companies cared about patients?



The root of the problem in our system is many fold and a simple solution may not be possible.  What is clear is that if the Senate bill is enacted, it will further embolden insurance companies to squeeze emergency room physicians and other providers even harder because there will be nowhere for them to go.  If doctors cannot negotiate the contracts, cannot reject patients, and cannot opt out of the contracts, it is clear insurance companies will just stick it to them.  We will see less and less providers willing to accept these positions or require guarantees from hospitals or other organizations to support their income.  This is just transferring the cost and helping insurance companies fatten their bottom lines at the expense of the providers.


Apache Health would suggest the following:

  • National statutes requiring complete transparency from healthcare providers and insurers
  • Interconnectivity between providers and insurers so that patients can instantly see which providers at which facilities are contracted with their insurance
  • Centralized database of costs, which is in the current legislation
  • Mandatory cost calculator that links provider fee schedules, contracted status, and plan coverage to calculate what the cost to the patient. This must be patient centric so they can enter consumer-facing queries like “broken bone” or “heart issue” and get a estimate and range including all CPT coding, fee schedules associated, and patient balance cost calculation incorporating their benefits.
  • Mandated notification of patients of these resources from their insurer with links
  • National statutes requiring insurance companies to offer in network contracts to healthcare providers at reasonable rates


“Reasonable rates” could be determined by a 3rd party that is mutually agreed upon by both parties.  If that is not possible, it could default to a calculation of the average rate for that type of procedure taking into account both in network and out-of-network collections.  This would prevent the insurance companies from gaming the system by driving down the price of contracts in order to lower the average to further drive down the pricing if the provider was stuck, as is the case in ER billing.


If we wanted to suggest something really controversial, we might consider the following.  If the root problem is that patients are “surprised” and not prepared for high medical costs, a radical change may be required that either incorporates some form of nationalized healthcare (which we historically have not recommended – see our other article) in order to transfer the cost from patients who do not plan well or save to a centralized cost structure that uses forced savings (taxes) to pay for healthcare.  Another radical variation of this, but potentially more politically feasible, would be to require all patients to have an HSA (health savings account) where a portion of their income is automatically diverted in order to be prepared for the costs of healthcare.


The net is that the root problem of why patients get large balance bills from providers is a complex issue where the insurance companies are squeezing the providers and the patients are caught in the middle.  The solution is not to just force the physicians or healthcare facilities to take the hit in order to save the patients; the insurers must bear their financial share as well since they are equally if not majority responsible for the situation.


About Apache Health

Apache Health is a revenue cycle management (RCM) analytics, benchmarking, and auditing company.  The founders of Apache formerly ran a large RCM company that was acquired by a private equity group in a rollup.  Apache’s predictive analytics will benchmark billing performance and project exactly how much more revenue you should earn from your existing volume of patients. Using many factors and a blend of artificial intelligence and specialty specific benchmarks, the model projects whether changing the billing process would improve collections for your particular mix of procedures and payers.  Apache Health can help you evaluate whether to outsource the billing, determine which billing company to select to maximize performance, or track in-house billing performance improvement over time. For more information contact:


Sean McSweeney


Apache Health


smcsweeney at apachehealth dotcom


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