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The Keckley Report

Debate on Surprise Medical Billing Surfaces Unflattering Secrets of the System

By December 16, 2019March 1st, 2023No Comments

Legislation addressing surprise medical billing is progressing. But in the process, three unflattering secrets have surfaced that are problematic to the system’s business as usual.

Last week, Senate health committee Chair Lamar Alexander (R-Tenn.), House Energy & Commerce Chair Frank Pallone (D-N.J.) and Energy & Commerce Ranking Member Greg Walden (R-Ore.) announced a compromise bill that includes a ban on balance billing but disallows gag clauses that shield disclosure of contract terms between insurers and providers.

Under the proposed legislation, patients would be held harmless in balance billing disputes and insurers would have to pay providers at least the median in-network negotiated rate in the area. If the median in-network rate is higher than $750, providers could appeal the payment rate in via arbitration.

Air ambulance carriers would be banned from balance billing, and insurers would pay at least the median in-network negotiated rate in the area. If the rate is higher than $25,000, carriers could appeal to an outside arbitrator.

Note: this legislation is part of a larger set of provisions including nearly $20 billion over five years for community health centers, boosts prescription drug competition, increases the age to buy tobacco to 21, provides federal grants to states to establish all-payer claims databases.

Stepping back, the practice of surprise medical billing and legislation to curtail its use has surfaced three unflattering features of the U.S. health system:

  • The importance of secrecy about the terms and conditions in contracts between hospitals and insurers. The proposed surprise medical billing legislation eliminates gag clauses. With exceptions for vertically integrated like Kaiser Permanente and opportunities for states to waive the prohibition, gag clauses would be no more. It’s a tricky issue: Generally, gag clauses allow insurers to create narrow networks and specify terms and conditions specific to a provider organization. If gag clauses that preclude public disclosure of these complicated agreements are eliminated, it’s anyone’s guess how insurers, hospitals and physicians will operate, at least in the near term.

  • The disconnect between public opinion and public policy in healthcare. Polls show half of Americans have received a surprise medical bill and almost 90% think Congress should act to protect consumers.  That said, legislation to end surprise bills has been slow to get Congressional action. Similarly, Americans think drug prices are too high, waste, fraud and abuse in healthcare is rampant and price transparency necessary and simple.  But policy making in healthcare is often not aligned with popular opinion: the issues are complicated, special interests are strong and retail politics rewards soundbites over substantive debate. That’s why politics trumps policymaking in healthcare.

  • The role private equity (PE) plays in the system. Among beneficiaries of surprise medical billing are physicians and their private equity backers who routinely bill patients for services at out-of-network rates where they can. For instance, hospital emergency rooms are responsible for 43% of surprise medical bills to patients., Doctor Patient Unity, a coalition created by private-equity-backed Team Health and Envision among others, has spent almost $30 million in traditional and social media in opposition to surprise medical billing legislation. Private equity is playing a large and growing role in healthcare: its aim is profit. But visibility is not sought: they prefer to stay behind the scenes and let their portfolio companies grab the spotlight when it’s good for their businesses. And PE funds include among their limited partners a number of high-profile health systems, pension funds and wealthy investors who prefer their roles not be disclosed.

Surprise medical billing legislation is the latest issue in the industry’s transition from secrecy to sunshine. Price transparency for drugs, hospitals and insurers, executive compensation, conflicts of interest, outside investments, Board of Director independence and competence, business relationships with suppliers, data ownership and commercialization, actual costs for drug development and others are next in line.

Legislation to limit surprise medical bills might pass by the end of the year. Hospitals, physicians, insurers and others will cry foul; employers, consumer advocates and Congress will declare victory. No one knows for sure its impact on insurance premium increases nor how providers left out of networks will be able to adapt.

It’s a new day. It’s not business as usual.


OIG Report: Medicare Advantage plans might be overpaid by Medicare
Medicare Advantage plans are popular with seniors and profitable for most insurers. But there’s growing evidence they might be overpaid by Medicare.

This year, 22.5 million Medicare beneficiaries have an MA plan, a 10% increase from 20.5 million in 2018 and an 86% increase from 12.1 million in 2011. Plan choices also increased, with the average beneficiary able to choose from 27 plans next year, up from 23 in 2019.

A December 12 report by the HHS’ Office of the Inspector General found insurers used chart reviews instead of face-to-face visits to get higher reimbursement for sicker Medicare enrollees resulting in $6.7 billion from Medicare. The OIG report found insurers found 553 MA plans conducted 52.6 million chart reviews for risk adjustment purposes—the basis for higher payments by Medicare. They found insurers submitted 40.6 million chart reviews that added diagnostic risk for which higher reimbursement was requested: for 41% of these submissions, there was no visit or test that corroborated their submission.

Increased scrutiny of MA plans is likely in coming months as health reform and deficit reduction get more attention, and scrutiny by critics who think MA plans guilty of cherry-picking healthier seniors for financial advantage increases.

Moody’s: Not-for-profit hospitals stabilized by Medicare pay raise, DSH cut delays
The financial outlook for not-for-profit hospitals has improved thanks to a significant pay raise ($4.67 billion for 2020) from the CMS and the one-year delay of the Medicaid disproportionate share payment cuts ($4 billion for 2020) per a new report by Moody’s Investor Service. Operating cash flow will grow 2% to 3% next year prompting Moody’s to change its outlook to stable from negative. Moody’s remains cautious however: “slight increases in commercial premiums utilization are unlikely to offset the “burden of high-deductible health plans, moves to undermine the ACA, that have increased patients’ and hospitals’ financial exposure. The CMS’ plans to cut Medicare reimbursement under the 340B drug discount program and site-neutral payments are also looming.” Note: Medicare patients accounted for 46.8% of not-for-profit hospitals’ business in fiscal 2018, up from 44.1% in fiscal 2014.

Gallup: One in four Americans delay their care due to cost
Per Gallup, 25% of Americans say they or a family member put off treatment for a serious medical condition in the past year because of the cost, up from 19% a year ago. Another 8% said they or a family member put off treatment for a less serious condition, bringing the total percentage of households delaying care due to costs to 33%, tying the high from 2014.

Study: Primary care in US lags other developed countries, likely to get more attention
The 2019 Commonwealth Fund International Health Policy Survey of Primary Care Physicians was administered to nationally representative samples of 13,000 practicing primary care doctors in Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the UK, and the US. Key findings:

  • 37% of US physicians reported that they or a health care professional in their practice made home visits frequently or occasionally, compared to 70% or more in all the other countries.

  • At least seven in ten physicians in France, New Zealand, Norway, and the UK received information from specialists about changes made to their patients’ medication or care plans, in contrast to 49% or fewer of physicians in Germany, the Netherlands, Sweden and the US.

  • 72% offered patients the option to communicate with physicians about a medical question via email or a secure website. The use of other technologies—such as video consultations and remote monitoring of patients with chronic conditions—was rare in most countries, but US physicians were among the most likely to use them.

Per Venrock principals, “2020 will be the year the PCPs wake up and realize that they can earn more and be happier working independently of health systems. As a result, payers will try to tempt PCPs to break free by offering them higher reimbursement, start-up capital, and even subsidized office space and technology. We also think that we will begin to see a reprise of the 1990s with lower margin health systems tiring of losing money on their employed doctors and offer to sell them back their practices for peanuts.”

Study: Inpatient quality of care impacted by hospitalist scheduling
In this cohort study of 3 years of Medicare data from 229 hospitals in Texas, covering 114,777 medical admissions of patients with a 3-day to 6-day length of stay, patients receiving care from hospitalists whose schedules permitted continuity of care had significantly better outcomes, including lower 30-day mortality after discharge, lower readmissions, higher rates of discharge to the home, and $223 lower 30-day post discharge costs. Hospitalist schedules promoting inpatient continuity of care may be associated with better outcomes of hospitalization. Note: Previous research has shown that “hospitals that switched from not using hospitalists to using a high hospitalist staffing intensity had both increased patient revenues and higher operating costs per adjusted patient day. However, the higher operating costs from high hospitalist staffing intensity were offset by increased patient revenues, resulting in a marginally significant increase in operating profitability.”

Study: 1 in 5 adolescents, 1 in 4 young adults prediabetic
This JAMA Pediatrics study of 5,786 US adolescents and young adults found 1 of 5 adolescents and 1 of 4 young adults have prediabetes. “The adjusted prevalence of prediabetes is higher in male individuals and in people with obesity. Adolescents and young adults with prediabetes also present an unfavorable cardiometabolic risk profile, putting them both at increased risk of type 2 diabetes and cardiovascular diseases.”

MedPAC: 47 hospital closures YTD
Last week, MedPAC reported that 47 hospitals have closed in 2019 vs. 23 in 2018. Most are small and located in Medicaid non-expansion states. The closures were driven by excess patient capacity and reductions in patient volumes per MedPAC. Note: The Medicare Payment Advisory Commission is a nonpartisan legislative branch agency that provides the U.S. Congress with analysis and policy advice on the Medicare program.

Update: Drug Pricing Legislation appears at partisan impasse
Last week, Republican committee leaders introduced Lower Costs, More Cures Act (H.R. 19) which includes a Medicare Part D redesign, a maximum monthly out-of-pocket cap; Medicaid spread pricing cessation and other provisions as the GOP alternative to H.R. 3.(the Elijah Cummings Lower Drug Costs Now Act). Meanwhile, House Democratic leaders passed H.R.3 which includes an expansion of the government’s authority to negotiate drug prices for 50 medicines and a mandate that the federal government issue regulations restricting drug makers’ ability to raise prices above the rate of inflation. Drug pricing legislation appears at an impasse.

Medicaid Work requirement: SC implements, others on hold
Thursday, South Carolina received permission to establish work requirements for its Medicaid program. Starting in July, beneficiaries including parents or minor children enrollees under 100% of the federal poverty level will be required to work 80 hours monthly which can include job training. It is the first state that had not expanded its Medicaid program under the ACA. Most of the working-age Medicaid population in South Carolina consists almost entirely of poor mothers. To date, 11 states have petitioned CMS to add a work requirement. A federal judge in three states– Arkansas, Kentucky, and New Hampshire—has suspended action by the states pending legal action and the other states have voluntarily put their work requirements on hold. 


  • The U.S. House and Senate will be in session. In the House, the vote on impeachment is scheduled Wednesday. Debate about drug pricing legislation will continue. And Congress is expected to approve a stop-gap budget addressing $1.4 trillion in federal discretionary spending before the December 20 scheduled shutdown.

  • Thursday, 7 Democratic Presidential candidates will debate at Loyola University in Los Angeles—the sixth debate.

  • In 42 states, legislatures have adjourned their 2019 sessions. Legislatures in NJ, OH, WI and MI are in regular session and IN, PA, WV and NC legislatures are in recess.

  • And any day, a ruling from the Fifth Circuit in Texas v. Azar impacting the future of the Affordable Care Act.

It’s a busy time in healthcare. Stay tuned.

P.S. Next Week’s Keckley Report will be the 12/23-12/30 version featuring “Themes that will Dominate Industry-Policymaker Debate in 2020”.

Thanks for reading


Sanger-Katz et al “Mystery Solved: Private-Equity-Backed Firms Are Behind Ad Blitz on ‘Surprise Billing” New York Times September 9, 2019

Scott “Nearly half of Americans say they’ve been hit with a surprise medical bill” Vox November 13, 2019

“Managing Delivery System Reform and Strengthening Medicare Advantage”, Office of the Inspector General, US Department of Health and Human Services

“Not for Profit and Public Healthcare: 2020” Moody’s Investors Service December 9, 2019

“More Americans Delaying Medical Treatment Due to Cost” Gallup December 9, 2019
Doty et al “Primary Care Physicians’ Role In Coordinating Medical And Health-Related Social Needs In Eleven Countries” Health Affairs December 10, 2019

Bob Kocher and Bryan Roberts “Health Care Investors Predict 10 Ways the Industry Will Change in 2020” Fortune December 6, 2019

Goodwin et al “Association of the Work Schedules of Hospitalists with Patient Outcomes of Hospitalization” JAMA Intern Med. November 25,2019. doi:
“Hospitals’ use of hospitalists Implications for financial performance” Healthcare Management Review January-March 2019
Andes et al “Prevalence of Prediabetes Among Adolescents and Young Adults in the United States, 2005-2016” JAMA Pediatrics December 9, 2019
Medicare Payment Advisory Commission December 10, 2019

Sachs “Prescription Drug Legislation In Congress: An Update” Health Affairs December 12, 2019

Armour “House Passes Bill to Reduce Drug Prices” Wall Street Journal December 12, 2019
South Carolina Medicaid, December 12, 2019

Goldstein “South Carolina gets approval to impose Medicaid work requirements” Washington Post December 12, 2019