Hospital opposition to the new surprise billing law has healthcare experts scratching their heads.

After all, the most exposed to risk under the new federal law that bans balance billing for hospital patients are a small slice of physician groups. Yet, it’s the nation’s top lobbying groups for hospitals and doctors that are suing the federal government over the ban’s adoption — not those practices that have the most at stake.

It raises the question: Why are hospital groups, especially, leading the legal charge against surprise billing instead of these third-party physician groups, many of which are owned by private equity groups that have avoided in-network contracts as a business strategy?

“It’s a good question,” said Larry Levitt, executive vice president for health policy at Kaiser Family Foundation. He and other policy experts are voicing skepticism about the motives in these lawsuits.

Last year, Congress passed the No Surprises Act in an effort to shield patients from surprise medical bills — a persistent issue for American consumers receiving care from hospitals or doctors outside of their insurance networks. The law now bans most forms of surprise billing.

In their complaint, the American Hospital Association and the American Medical Association are targeting a key part of the law that outlines how to resolve payment disputes for out-of-network care. They argue the law is being put into practice in a way that tips the scale in favor of insurers.

At its core, this surprise billing debate is about how the balance of power between insurers and providers may shift, Levitt said.

Legal experts say they also are puzzled that hospital groups are taking such a position.

“I don’t understand why hospitals would be pushing so hard. It doesn’t affect most of them,” said Katie Keith, a lawyer and health policy expert at Georgetown University.

Before the new law, avoiding surprise billing was next to impossible even for the savviest insured patient. In many respects, the patient can do everything right; pick an in-network hospital but are unknowingly treated by an out-of-network physician sometime during the course of treatment; many times by a specialist. Thanks to the law that went into effect at the beginning of the year, patients will be protected from surprise bills in most cases.

Children’s Hospital Association stands against HHS even though surprise bills are ‘rare’

Other medical trade associations besides the AHA and AMA have opposed the adoption of the No Surprises Act and are suing the HHS over the same issue.

The law says arbiters can consider a range of information, including the physician’s level of training and the patient’s acuity level. In the rule-making process, to give arbiters a place to start the CMS put weight on the qualifying payment amount, or the median in-network rate for a specific service in a specific region.

CMS rules instruct arbiters that they “must begin with the presumption that the [qualifying payment amount] is the appropriate [out-of-network] amount.” It’s this instruction that has generated pushback from providers.

The AMA and AHA say that relying on the qualifying payment amount is unfair because it “is calculated exclusively by insurers” and “presumptively determines the appropriate payment rate.”

However, payers argue providers purposefully stayed out of network and were “paid well above typical market rates.” AHIP, the lobbying group for insurers, has said that HHS’ approach is reasonable and the qualifying payment amount provides structure and certainty instead of an open-ended arbitration system with “unbounded alternatives.”

Other medical trade associations have backed the AMA’s and AHA’s objection to the qualifying payment amount in court.

For example, the Children’s Hospital Association filed a brief siding with the hospital and doctor lobbies. Yet, children’s hospitals care for a disproportionate number of children covered by Medicaid and the Children’s Health Insurance Program, which already outlaw surprise bills.

Given this ban, the fact that CHA filed a supporting brief again raises the question: Why are providers less reliant on surprise-billing tactics heading to the courts instead of those that are?

The CHA acknowledged surprise billing is a “rare occurrence amongst children’s hospitals,” but the group is “very concerned” the process to resolve disputes will have much greater repercussions. 

“The rule creates a de facto benchmark payment rate rather than a balanced arbitration process in surprise billing situations as Congress intended,” CHA said in a statement.

CHA is concerned the arbitration process will incentivize insurance companies to set “artificially low payment rates” or simply “exclude specialty providers such as children’s hospitals, from their network because they could pay a lower rate to them by doing so,” the organization said.

Still, since the qualifying payment amount represents the median in-network rate, it by definition means that half of providers are below the QPA and half are above, according to Chris Garmon, a professor at University of Missouri – Kansas City, who has studied surprise billing. Not all providers are set to see payments decline and some may even see them increase if the QPA is used, he said.

The president of the AMA, Gerald Harmon, said knowing arbiters have to start with the QPA effectively sets a ceiling on prices.

“To artificially, and for no reason, establish that the median in-network rate is the ceiling is inappropriate. I mean, that’s not arbitration,” Harmon said.

Tipping the scales in this way will incentivize insurers to only contract with the lowest cost providers, Harmon said.

“They’re going to always just go for the cheapest and heck with quality or anything else,” Harmon added. While the AHA and AMA support removing patients from the middle of these disputes, they argue that there are lasting effects beyond these contested surprise bills.

Kaiser Family Foundation’s Levitt says that from the beginning of this debate it’s been less about protecting patients and more about how power may shift between insurers and providers.

“In some ways, the surprise billing debate is simply a proxy. A minority of providers are likely to take a significant financial hit here, but provider groups are protecting their turf,” Levitt said.

At the same time, some policy experts question whether the legal challenges are more about disrupting what providers fear may be a slow march toward price regulation in the future.

Previous proposals of the ban on surprise billing considered capping payments to a percentage of Medicare rates instead of using an arbitration process. Providers were opposed and favored arbitration instead.

While provider associations take the battle in court, the groups absent from litigation are noteworthy. Private equity backed physician groups such as TeamHealth and EmCare, two of the nation’s largest physician staffing firms, haven’t filed any lawsuits over the issue. Their business models, as detailed in a previous study, are in conflict with the surprise billing ban.

The two companies typically avoided in-network contracts as a strategy to increase their payments from insurers and patients, according to previous research. Still, that practice still can put patients at risk of surprise bills. With the surprise billing ban now in place, it restricts the staffing firms’ ability to remain out of network as a tactic to increase their rates.

TeamHealth and Envision, parent company of EmCare, both declined to comment on why they are not suing. TeamHealth is owned by private equity group Blackstone Group and Envision, Emcare’s parent, is owned by KKR.

Tactic to leverage higher rates isn’t uncommon

Surprise bills aren’t rare. As many as one in five surgery patients that were admitted from the ER faced a surprise bill, 22% of in-network ER visits involved an out-of-network physician and almost 70% of air ambulance rides put patients at risk of a surprise bill, according to three separate reports.

Payments to ER doctors from those hit with a surprise bill were 10 times higher compared with others.

Most of these types of bills originated from non-hospital based physicians, according to the study that examined the potential for surprise bills by analyzing nationwide medical claims.