Charges for out-of-network care vary wildly — what explains the differences?

Across the country, patients who receive out-of-network care can face “exorbitant” charges for medical services compared to Medicare’s reimbursements for the same procedures. Charges from out-of-network physicians range from 118 to 1,382 percent of what Medicare pays for the same services, a new report found.

“Patients continue to see soaring prices for medical services,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans (AHIP) a national trade association representing the health insurance industry and publisher of the recent report. “If the goal is to make health care and health coverage more affordable, there needs to be a much greater focus on addressing the underlying cost of medical services, including the prices charged for out-of-network services.”

The goal of the group’s research was to shine a spotlight on the rising out-of-pocket charges consumers are facing. Earlier this month, ROH wrote about out-of-network charges, which are also referred to as “surprise” billings since patients are often unware they are using a provider who is out of their health plan’s network. These unexpected charges can result in thousands of dollars in bills. 

The pricing variation the recent report found, though, isn’t limited to out-of-network billings. Even within one’s network, there’s often a wide discrepancy in pricing for the same procedures or care, as explained by this Consumer Reports piece: “If clothes shopping worked like health care, you might pay $80 for a pair of jeans at your local boutique and $400 for the identical pair at the nearest department store — and the clothes wouldn’t have price tags on them.”

The new report, which is based on private insurance databases comprising more than 18 billion claims from 2013 to 2014 and 97 procedures, offers data for individual states that illustrate just how wide the variation in these fees can be. They’re compared to the benchmark of Medicare rates, which many providers argue are so low that they often don’t cover the costs of providing care.  

This variation can translate into huge dollar differences. “Low back disk surgery,” for example, ranged from $3,013 for the 25th percentile to $10,216 for the 75th percentile, the report found.

In California, out-of-network charges for cervical/thoracic spinal injections averaged more than 1,300 percent of Medicare fee for the same procedure. Patients who received brain MRI scans saw charges that averaged more than 600 percent of the Medicare fee.

The reason for the discrepancy in pricing is simple, says Will Fox, a principal and consulting actuary with Seattle-based consulting firm Milliman, who has written about pricing transparency and patient cost calculators: “Because they can.”

“That’s part of our crazy system where you aren’t supposed to see the prices of competitors,” he said.

Fox said providers make their charges as high as they can in the hopes that large employers or auto insurance carriers might pay the full amount, even though many insurers’ negotiated contracts will knock those fees down significantly. To gauge their yearly rates, providers will rarely take a comprehensive look at the market, but instead just increase their current rate by a certain percentage.

“They just want to make sure they’re higher than any insurance company will pay,” Fox said. “There’s every incentive to make them high, not low.”

The motives for exorbitantly high prices vary, said Arnold Milstein, a professor of medicine who directs Stanford's Clinical Excellence Research Center. They may compel payers to accept large increases in negotiated prices, or they could help offset losses in hospitals that have higher numbers of uninsured or Medicaid patients. Or, such prices may simply reflect a “financially rapacious mindset,” Milstein said. (Other providers may simply be trying to make ends meet: Reporter Rebecca Plevin recently wrote a great piece on cash-only physician practices, driven in part by primary care providers who view insurance payments for patient visits as too low to compensate for their operating costs.)

Despite the high costs and wide variations in pricing, Milliman’s Fox has seen some promising signs of increasing price transparency in the marketplace.

There’s Fair Health, for example, a national claims database that offers consumers the ability to better understand their health coverage and the cost implications of those choices. Insurance companies also are doing more to educate their members on out-of-network benefits. And more and more insurers have patient cost calculators, at least for in-network costs, he said.

Other efforts such as Clear Health Costs are also helping bring transparency to medical billing and procedure costs. That interactive site gathers cash or self-pay prices for health care in certain metro areas including San Francisco and Los Angeles, where the site partners with public radio stations. The site, run by journalists, hopes to bring more awareness to the entire marketplace: “If you knew that your MRI could cost $350 or $6200, maybe you’d choose a different provider,” according to Clear Health Costs.

And there’s the new California Healthcare Compare website, which is run by the California Department of Insurance and Consumer Reports. Despite its limitations, the new tool is useful in illustrating the wide variation in cost by county as well as quality information about the hospitals and medical groups providing care, as ROH contributing editor William Heisel noted recently.

There are also legislative steps that could give consumers more clarity about out-of-network providers and reduce the likelihood they’ll receive a “surprise” bill. Just this month, the California governor signed legislation that requires weekly updates to health service provider directories. The idea is that patients will be able to determine exactly which hospitals and doctors are in their network when they’re seeking care.

Other steps health plans are taking steps to mitigate surprise charges include requiring hospitals that employ out-of-network providers give detailed disclosures of those specialties – including estimates of charges prior to giving care; and lobbying on behalf of state laws that protect consumers against surprise out-of-network charges. 

Related post

Despite setbacks, health advocates push for solutions to surprise, out-of-network billing

[Photo by kate hiscock via Flickr.]