Association for Public Policy Analysis & Management

Surprise medical bills from out-of-network physicians at in-network hospitals have been a longstanding consumer protections concern in California and across the country. These bills are widely viewed as unfair to patients, and they can be financially burdensome. The State of California began implementing a new law (AB 72) in July 2017 to protect patients from receiving surprise medical bills from out-of-network physicians at in-network hospitals. This law sets a payment standard for out-of-network services, with the initial level at the greater of 125% of Medicare or the average local contracted rate. AB 72 also establishes an independent dispute resolution process. Understanding the range of AB 72’s early effects in California can inform implementation of the policy moving forward. The experiences of stakeholders in California can also inform future policy design in other states as legislators across the country seek to protect constituents from surprise medical bills.

I conducted a descriptive single-case study to capture the initial perspectives and early policy responses of physicians, insurers and health plans, patient advocates, and hospitals. Semi-structured interviews were conducted with 28 stakeholders in January through March 2018. Interviewees included representatives of advocacy organizations, representatives of state-level professional associations, legislators, regulators, and current executives of physician practice groups, hospitals, and health benefits companies. Relevant documents were also reviewed, including bill text, analysis, rulemaking guidance, and legislative advocacy documents. Interview transcripts and documents were analyzed using process-tracing, pattern-matching, and explanation-building techniques with computer-based qualitative analysis software.

Stakeholders reported that AB 72 is effectively protecting patients from receiving surprise medical bills. However, provisions of AB 72 that limit the levels of payments to out-of-network hospital-based physicians have decreased the leverage of these physicians in their contract negotiations with payers. Physician stakeholders and market observers report that AB 72 has resulted in lower contracted payment rates and failures to contract, particularly in the anesthesiology, radiology, and orthopedics specialties. With less negotiating leverage, some physician groups have accelerated steps toward consolidation. Stakeholders reported concerns about the long-term stability of the hospital-based specialist workforce and possible decreases in access to care.

Although AB 72 affects a narrow band of hospital-based specialists, these impacted physicians provide critical services for procedural and diagnostic clinical care. Therefore, it is in the interests of lawmakers and regulators to foster a sustainable payment rate to maintain stability in the hospital-based physician workforce and access to these services. As implementation of AB 72 continues in the coming months and years, it will be critical to monitor its effects and take steps to mitigate negative consequences. For example, regulators could adjust the payment standard or network adequacy requirements to encourage contracting between payers and physicians.