Analyzing the Impact of New York's Surprise out-of-Network Billing Law

Adler, Loren; Adler, Loren

In 2015, New York implemented one of the first state laws regulating surprise out-of-network balance billing both in emergency and non-emergency settings. The law prohibits providers from balance billing fully-insured patients (with few exceptions), and utilizes a final-offer, “baseball-style” binding arbitration process to settle payment disputes between insurers and out-of-network providers. New York’s approach has gained considerable attention in Congress as a potential model for federal policies to mitigate surprise billing; hence, it is important to understand the law’s impact on in-network payment rates for the physician specialties affected, which can have downstream effects on insurance premiums. An aspect unique to New York’s binding arbitration system is the guidance provided to arbiters instructing them to consider the 80^th percentile of billed charges for that procedure in that region of the state – an amount significantly higher than typical in-network contracted rates – when selecting between the insurer and provider offers.

We first present a model of physician-insurer negotiation specific to the facility-based physician specialties that patients typically play no role in choosing and represent a common source of surprise bills – emergency medicine physicians, anesthesiologists, radiologists, and pathologists. By tying arbitration guidance to the 80^th percentile of billed charges, we argue that the law actually increases expected out-of-network compensation for these physicians, thereby increasing their bargaining leverage with insurers. As a result, we hypothesize that the New York law may result in increased in-network payment rates and insurance premiums in equilibrium. We empirically evaluate the effect of the implementation of the law using claims data from the Health Care Cost Institute (HCCI), which comprise a large sample of commercial claims data from United Healthcare, Aetna, and Humana. These data include information on network status and contracted rates from 2014 through 2017. We first illustrate the expected increase in out-of-network revenue under the policy change for these affected specialties. Next, we use these data to evaluate the impact of New York’s law on in-network payment rates, billed charges, and network participation over the first few years of implementation. Consistent with our hypotheses, our findings suggest an increase in in-network payment rates relative to unaffected states timed to the law’s implementation date, as well as an increase in in-network participation rates among physicians. Finally, we also evaluate the spillover implications of the policy change on self-insured enrollees in New York, who are not directly protected from surprise billing by the state law (due to ERISA preemption), but are nonetheless affected by health care market dynamics in the state.

Association for Public Policy Analysis & Management

Panel Paper: Analyzing the Impact of New York's Surprise out-of-Network Billing Law