The Labyrinth of Medical Billing: Navigating Complexity, Inequity, and the Pursuit of Transparency

Many thanks to our sponsor Esdebe who helped us prepare this research report.

Abstract

Medical billing in the United States constitutes a complex and opaque system, often characterized by intricate coding practices, varying payer contracts, and a lack of standardized procedures. This research report delves into the multifaceted nature of medical billing, extending beyond the specific example of ambulance services to encompass a broader analysis of its systemic issues. We examine current billing codes and their applications, the dynamics between healthcare providers and insurance companies in rate negotiation, the implications of diverse billing models (e.g., fee-for-service, value-based care) on patient costs, and the potential efficacy of proposed solutions aimed at enhancing transparency and fairness. This report also explores the impact of recent legislative efforts, such as the No Surprises Act, and the persistent challenges in achieving price transparency and equitable patient financial experiences. Finally, we propose policy recommendations geared towards fostering a more transparent, equitable, and efficient medical billing system, encompassing standardized billing practices, independent dispute resolution mechanisms, and improved patient education initiatives.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

1. Introduction

The landscape of healthcare in the United States is often lauded for its technological advancements and specialized expertise. However, the financial mechanisms underpinning this system, specifically medical billing, are frequently criticized for their opacity, complexity, and potential for inequity. The patient experience is often marred by confusing bills, unexpected charges, and a general lack of understanding regarding the cost of care. The ambulance billing example is a microcosm of a much wider problem. This report aims to dissect the intricate workings of medical billing, focusing on the various factors that contribute to its complexity and offering evidence-based recommendations for reform.

The present system often operates without clear price signals, leading to a disconnect between the cost of services and what patients ultimately pay. This opacity can result in ‘surprise billing,’ a practice where patients receive unexpected bills for out-of-network care, often at exorbitant rates. Such practices erode patient trust in the healthcare system and contribute to the rising costs of healthcare overall. The increasing number of uninsured and underinsured individuals further exacerbates the problems, as they are often left vulnerable to aggressive collection practices and financial hardship.

Our analysis examines the key actors involved in the medical billing process: healthcare providers (hospitals, physicians, and other practitioners), insurance companies (both private and public), billing companies, and patients. We scrutinize the interactions between these actors, highlighting the power imbalances that often exist and the potential for conflicts of interest. We also evaluate the impact of government policies, such as Medicare and Medicaid regulations, on billing practices and patient access to care.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

2. Billing Codes and Practices: A Source of Complexity

Medical billing relies heavily on standardized coding systems, primarily the Current Procedural Terminology (CPT) and the International Classification of Diseases (ICD). CPT codes describe medical, surgical, and diagnostic procedures, while ICD codes classify diseases and health conditions. These codes are essential for communicating information between healthcare providers and payers, enabling accurate billing and reimbursement.

However, the complexity of these coding systems contributes significantly to the opacity of medical billing. CPT and ICD codes are frequently updated and revised, requiring constant training and education for billing professionals. The sheer number of codes, combined with the nuances of their application, makes it difficult for patients (and even some healthcare providers) to understand the basis for the charges on their medical bills. For example, seemingly minor variations in a procedure can result in different CPT codes, leading to significant differences in reimbursement rates.

Moreover, the practice of ‘upcoding’ (using a more complex code than warranted by the service provided) and ‘unbundling’ (separately billing for services that should be included in a single bundled code) can artificially inflate healthcare costs. These practices, whether intentional or unintentional, contribute to the perception that the medical billing system is prone to abuse. Regular audits and stricter enforcement are needed to prevent such fraudulent activities.

The use of Modifier codes adds another layer of complexity. Modifiers are two-digit codes added to CPT codes to provide additional information about the service or procedure. For example, a modifier might indicate that a procedure was performed bilaterally or that multiple procedures were performed during the same session. While modifiers serve a legitimate purpose, their misuse or misapplication can also lead to billing errors and disputes.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

3. The Role of Insurance Companies in Rate Negotiation

Insurance companies play a central role in the medical billing process, acting as intermediaries between healthcare providers and patients. They negotiate reimbursement rates with providers, establish coverage policies, and process claims. The dynamics of these negotiations significantly impact the cost of healthcare and the financial burden on patients.

Private insurance companies typically negotiate rates with providers on a ‘fee-for-service’ basis, where providers are paid a set fee for each service rendered. The negotiated rates are usually lower than the provider’s ‘chargemaster’ rates (the list price for each service), but they still represent a significant portion of the provider’s revenue. The bargaining power of insurance companies often depends on their market share and the number of patients they represent. Larger insurers typically have more leverage to negotiate lower rates than smaller insurers.

Government-sponsored insurance programs, such as Medicare and Medicaid, also negotiate rates with providers, but their reimbursement rates are generally lower than those of private insurers. This can lead to cost-shifting, where providers increase their charges to private insurers to offset the lower reimbursement rates from government programs. This cost-shifting ultimately results in higher premiums for individuals with private insurance.

The trend toward high-deductible health plans (HDHPs) has further complicated the rate negotiation process. HDHPs require patients to pay a significant amount of their healthcare costs out-of-pocket before their insurance coverage kicks in. This means that patients are more exposed to the negotiated rates, and they may be more likely to question the charges on their medical bills. The No Surprises Act has addressed some of these issues but it does not fully protect patients with HDHPs.

Transparency in rate negotiation is critical for promoting fairness and accountability. Patients should have access to information about the negotiated rates between their insurance company and their healthcare providers. This information would empower them to make informed decisions about their healthcare and to negotiate lower prices when possible. However, insurance companies and providers often resist disclosing this information, citing competitive concerns and proprietary information.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

4. Billing Models: Impact on Patient Costs and Outcomes

The medical billing system operates under various models, each with different implications for patient costs and healthcare outcomes. The dominant model, fee-for-service (FFS), incentivizes providers to deliver more services, regardless of their necessity or effectiveness. This model can lead to overutilization of healthcare resources and higher costs for patients and the healthcare system as a whole.

Value-based care (VBC) models, on the other hand, aim to align provider payments with patient outcomes. VBC models reward providers for delivering high-quality, cost-effective care, rather than simply billing for more services. Examples of VBC models include accountable care organizations (ACOs), bundled payments, and capitation. The transition to VBC models requires significant changes in billing practices, including the development of new metrics for measuring quality and efficiency, and the implementation of data analytics to track patient outcomes.

Another billing model is the ‘episode-based’ payment, often used for specific treatments like joint replacement. This model bundles all the costs associated with that episode of care into a single payment, encouraging efficiency and coordination of services. This model can reduce the overall costs by incentivizing providers to avoid unnecessary procedures and complications.

The impact of different billing models on patient costs and outcomes is a subject of ongoing research. Studies have shown that VBC models can lead to improved quality of care and reduced costs, but the implementation of these models can be complex and challenging. Fee-for-service models are often simpler to implement but have inherent incentives that can lead to overutilization and higher costs. Hybrid models that combine elements of FFS and VBC may offer a promising approach, but further research is needed to determine their effectiveness.

The selection of the appropriate billing model depends on various factors, including the specific healthcare services being provided, the characteristics of the patient population, and the capabilities of the healthcare providers and payers involved. A thoughtful and evidence-based approach to selecting and implementing billing models is essential for achieving the goals of improving quality, reducing costs, and ensuring equitable access to care.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

5. Policy Recommendations for Billing Transparency and Fairness

Addressing the complexities and inequities of the medical billing system requires a multi-faceted approach involving policy reforms, technological innovations, and changes in provider and payer behavior. Here are some policy recommendations aimed at fostering a more transparent, equitable, and efficient medical billing system:

• Standardize Billing Practices: Implementing standardized billing codes, formats, and procedures would reduce administrative costs and improve the accuracy and efficiency of claim processing. This includes standardizing Explanation of Benefits (EOB) documents for easy understanding and providing consumers with access to clear and comprehensive information about their healthcare charges.
• Enhance Price Transparency: Requiring healthcare providers and insurers to disclose negotiated rates for common services would empower patients to make informed decisions about their healthcare and to negotiate lower prices when possible. This information should be readily accessible through online tools and mobile applications. The No Surprises Act has made strides in this area, but further steps are needed to increase transparency for all healthcare services, including those that are not subject to the Act’s protections.
• Establish Independent Dispute Resolution Mechanisms: Creating independent dispute resolution mechanisms would provide a fair and impartial forum for resolving billing disputes between patients and healthcare providers or insurers. These mechanisms should be accessible and affordable, with clear and transparent procedures.
• Improve Patient Education: Providing patients with education about their rights and responsibilities regarding medical billing would empower them to navigate the system more effectively and to advocate for fair treatment. This education should include information about insurance coverage, billing codes, dispute resolution processes, and resources for assistance.
• Strengthen Enforcement: Enhancing enforcement of existing regulations and laws related to medical billing would deter fraudulent activities and ensure compliance with billing standards. This includes increasing audits of billing practices, imposing penalties for violations, and providing whistleblower protections for individuals who report fraud or abuse.
• Promote Value-Based Care: Incentivizing the adoption of value-based care models would align provider payments with patient outcomes, reducing incentives for overutilization and promoting more efficient and effective healthcare delivery. This includes providing financial incentives for providers to participate in ACOs and other VBC arrangements.
• Expand Access to Affordable Insurance: Expanding access to affordable health insurance would reduce the number of uninsured and underinsured individuals, who are most vulnerable to surprise billing and other billing abuses. This can be achieved through policies such as expanding Medicaid eligibility, increasing subsidies for health insurance premiums, and creating a public health insurance option.
• Address the Issue of ‘Facility Fees’: Healthcare systems are increasingly charging facility fees for services provided in hospital-owned outpatient clinics. These fees can add significantly to the cost of care, and patients are often unaware of them until they receive their bill. Policy interventions should focus on requiring transparent disclosure of facility fees before services are rendered, and exploring regulations to limit or eliminate facility fees for routine outpatient care.
• Reduce Administrative Burden: Streamlining administrative processes, such as prior authorization requirements, would reduce the burden on healthcare providers and insurers, freeing up resources to focus on patient care. This includes adopting electronic health records (EHRs) and other technologies to automate administrative tasks and improve communication between providers and payers.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

6. The Impact of the No Surprises Act

The No Surprises Act, enacted in 2020, represents a significant step toward protecting patients from surprise medical bills. The law prohibits out-of-network providers from balance billing patients for emergency services and certain non-emergency services provided at in-network facilities. It also requires insurers to cover these services at the in-network rate, or at a rate determined through an independent dispute resolution (IDR) process.

While the No Surprises Act has been hailed as a major victory for patient protection, it is not a panacea for all the problems in the medical billing system. The law does not apply to all types of healthcare services or to all types of insurance plans. For example, it does not protect patients from balance billing for services provided by out-of-network providers at freestanding emergency rooms or urgent care centers. Additionally, the IDR process has been subject to controversy, with some providers arguing that it favors insurers and results in unfairly low reimbursement rates. The implementation of the No Surprises Act continues to evolve, and further refinements may be necessary to ensure its effectiveness.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

7. Conclusion

The medical billing system in the United States is characterized by complexity, opacity, and potential for inequity. The current system is riddled with issues that lead to patient confusion, unexpected bills, and financial distress. Addressing these issues requires a comprehensive and multi-faceted approach, encompassing policy reforms, technological innovations, and changes in provider and payer behavior. Key recommendations include standardizing billing practices, enhancing price transparency, establishing independent dispute resolution mechanisms, improving patient education, strengthening enforcement, promoting value-based care, and expanding access to affordable insurance. The No Surprises Act represents a significant step forward, but further actions are needed to fully protect patients from unfair billing practices and to create a more transparent, equitable, and efficient healthcare system. The transition to a more transparent and patient-centric billing system is crucial for fostering trust in the healthcare system and ensuring that all individuals have access to affordable and high-quality care. Continued research and policy development are essential to achieving these goals.

Many thanks to our sponsor Esdebe who helped us prepare this research report.

References

• American Medical Association. (n.d.). CPT: Current Procedural Terminology. Retrieved from https://www.ama-assn.org/practice-management/cpt
• Centers for Medicare & Medicaid Services. (n.d.). ICD-10. Retrieved from https://www.cms.gov/medicare/coding/icd10
• The Commonwealth Fund. (n.d.). Surprise Medical Bills: An Unwelcome Surprise. Retrieved from https://www.commonwealthfund.org/publications/issue-briefs/2020/nov/surprise-medical-bills-unwelcome-surprise
• No Surprises Act. (2020). Retrieved from https://www.cms.gov/nosurprises
• Patient Advocate Foundation. (n.d.). Medical Debt. Retrieved from https://www.patientadvocate.org/explore/medical-debt/
• White House Briefing Room. Fact Sheet: Biden-Harris Administration Announces Historic Actions to Lower Health Care Costs and Protect Consumers from Surprise Billing. https://www.whitehouse.gov/briefing-room/statements-releases/2023/08/11/fact-sheet-biden-harris-administration-announces-historic-actions-to-lower-health-care-costs-and-protect-consumers-from-surprise-billing/
• Advisory Board. What is the No Surprises Act? Here’s what you need to know. https://www.advisory.com/daily-briefing/2021/10/21/no-surprises-act
• National Academy for State Health Policy. State Approaches to Addressing Facility Fees. https://www.nashp.org/state-approaches-to-addressing-facility-fees/
• Cooper, Z., Scott Morton, F., & Shekita, N. (2020). Surprise! Out-of-network billing for emergency care in the United States. Journal of Political Economy, 128(1), 1–32.
• Hoadley, J., Cubanski, J., & Neuman, T. (2021). Explaining medical bills: A guide for consumers. Kaiser Family Foundation. Retrieved from https://www.kff.org/health-costs/issue-brief/explaining-medical-bills-a-guide-for-consumers/