The Waiting Room You Didn't Choose
Imagine this: you arrive at an in-network hospital emergency department after a serious car accident. Your insurance company has a contract with that hospital. You're treated quickly, professionally, and your life is saved. Three weeks later, a bill arrives for $12,000. The hospital was in-network, but the emergency physician who treated you was not.
This is the reality of surprise medical billing in the United States, a phenomenon that has left millions of patients with unexpected financial burdens after medical emergencies. The issue is not a glitch in the system it is a structural feature of how hospitals and physicians independently negotiate contracts with insurers.
According to a study published by the National Bureau of Economic Research (NBER), hospitals and physicians independently negotiate contracts with insurers. As a result, a privately insured individual can attend an in-network hospital emergency department, but receive care and potentially a large, unexpected bill from an out-of-network emergency physician working at that hospital.
The Economics of Surprise Billing
The study, authored by Zack Cooper, Fiona Scott Morton, and Nathan Shekita, analyzed insurance claims data capturing 8.9 million emergency episodes. The findings were striking: in 22% of cases, patients attended in-network hospitals but were treated by out-of-network physicians.
The researchers found that out-of-network billing is concentrated in a small group of primarily for-profit hospitals. Within 50% of hospitals in the sample, fewer than 5% of patients saw out-of-network physicians. In contrast, at 15% of hospitals, more than 80% of patients saw out-of-network physicians.
The reason for this concentration is economic. Because patients cannot avoid out-of-network physicians during an emergency, physicians have an incentive to remain out-of-network and receive higher payment rates. The study illustrates that this strong outside option improves physicians' bargaining power with insurers.
How Physician Outsourcing Firms Play a Role
The researchers also examined the role of physician outsourcing firms. They found that physicians offer transfers to hospitals to offset the hospitals' costs of allowing out-of-network billing to occur within their facilities. This creates a financial incentive for hospitals to look the other way when their emergency physicians remain out of network.
The study confirmed this empirically via analysis of two leading physician-outsourcing firms. These firms essentially facilitate the arrangement by which physicians can charge higher rates while hospitals receive a cut of the additional revenue.
New York's Experiment with Binding Arbitration
In response to the growing problem of surprise billing, New York State passed a law that introduced binding arbitration between physicians and insurers to settle surprise bills. The results were significant.
The study found that New York's binding arbitration law reduced out-of-network billing by 12.8 percentage points. This represents an 88% reduction in out-of-network billing rates at affected hospitals.
The arbitration model works by taking the negotiation out of the hands of the patient and placing it between the physician and insurer. Instead of the patient being caught in the middle, the two parties must agree on a fair payment rate through a neutral third party.
The Impact on Patients
For patients, the reduction in out-of-network billing means fewer surprise bills after emergencies. The law essentially removed the financial risk that patients faced when they had no control over which physician treated them.
The study's findings were widely cited in policy discussions leading to the No Surprises Act, federal legislation designed to protect patients from surprise medical bills. According to coverage by the Yale Tobin Center for Economic Policy, research by Cooper and his colleagues helped shape the law protecting patients from sky-high medical bills.
What This Means for ReadersOpinions Readers
For readers who want to understand the economics of healthcare billing, this research offers a clear picture of how surprise bills arise and what policy solutions have proven effective. If you are a patient, knowing that out-of-network billing is concentrated in a small number of hospitals can inform decisions about where to seek care in non-emergency situations.
The New York model demonstrates that binding arbitration can work. It reduced out-of-network billing by 88%, a dramatic improvement that policymakers in other states and at the federal level have taken note of.
The Broader Policy Landscape
The No Surprises Act, passed by Congress, represents the most significant federal action on surprise billing to date. The research by Cooper, Scott Morton, and Shekita was cited in congressional discussions about the law, according to coverage in Stat News and other outlets.
The law aims to protect patients from surprise bills for emergency care and certain other services. However, the law's implementation has been uneven, and some gaps remain. Understanding the underlying economics of surprise billing helps patients navigate the system and advocates for stronger protections.
Key Statistics from the Research
| Metric | Finding |
|---|---|
| Emergency episodes analyzed | 8.9 million |
| Cases with out-of-network physicians at in-network hospitals | 22% |
| Hospitals with fewer than 5% out-of-network cases | 50% |
| Hospitals with more than 80% out-of-network cases | 15% |
| Reduction in out-of-network billing after New York arbitration law | 12.8 percentage points (88%) |
Why This Matters for Healthcare Costs
Surprise billing is not just a patient inconvenience it is a driver of healthcare costs overall. When physicians can charge higher rates by remaining out of network, it drives up the overall cost of care. The study shows that out-of-network billing allows physicians to substantially increase their payment rates relative to what they would be paid for treating in-network patients.
This dynamic also affects the bargaining process between physicians and insurers. The study illustrates that out-of-network billing significantly improves physicians' outside option when bargaining over in-network payments. In other words, the threat of going out of network gives physicians leverage to demand higher in-network rates.
Looking Forward
The research by Cooper, Scott Morton, and Shekita has provided a roadmap for policymakers seeking to address surprise billing. The New York model of binding arbitration has proven effective, and the No Surprises Act has extended protections to patients nationwide.
However, the issue is not fully resolved. The concentration of out-of-network billing in a small number of hospitals suggests that some providers continue to exploit the system. Ongoing monitoring and enforcement of the No Surprises Act will be critical to ensuring that patients are protected.
For readers, the key takeaway is that surprise billing is a solvable problem. The research demonstrates that policy interventions can dramatically reduce out-of-network billing and protect patients from financial harm. Understanding the economics behind the problem is the first step toward advocating for better protections.
Where to Read Further
- The full NBER working paper, Surprise! Out-of-Network Billing for Emergency Care in the United States, provides the complete analysis of 8.9 million emergency episodes.
- The Yale Tobin Center for Economic Policy hosts a summary of the research and its policy implications at Surprise! Out-of-Network Billing for Emergency Care in the United States.
- The LSE Research Online version of the paper is available at Surprise! Out-of-network billing for emergency care in the United States.