A carefully designed plan to limit out-of-network payments to providers could yield as much cost savings as switching to a single-payer system or resorting to global payment caps, according to a new study from Rand.
The study suggests limiting out-of-network charges to 125% of Medicare rates could lead to cuts in negotiated hospital rates by anywhere from 31% to 40%, and save as much as $124 billion per year.
While the study’s authors said such a change would be a lot less disruptive to the healthcare sector than the elimination of private insurance, they did acknowledge it was likely to cause significant disruption to hospitals if not managed properly.
Out-of-network medical charges have become the subject of a fierce national debate. When a facility is out-of-network it may result in balance bills and these so-called "surprise bills" have drawn the scrutiny from lawmakers on Capitol Hill, although they have yet to take specific action. Whether or not the need to treat victims of COVID-19 on a large scale will exacerbate the issue of out-of-network charges remains to be seen.
Researchers from the Santa Monica, Calif.-based think tank Rand conducted an analysis where out-of-network charges were capped at either 125% of Medicare rates; 200% of Medicare rates; state average prices paid by private plans; or 80% of billed charges.
Capping at 125% of Medicare would cut hospital spending by $108 to $124 billion per year; a 200% of Medicare cap would lead to cuts of $56 billion to $94 billion; a state average payment cap would reduce spending by $23 billion to $70 billion. Setting it at 80% of billed charges could cut spending by a much more modest $7 billion — or lead to a hike of as much as $13 billion.
“Among the many bold proposals to contain the cost of hospital care, limiting out-of-network payments arguably is less heavy-handed as it does not impose rates on all providers or shift the source of health insurance coverage for a large share of the nation’s population,” said Erin Duffy, the study’s lead author.
A single-payer system in the U.S. is a remote possibility at best, despite support from some high-profile politicians like Democratic presidential hopeful Senator Bernie Sanders, D-Vt. Maryland is the only state that has imposed global payment caps. And while that system has shown some success at keeping a lid on costs, no other states seem willing to follow its lead in the near future.
However, the study cautioned "although cost containment can benefit patients facing rising health costs, such changes are disruptive to hospital revenues. A policy that reduces hospital revenues to an extent that results in hospital closures or lower quality of care would not be in the best interest of patients. Therefore, an out-of-network payment limit must be selected and implemented carefully to yield cost containment without negatively affecting access to hospital services and patient outcomes."