The complexity of Medicare Advantage (MA) physician networks has been well-documented, but the payment regulations that underlie these plans remain opaque, even to experts. If an MA plan enrollee sees an out-of-network doctor, how much should she expect to pay?
The answer, like much of the American healthcare system, is complicated. We’ve consulted experts and scoured nearly inscrutable government documents to try to find it. In this post we try to explain what we’ve learned in a much more accessible way.
Medicare Advantage Basics
Medicare Advantage is the private insurance alternative to traditional Medicare (TM), comprised largely of HMO and PPO options. One-third of the 60+ million Americans covered by Medicare are enrolled in MA plans. These plans, subsidized by the government, are governed by Medicare rules, but, within certain limits, are able to set their own premiums, deductibles, and service payment schedules each year.
Critically, they also determine their own network extent, choosing which physicians are in- or out-of-network. Apart from cost sharing or deductibles, the cost of care from providers that are in-network is covered by the plan. However, if an enrollee seeks care from a provider who is outside of their plan’s network, what the cost is and who bears it is much more complex.
To understand the MA (and enrollee) payment-to-provider pipeline, we first need to understand the types of providers that exist within the Medicare system.
Participating providers, which constitute about 97% of all physicians in the U.S., accept Medicare Fee-For-Service (FFS) rates for full payment of their services. These are the rates paid by TM. These doctors are subject to the fee schedules and regulations established by Medicare and MA plans.
Non-participating providers (about 2% of practicing physicians) can accept FFS Medicare rates for full payment if they wish (a.k.a., “take assignment”), but they generally don’t do so. When they don’t take assignment on a particular case, these providers are not limited to charging FFS rates.
Opt-out providers don’t accept Medicare FFS payment under any circumstances. These providers, constituting only 1% of practicing physicians, can set their own charges for services and require payment directly from the patient. (Many psychiatrists fall into this category: they make up 42% of all opt-out providers. This is particularly concerning in light of studies suggesting increased rates of anxiety and depression among adults as a result of the COVID-19 pandemic).
How Out-of-Network Doctors are Paid
So, if an MA beneficiary goes to see an out-of-network doctor, by whom does the doctor get paid and how much? At the most basic level, when a Medicare Advantage HMO member willingly seeks care from an out-of-network provider, the member assumes full liability for payment. That is, neither the HMO plan nor TM will pay for services when an MA member goes out-of-network.
The price that the provider can charge for these services, though, varies, and must be disclosed to the patient before any services are administered. If the provider is participating with Medicare (in the sense defined above), they charge the patient no more than the standard Medicare FFS rate for their services. Non-participating providers that do not take assignment on the claim are limited to charging the beneficiary 115% of the Medicare FFS amount, the “limiting charge.” (Some states further restrict this. In New York State, for instance, the maximum is 105% of Medicare FFS payment.) In these cases, the provider charges the patient directly, and they are responsible for the entire amount (See Figure 1.)
Alternatively, if the provider has opted-out of Medicare, there are no limits to what they can charge for their services. The provider and patient enter into a private contract; the patient agrees to pay the full amount, out of pocket, for all services.
MA PPO plans operate slightly differently. By nature of the PPO plan, there are built-in benefits covering visits to out-of-network physicians (usually at the expense of higher annual deductibles and co-insurance compared to HMO plans). Like with HMO enrollees, an out-of-network Medicare-participating physician will charge the PPO enrollee no more than the standard FFS rate for their services. The PPO plan will then reimburse the enrollee 100% of this rate, less coinsurance. (See Figure 2.)
In contrast, a non-participating physician that does not take assignment is limited to charging a PPO enrollee 115% of the Medicare FFS amount, which can be further limited by state regulations. In this case, the PPO enrollee is also reimbursed by their plan up to 100% (less coinsurance) of the FFS amount for their visit. Again, opt-out physicians are exempt from these regulations and must enter private contracts with patients.
There are two major caveats to these payment schemes (with many more nuanced and less-frequent exceptions detailed here). First, if a beneficiary seeks urgent or emergent care (as defined by Medicare) and the provider happens to be out-of-network for the MA plan (regardless of HMO/PPO status), the plan must cover the services at their established in-network emergency services rates.
The second caveat is in regard to the declared public health emergency due to COVID-19 (set to expire in April 2021, but likely to be extended). MA plans are currently required to cover all out-of-network services from providers that contract with Medicare (i.e., all but opt-out providers) and charge beneficiaries no more than the plan-established in-network rates for these services. This is being mandated by CMS to compensate for practice closures and other difficulties of finding in-network care as a result of the pandemic.
Outside of the pandemic and emergency situations, knowing how much you’ll need to pay for out-of-network services as a MA enrollee depends on a multitude of factors. Though the vast majority of American physicians contract with Medicare, the intersection of insurer-engineered physician networks and the complex MA payment system could lead to significant unexpected costs to the patient.
The Affordable Care Act (ACA) made historic strides in expanding access to health insurance coverage by covering an additional 20 million Americans. President Joe Biden ran on a platform of building upon the ACA and filling in its gaps. With Democratic majority in the Senate, aspects of his health care plan could move from idea into reality.
The administration’s main focus is on uninsurance, which President Biden proposes to tackle in three main ways: providing an accessible and affordable public option, increasing tax credits to help lower monthly premiums, and indexing marketplace tax credits to gold rather than silver plans.
However, underinsurance remains a problem. Besides the nearly 29 million remaining uninsured Americans, over 40% of working age adults are underinsured, meaning their out-of-pocket cost-sharing, excluding premiums, are 5-10% of household income or more, depending on income level.
High cost-sharing obligations—especially high deductibles—means insurance might provide little financial protection against medical costs beneath the deductible. Bills for several thousand dollars could financially devastate a family, with the insurer owing nothing at all. Recent trends in health insurance enrollment suggest that uninsurance should not be the only issue to address.
A high demand for low premiums
Enrollment in high deductible health plans (HDHP) has been on a meteoric rise over the past 15 years, from approximately 4% of people with employer-sponsored insurance in 2006 to nearly 30% in 2019, leading to growing concern about underinsurance. “Qualified” HDHPs, which come with additional tax benefits, generally have lower monthly premiums, but high minimum deductibles. As of 2020, the Internal Revenue Service defines HDHPs as plans with minimum deductibles of at least $1,400 for an individual ($2,800 for families), although average annual deductibles are $2,583 for an individual ($5,335 for families).
HDHPs are associated with delays in both unnecessary and necessary care, including cancer screenings and treatment, or skipped prescription fills. There is evidence that Black patients disproportionately experience these effects, which may further widen racial health inequities.
A common prescription has been to expand access to Health Savings Accounts (HSAs), with employer and individual contributions offsetting higher upfront cost-sharing. Employers often contribute on behalf of their employees to HSAs, but for individuals in lower wage jobs without such benefits or without extra income to contribute themselves, the account itself may sit empty, rendering it useless.
A recent article in Health Affairs found that HDHP enrollment increased from 2007 to 2018 across all racial, ethnic, and income groups, but also revealed that low-income, Black, and Hispanic enrollees were significantly less likely to have an HSA, with disparities growing over time. For instance, by 2018, they found that among HDHP enrollees under 200% of the federal poverty level (FPL), only 21% had an HSA, while 52% of those over 400% FPL had an HSA. In short, the people who could most likely benefit from an HSA were also least likely to have one.
If trends in HDHP enrollment and HSA access continue, it could result in even more Americans who are covered on paper, yet potentially unable to afford care.
Addressing uninsurance could also begin to address underinsurance
President Biden’s health care proposal primarily addresses uninsurance by making it more affordable and accessible. This can also tangentially tackle underinsurance.
To make individual market insurance more affordable, Biden proposes expanding the tax credits established under the ACA. His plan calls for removing the 400% FPL cap on financial assistance in the marketplaces and lowering the limit on health insurance premiums to 8.5% of income. Americans would now be able to opt out of their employer plan if there is a better deal on HealthCare.gov or their state Marketplace. Previously, most individuals who had an offer of employer coverage were ineligible for premium subsidies—important for individuals whose only option might have been an employer-sponsored HDHP.
Biden also proposes to index the tax credits that subsidize premiums to gold plans, rather than silver plans as currently done. This would increase the size of these tax credits, making it easier for Americans to afford more generous plans with lower deductibles and out-of-pocket costs, substantially reducing underinsurance.
The most ambitious of Biden’s proposed health policies is a public option, which would create a Medicare-esque offering on marketplaces, available to anyone. As conceived in Biden’s proposal, such a plan would eliminate premiums and having minimal-to-no cost-sharing for low-income enrollees; especially meaningful for under- and uninsured people in states yet to expand Medicaid.
Moving forward: A need to directly address underinsurance
More extensive efforts are necessary to meaningfully address underinsurance and related inequities. For instance, the majority of persons with HDHPs receive coverage through an employer, where the employer shares in paying premiums, yet cost-sharing does not adjust with income as it can in the marketplace. Possible solutions range from employer incentives to expanding the scope of deductible-exempt services, which could also address some of the underlying disparities that affect access to and use of health care.
The burden of high cost-sharing often falls on those who cannot afford it, while benefiting employers, healthy employees, or those who can afford large deductibles. Instead of encouraging HSAs, offering greater pre-tax incentives that encourage employers to reabsorb some of the costs that they have shifted on their lower-income employees could prevent the income inequity gap from widening further.
Under the ACA, most health insurance plans are required to cover certain preventative services without patient cost-sharing. Many health plans also exempt other types of services from the deductible – from generic drugs to certain types of specialist visits – although these exemptions vary widely across plans. Expanding deductible-exempt services to include follow-up care or other high-value services could improve access to important services or even medication adherence without high patient cost burden. Better educating employees about what services are exempt would make sure that patients aren’t forgoing care that should be fully covered.
Health insurance is complicated. Choosing a plan is only the start. More affordable choices are helpful only if these choices are fully understood, e.g., the tradeoff between an HDHP’s lower monthly premium and the large upfront out-of-pocket cost when using care. Investing in well-trained, diverse navigators to help people understand how their options work with their budget and health care needs can make a big difference, given that low health insurance literacy is related to higher avoidance of care.
The ACA helped expand coverage, but now it’s time to make sure the coverage provided is more than an unused insurance card. The Biden administration has the opportunity and responsibility to make progress not only on reducing the uninsured rate, but also in reducing disparities in access and patient affordability.
With nearly 30% of workers now having a high deductible health plan
and a typical family being responsible for on average the first $8,000 of
costs, consumers are increasingly weighing care versus cost.
Historically, with a small copay, you would conveniently take care of an
ailment without shopping around, but with the average person now bearing the brunt of the initial
costs, wouldn’t you want to know how much a service costs and what other providers are
charging before you “buy” the service?
CMS believes “consumers should be able to know, long before they open a medical bill, roughly
how much a hospital will charge for items and services it provides.” Cue the hospital price
transparency rule that just went into effect January 1, 2021. Hospitals are now required to post
their standard charges, including the rates they negotiate with insurers, and the discounted price a
hospital is willing to accept directly from a patient if paid in cash. As a consumer, the intent is to
make it “easier to shop and compare prices across hospitals and estimate the cost of care before
going to the hospital.”
There are a few different angles to analyze here:
Are hospitals following the rules?
Each hospital must post online a comprehensive machine readable file with all items and services, including gross charges, actual negotiated prices with insurers, and the cash price for patients who are uninsured. Additionally, hospitals must post the
costs for 300 common “shoppable” services in a “consumer-friendly format.” Some hospitals and
health systems have done a good job at posting these prices in a digestible format, like the
Cleveland Clinic or Sutter Health, but others have posted complicated spreadsheets, relied on
online cost estimator tools, or simply not posted them at all. An analysis from consulting firm
ADVI of the top 20 largest hospitals in the U.S. found that not all of them appeared to completely
comply with this mandate. In some instances, data was not able to be downloaded in a useable
format, others did not post the DRG or service codes, and the variability in the terms/categories
used simply created difficulty in comparing pricing information across hospitals. CMS has stated
that a failure to comply with the rules could result in a fine of up to $300 per day. As with most
new rules, there are growing pains, and hospitals will likely get better at this over time, assuming
the data is being used for its original intent.
Is this helpful to consumers?
Consumers will able to see the variation in prices for the exact
same service or procedure between hospitals and get an estimate of what they will be charged
before getting the care. But how likely is the average person to go to their hospital’s website, look
at a price, and change their decision about where to get care? In addition, awareness of these
price transparency tools is still low among consumers. Frankly, it is competitors and insurers that
have been first in line to review the data. Looking through a number of hospital websites, and even certain state agency sites that have done a good job at summarizing the costs, like Florida Health Price Finder, the price transparency tools are helpful, but appear to be much more suited for relatively standardized services that can be scheduled in advance, like a knee replacement. It’s highly unlikely you will be telling your ambulance driver what hospital to go to based on cost while in cardiac arrest…Plus, it’s all still confusing – even physicians have shared their bewilderment, when trying to decipher and compare pricing. Conceptually, price transparency should be beneficial to consumers, but it will take time; and it will need to involve not just the hospitals posting rates, but the outpatient care facilities as well. Knowing what you will pay before you decide to go to a physician’s office or a clinic or an urgent care or an ED will hopefully help drive consumers to make more educated decisions in the future.
Will this ultimately drive down costs?
I sure hope so. Revealing actual negotiated prices between hospitals and insurers should
push the more expensive hospitals in the area to reduce prices, especially if consumers start using the other hospitals, instead.
However, it could also have an inverse effect, with lower cost hospitals insisting on a payment increase from insurers; thereby driving up costs. In the end, as has historically been the case, the market power of certain providers will likely dictate the direction of costs in a given region. That is, until both price AND quality become fully transparent and the consumer is armed with the tools to shop for the best care at the lowest cost – consumerism here we come.
Under the Biden Administration, the DOJ says the ACA can stand even though there is no longer a tax penalty for not having health insurance.
The Department of Justice, under the Biden Administration, has told the Supreme Court that it has changed its stance on the Affordable Care Act.
The DOJ previously filed a brief contending that the ACA was unconstitutional because the individual mandate was inseverable from the rest of the law.
Following the change in Administration, the DOJ has reconsidered the government’s position and now takes the position that the ACA can stand, even though there is no longer a mandate for consumers to have health insurance or face a tax penalty, according to a February 10 filing.
WHY THIS MATTERS
Hospitals and health systems support the change in position.
“Without the ACA, millions of Americans will lose protections for pre-existing conditions and the health insurance coverage they have gained through the exchange marketplaces and Medicaid. We should be working to achieve universal coverage and preserve the progress we have made, not take coverage and consumer protections away,” said American Hospital Association CEO and president Rick Pollack.
The Supreme Court is expected to return a decision before the end of the term in June.
THE LARGER TREND
The Supreme Court heard oral arguments on November 10, 2020 regarding whether the elimination of the tax penalty made the remainder of the ACA invalid under the law.
The DOJ sided with the Trump Administration and Republican states that brought the legal challenge, while 20 Democratic attorneys general supported the ACA and asked the court for quick resolution.
They were led by California Attorney General Xavier Becerra, who is Biden’s pick to head the Department of Health and Human Services.
A growing body of research keeps undermining a key tenet of health economics, Axios’ Sam Baker writes — the belief that requiring patients to pay more out of their own pockets will make them smarter consumers, forcing the health care system to deliver value.
Driving the news: Even a seemingly modest increase in out-of-pocket costs will cause many patients to stop taking drugs they need, according to a new working paper from Harvard economist Amitabh Chandra.
- Raising Medicare recipients’ out-of-pocket costs by just $10 per prescription led to a 23% drop in overall drug consumption, and to a 33% increase in mortality.
- And seniors weren’t simply ditching “low-value” drugs. People at high risk for heart attacks or strokes cut back on statins and blood-pressure medications even more than lower-risk patients.
Between the lines: This research focuses on Medicare’s drug benefit, but higher cost-sharing is all the rage throughout the system, and there’s little evidence that it has generated “smarter shoppers.”
- Patients with high-deductible plans — increasingly common in the employer market — don’t shop around for the best deal, which is all but impossible to do in many cases even if you wanted to try.
As happened with cars in the 1960s, price competition among brand-name drugs is hard to find.
Before 1973, when the Arab oil embargo upended the U.S. auto industry, Americans witnessed an annual ritual by carmakers. In the late summer, the Big Three — Ford, Chrysler, and General Motors — would release sticker prices for their products, always showing increases, of course.
Almost always, the increases from each company for similar models were nearly identical. If one company’s was out of line — substantially bigger or smaller than its erstwhile competitors’ — it quickly made an adjustment. Explicit collusion to fix prices was never proven, but the effect for consumers was the same.
Now, researchers report that something very similar seems to be occurring for big-market brand-name drugs, including anti-diabetic medications and blood thinners.
Average wholesale prices for products in five classes — direct-acting oral anticoagulants (DOACs), P2Y12 inhibitors, glucagon-like peptide-1 (GLP-1) agonists, dipeptidyl dipeptidase-4 (DPP-4) inhibitors, and sodium-glucose transport protein-2 (SGLT-2) inhibitors — increased in “lock-step” each year from 2015 to 2020, according to Joseph Ross, MD, of Yale University in New Haven, Connecticut, and colleagues writing in JAMA Network Open.
These increases ranged from annual averages of 6.6% for DDP4 inhibitors to 13.5% for P2Y12 inhibitors — far outpacing not only inflation in general, but even the 2.1% average for all prescription drugs.
Within each class, Kendall τb correlation coefficients for average wholesale prices were as follows:
- DOACs: 0.98
- SGLT-2 inhibitors: 0.98
- DPP-4 inhibitors: 0.96
- GLP-1 agonists: 0.92
- P2Y12 inhibitors: 0.75
“These results suggest there was little price competition among the sponsors of these products,” Ross and colleagues wrote.
Although the analysis came with significant limitations — it didn’t account for rebates or other discounts, for example — the researchers said some patients must suffer from these increases.
“Rebates, list prices, and net prices have been growing for brand-name medications, and rebate growth has been shown to positively correlate with list price growth, thereby impacting costs faced by patients paying a percentage of (or the full) list price,“ the group noted. “Therefore, the lock-step price increases of brand-name medications, without evidence of price competition, raise concerns and would be expected to adversely affect patient adherence to medications and thus clinical outcomes.”
For the car buyers, the solution to lock-step price increases was imposed from outside: soaring gas prices in the mid-1970s prompted demand for vehicles with better fuel economy than domestic makers were prepared to sell. That opened the market to Japanese cars that not only got better mileage, but were also more reliable and (in many cases) cheaper than Big Three products. Thus ended Detroit’s ability to set prices.
How to rein in Big Pharma is less clear. For their part, Ross and colleagues suggested policies to limit such lock-step price hikes, shortened patent exclusivity periods, and faster introduction of generic equivalents.
Hospitals are now required to disclose the prices they secretly negotiate with insurers.
But many are dragging their feet on the new regulations, which were passed under President Donald Trump and could very well stay in place under President Biden.
The rules went into place Jan. 1, but hospital compliance is spotty.
“Hospitals are playing a hide-and-seek game,” said Ge Bai, an expert on health-care pricing at Johns Hopkins Bloomberg School of Public Health. “Even with this regulation, most of them are not being fully transparent.”
Hospitals lost a bruising court battle last year to stop the rules, which require them to publish a list of prices for goods and services. The point is to bring more transparency to prices for medical goods and services — information that has long been inaccessible to consumers. The new rules were a centerpiece of Trump’s promise to inject more price transparency in the health-care system and curb surprise billing.
But Nisha Kurani, a policy analyst at the Kaiser Family Foundation who is tracking hospital responses to the new rule, said she’s seen the full gamut.
MedStar in Washington posted its prices in an Excel sheet on its website, but other hospitals only posted price estimates, uploaded files in difficult to use formats, or promised to release information only after someone inputs their insurance, Kurani said.
A Gothamist investigation found that only one of five major New York hospitals posted a list of their negotiated services to their website, and even then, not for all procedures. The fine for not complying with the new rules — $300 a day — is a drop in the bucket for many hospitals.
The rules probably aren’t going away anytime soon.
The Biden administration hasn’t taken any public position on the rules — and right now, officials are focused on reversing dozens of other Trump administration regulations they believe are damaging to health insurance and costs in the United States.
Revising the hospital transparency rules — if that’s even something the new administration wants to do — would likely be far down on the priority list, despite heavy lobbying by the hospital industry to suspend enforcement of the new rule.
Plus, price transparency is broadly popular among the public and was one of the planks of a joint health policy plan developed by a task force Biden formed with Sen. Bernie Sanders (I-Vt.) after the 2020 primary elections.
The American Hospital Association says staff who would help with compliance are stretched thin.
Molly Smith, the association’s group vice president for public policy, said many of the staff members who would normally be tasked with compiling and formatting the price data are the same people being asked to help set up patient registries and vaccine tracking systems in response to the pandemic.
“We’ve got a lot of hospitals that are at or beyond capacity,” Smith said.
A lawyer for the hospital association said that it is considering petitioning its legal case to the Supreme Court. Meanwhile, the lobbying group has been pushing the Biden administration to suspend enforcement of the new rule.
Consumer advocates like the transparency rules designed to protect patients and drive down health-care costs.
“In the past there was absolutely no power for the consumer. It was like highway robbery being committed every day by the health-care system,” said Cynthia Fisher, head of the nonprofit Patient Rights Advocate, which pushes for price transparency.
But now, Fisher says, “it’s the American consumer who is going to drive down the cost of care.”
But the effect might be modest.
Experts in health-care economics hotly debate whether the price transparency rules will, in fact, drive down costs. Even those who support the changes say the effect might be incremental.
“I don’t think it’s going to be an earthquake in terms of pricing, but it’s a first step in the right direction,” said Bai.
There are several reasons the new price transparency rule may not have a massive effect on hospital prices. Perhaps the biggest, and one often cited by the hospital lobby, is that most Americans are not going to pay the negotiated price for a procedure. Instead, they are likely to pay co-pays or coinsurance that amount to a fraction of this price.
This isn’t always true, of course. Those with high-deductible plans may pay the negotiated rate, and for those without insurance paying out of pocket, it can be helpful to get a peek behind the sticker price. But even for these patients, it may be challenging to extract useful information from unwieldy spreadsheets full of obscure billing codes.
Bai said that she is hopeful that third parties may make some of the pricing information easier for consumers to use. And some self-insured employers may start identifying cheaper providers and incentivizing patients to use them. The rules also require hospitals to provide cost-sharing estimates for commonly used procedures in an easily navigable format.
Still, price competition works only if there are players to compete.
The market for health care has become increasingly consolidated as hospitals merge and buy up physician practices. If a hospital is the only health-care provider in town, then there’s not a whole lot patients can do about high prices, even if they think they’re unfair.
“I don’t think transparency will fundamentally change the power balance between the payer and the hospital in many markets,” Bai said.