Erin Trish, PhD

 Anesthesiology services are a focal point of policy making to address surprise medical billing. However, allowed amounts and charges for anesthesiology services have been understudied due to the specialty’s unique conversion factor (CF) unit of payment and complex provider structures involving anesthesiologists and certified registered nurse anesthetists (CRNAs). This study compares payments for common outpatient anesthesiology services by commercial health plans, Medicare Advantage (MA), and traditional Medicare.

 Analysis of 2016-2017 claims from Health Care Cost Institute.

 We derived allowed amount and charge CFs for commercial and MA claims using the base units assigned to each procedure code, time units, and modifiers. We computed the ratio of the allowed amount and charge CFs relative to the traditional Medicare CF. We described these payment measures by provider structure and network status.

Mean in-network commercial allowed amount CFs for anesthesiology services ($70) are 314% of the traditional Medicare rate ($22), whereas mean commercial charge CFs ($148) are 659% of the Medicare rate. Commercial payments vary widely and are higher to anesthesiologists than to CRNAs and higher out of network than in network. MA plan payments align with traditional Medicare with payment parity between anesthesiologists and CRNAs, both in network and out of network.

Common payment measures for anesthesia services—commercial allowed amounts, charges, or traditional Medicare—are highly divergent. MA plans’ relatively low payments likely reflect the cost-containing influence of competition with traditional Medicare and MA’s prohibition on balance billing. Out-of-network benchmarks for anesthesia services, such as the “qualifying payment amount” used in the No Surprises Act as a guidepost for arbitrators, may benefit from considering commercial payment differences across independent anesthesiologist, independent CRNA, or anesthesiologist-CRNA dyad provider structures.

This study of 2016-2017 administrative claims compares payments for common outpatient anesthesiology services by commercial health plans, Medicare Advantage (MA), and traditional Medicare.

Mean in-network commercial allowed amounts ($70) and charges ($148) per anesthesia conversion factor are 314% and 659% of the traditional Medicare rate ($22).

Commercial allowed amounts are higher for anesthesiologists than for certified registered nurse anesthetists (CRNAs) and higher out of network than in network.

MA plans pay on par with traditional Medicare for anesthesiologists and CRNAs, both in network and out of network, likely reflecting the cost-containing influence of competition with traditional Medicare and MA’s prohibition on balance billing.

Anesthesiology service providers are a common source of surprise out-of-network bills.

 Although there is widespread agreement that these surprise bills are unfair to patients, consensus around what is a reasonable payment standard for out-of-network services is lacking. The new federal surprise billing law, the No Surprises Act, addresses this question by creating an arbitration process to adjudicate disputes over out-of-network payment, with guidance to consider an issuer’s median in-network allowed amount among other (less concrete) factors.

 Therefore, current in-network allowed amounts are important for regulators, stakeholders, and researchers to understand. However, systematic data on the magnitude of commercial payments for anesthesia are limited due to the unique and complex attributes of payment and service provision in this specialty. Using a multipayer claims database, we find that mean in-network commercial allowed amount conversion factors (CFs) for anethesiology services ($70) are 314% of the traditional Medicare rate, and mean charge CFs among commercial claims ($148) are 659% of the traditional Medicare rate (

). Unlike traditional Medicare—which uses the same CF regardless of whether the service is provided by an anesthesiologist or a certified registered nurse anesthetist (CRNA)—we find that private insurer payments tend to vary across provider delivery structures for commercial but not Medicare Advantage (MA) enrollees (

We analyzed 2016 and 2017 commercial and MA claims data from the Health Care Cost Institute (HCCI), comprising claims from 61 million commercial and 8.9 million MA covered lives in 3 of the 5 largest US insurers: UnitedHealthcare, Aetna, and Humana.

 Our analytic sample includes claims for the 10 most common professional anesthesiology services among commercial payers in outpatient hospital and ambulatory surgery center (ASC) settings. We excluded claims with anomalies that affect payment rates in ways that we could not reasonably address (detailed exclusion criteria in 

Traditional Medicare reimbursement for anesthesia is not determined by the typical physician fee schedule based on relative value units. Rather, payments for anesthesia are calculated using base (start-up) units that are assigned according to the complexity of different procedures and time units accounting for procedure length.

 Traditional Medicare converts these units to an allowed amount based on a CF that is set annually. For example, anesthesia for an eye lens surgery (procedure code 00142) is assigned 4 base units. If an anesthesia provider spends 30 minutes performing this service on a Medicare beneficiary, then that provider would be reimbursed for the 4 base units plus the two 15-minute time units. These 6 units would be multiplied by the traditional Medicare allowed amount CF, which was approximately $22 in the years 2016 and 2017, with modest variation between years and across geographic areas. The total allowed amount reimbursed to the provider would, therefore, be approximately $132. Commercial payers also tend to negotiate anesthesia reimbursement at the CF level, and this unique billing structure adds complexity to claims-based analyses comparing commercial reimbursement for anesthesia with traditional Medicare rates.

Some anesthesiology services are provided by physicians, whereas others are provided by CRNAs, either with or without medical direction by a physician. When a physician supervises the CRNA (ie, a supervisory dyad), the anesthesiologist supervisor and CRNA supervisee each receive half of what they would be paid if they independently provided the service, and anesthesiologists can medically direct several services simultaneously.

 Additional units are also added to base and time units if a patient is less healthy.

 Therefore, a simple comparison of total allowed amounts across commercial and MA plans would not be an accurate measure of differences in negotiated rates due to confounding differences in provider structures, procedure times, and patients’ underlying health status.

To address this complexity, we derived allowed amount CFs and billed charge CFs for commercial and MA claims using the base units assigned to each procedure code, time units, and modifiers indicating provider type (detailed methods in 

 For each claim, we also computed the ratio of the allowed amount CF and charge CF relative to the traditional Medicare allowed amount CF, which averaged $22.31, accounting for year and geographic variation. We also calculated the 20th percentile, median, and 80th percentile of the distribution of allowed amount CFs and charge CFs among commercial and MA plans in dollars and as ratios to traditional Medicare CFs.

We stratified our analyses by provider type because, whereas traditional Medicare uses the same CF regardless of provider type, that is not necessarily the case among commercial and MA payers (detailed methods in 

). To facilitate comparison, for anesthesiologist-CRNA supervisory dyads we report full allowed amount CFs separately for the supervising anesthesiologist and CRNA supervisee, although we note that in practice these amounts are generally halved by commercial and MA plans as well. We could not derive the charge CF for these dyads because of inconsistency in whether the magnitudes of reported charges are halved. We also categorized services by provider network status according to claim-level indicators in the HCCI data.

We excluded inpatient anesthesia services because unreliable or inconsistent reporting of time units on the majority of inpatient claims in our data set prohibited us from accurately deriving allowed amount CFs and charge CFs. We also excluded claims with modifiers for unhealthy patients due to potential inconsistency in whether additional units for a patient’s health were incorporated into the reported units on the claims. All dollar values presented reflect nominal 2016 and 2017 US$.

Our analytic sample included 3.59 million commercial claims and 1.87 million MA claims for the 10 most common professional anesthesiology services in outpatient hospital and ASC settings in 2016-2017 HCCI data. These 10 services represent 62% of anesthesiology services in these settings.

Among commercial claims, independent anesthesiologists provided the highest volume of procedures (43.5% of procedures), followed by independent CRNAs (38.2%) and anesthesiologist-CRNA supervisory dyads (18.2%). Among MA claims, independent CRNAs were the most common (48.2%), followed by independent anesthesiologists (27.5%) and anesthesiologist-CRNA supervisory dyads (24.3%) (

Out-of-network anesthesiology services were much more common among MA (41.2%) than commercial (8.3%) patients, but similar across provider structures within plan type (

Although the overall mean commercial in-network allowed amount CF for anesthesia services in our sample for all provider types was $70 (314% of traditional Medicare), we found that the commercial in-network allowed amount CF varied across provider structures, averaging $82 for independent anesthesiologists and $57 for independent CRNAs (Figure 2). Commercial allowed amount CFs for supervisory dyads averaged $65 and $60 for supervising anesthesiologists and CRNA supervisees, respectively (Figure 2). Because the traditional Medicare rate is flat across these different provider structures, these mean commercial allowed amount CFs ranged from 259% to 360% of traditional Medicare rates for independent CRNAs and independent anesthesiologists, respectively (

). In contrast, for MA patients, mean in-network allowed amount CFs were relatively consistent across all provider structures ($20-$21) (Figure 2).

Within each provider structure, commercial out-of-network allowed amount CFs were higher than in-network allowed amount CFs (Figure 2). Commercial allowed amount CFs paid to out-of-network providers were highest to anesthesiologist-CRNA supervisory dyads ($101 and $100 for supervising anesthesiologists and CRNA supervisees, respectively, compared with $93 and $78 for independent anesthesiologists and CRNAs, respectively). In contrast, mean MA allowed amount CFs were relatively consistent across in- and out-of-network providers for all provider structures.

Distributions of Allowed Amounts and Charges

There is much greater variation in the allowed amount CF paid by commercial plans than MA plans (

). The 20th to 80th percentile range for commercial payments is $57 to $106 (255%-469% of traditional Medicare) for anesthesiologists and $39 to $76 (178%-349% of traditional Medicare) for CRNAs (data shown in 

). However, the 20th to 80th percentile range of MA allowed amount CF is $16 to $23 (72%-100% of traditional Medicare) for anesthesiologists and $17 to $22 (80%-100% of traditional Medicare) for CRNAs. Notably, the allowed amount CF distributions are nearly equivalent between anesthesiologists and CRNAs for MA plan payments.

Median commercial charge CFs are much higher than allowed amount CFs at $149 and $108 for anesthesiologists and CRNAs, respectively. The 20th to 80th percentile range of commercial charge CFs is skewed higher for independently performed anesthesiologist services ($104-$231; 466%-1009% of traditional Medicare) than CRNA services ($73-$169; 330%-772% of traditional Medicare).

Anesthesiology’s unique CF payment methodology and provider delivery structure make it difficult to reliably compare claim-level charges and allowed amounts across payers and populations. This complicates regulatory efforts to benchmark service prices or set out-of-network payment limits for anesthesiology services when addressing surprise billing (whether through a simple benchmark or arbitration). Whereas prior studies of administrative claims analyzed total allowed amounts

 for anesthesia services, ours is the first (to our knowledge) to derive and compare anesthesia payments per CF to inform policies addressing surprise billing for anesthesiology services and the arbitrators adjudicating out of network payment disputes under the new No Surprises Act. We found that commercial plans pay a mean allowed amount CF of $70 for anesthesia services across all provider types and structures combined, which is 314% of the traditional Medicare rate. Our observed commercial markups over Medicare for anesthesia services are on par with the markups estimated by prior studies of payment to anesthesiologists

 and other hospital-based physician specialties that commonly surprise bill, such as radiology, pathology, and emergency medicine.

 For example, in an analysis of 2016 commercial claims from multiple insurers, Song observed average in-network commercial payments for procedures commonly performed by radiologists (chest x-ray Current Procedural Terminology [CPT] 71020), pathologists (examination CPT 88305), and emergency medicine physicians (visit CPT 99285) to be 260%, 360%, and 250% of Medicare, respectively.

 These markups are much higher than those of other specialties, as an analysis of 2017 HCCI commercial claims estimated that professional allowed amounts averaged 122% of Medicare allowed amounts across all specialties nationally.

Additionally, we found that anesthesia providers’ mean charge CFs ($148) are more than double the mean commercial in-network allowed amount CF and 659% of the traditional Medicare allowed amount CF. A prior study of the ratio of charges to Medicare allowed amounts across specialties estimated that mean charges among specialties that do not typically surprise bill patients are 260% of Medicare allowed amounts, whereas charges relative to Medicare rates are much higher among diagnostic radiology (400%), pathology (350%), emergency medicine (540%), and anesthesiology (670%).

 This finding suggests that the ratio of charges relative to Medicare rates is much higher for anesthesia services than for other specialties, even in comparison with the other specialties that are often associated with surprise billing.

We observed that out-of-network allowed amounts are higher than in-network allowed amounts for commercial plans, suggesting one reason why providers might not be strongly incentivized to come in-network. This trend is not unique to anesthesia, as a prior study showed commercial payments to be higher out of network than in network for professional services across several specialties, including orthopedics, cardiology, gastroenterology, radiology, and pathology.

 Many specialties performing elective services rely on network participation for higher patient volume and are therefore willing to accept lower in-network payments from health plans in exchange for a higher volume of the health plan’s enrollees. However, ancillary specialists such as anesthesiologists are less dependent on network status for patient volume because they are not typically preselected by patients. Therefore, anesthesiologists may be less inclined to move in network when they would face lower allowed amounts upon contracting with health plans. This may be a driving factor of the trend reported in prior studies that anesthesiologists are more commonly out of network than other specialties.

Due to wide variation in payment measures, policy makers addressing surprise billing should choose out-of-network payment benchmarks prudently. For example, based on our analyses, an out-of-network payment benchmark for anesthesiologists practicing independently set at the median ($79) or mean ($82) commercial allowed amount per CF would be approximately 350% or 360%, respectively, of the traditional Medicare rate ($22) (Figures 2 and 4 and eAppendix 5). Benchmarks of the median ($149) and 80th percentile ($231) of anesthesiologists’ commercial charges CF would be approximately 652% and 1009% of the traditional Medicare rate, respectively (Figure 5 and eAppendix 5). Thus, both the source—commercial allowed amounts, charges, or traditional Medicare—and the distributional point employed in out-of-network payment benchmarking will substantially influence the magnitude of payments to anesthesiology providers. Further, our findings suggest that out-of-network benchmarks for anesthesia services, such as the “qualifying payment amount” (in general, an issuer’s median in-network rate locally) used in the No Surprises Act as a guidepost for arbitrators, may benefit from taking into account commercial payment differences across independent anesthesiologist, independent CRNA, or anesthesiologist-CRNA dyad provider structures.

We also found that MA plans track CMS’ payment level per CF for anesthesia services, consistent with prior studies of hospitals and other professional specialties that found MA provider payment levels often follow traditional Medicare rates.

 This payment parity exists for in-network and out-of-network services despite the high prevalence of out-of-network anesthesia services in MA (41.2%) (eAppendix Exhibit 4.1). This suggests that the threat of remaining out of network has little effect on in-network prices paid to anesthesia providers by MA plans, in contrast to what evidence suggests to be the case in the commercial market.

 This is likely driven by a combination of 2 factors. First, providers participating in Medicare are prohibited from collecting more than the traditional Medicare allowed amount for out-of-network services provided to MA enrollees, and most professionals participate in Medicare.

 Nonparticipating providers are also prohibited from collecting more than 109.25% of the traditional Medicare allowed amount for out-of-network services provided to MA enrollees.

 This strictly limits total out-of-network reimbursement to providers and patients’ liability for balance bills in MA plans. Second, MA plans compete with traditional Medicare for enrollees and therefore need to keep costs sufficiently low to maintain affordable premiums and be actuarially viable.

 This cap on total reimbursement regardless of network status and the limited liability for patients receiving out-of-network services reduces the incentive to contract on the part of both providers and health plans.

Inclusion of advanced practice nursing specialists (eg, nurse practitioners) has been shown to reduce costs in some settings by increasing labor supply and competition, and more directly by augmenting or substituting for physician services at a lower cost.

 Such savings are realized in the commercial market for anesthesia services, where we observed that plans paid lower allowed amounts CF to CRNAs than to anesthesiologists. However, traditional Medicare does not vary pricing per CF across anesthesiologists, CRNAs, and supervisory dyad provider structures, and we found that MA plans share this payment parity across provider types. More work is needed on the benefits of CRNAs practicing independently and under the supervision of anesthesiologists, but our study suggests that expanding the inclusion of CRNAs in anesthesia services may yield direct cost savings for commercial plans. There may also be indirect effects of CRNA practice on reducing costs not captured in our analysis, such as increased labor supply and competition.

Limiting our analysis to a subset of procedures in the outpatient and ASC settings and applying other exclusions strengthened the accuracy of CF estimates within our sample but may reduce generalizability. Findings may not be generalizable to health plans beyond our sample.

Anesthesia CF commercial allowed amounts, traditional Medicare rates, and charges differ substantially in magnitude. MA plans’ relatively low payments likely reflect the cost-containing influence of competition with traditional Medicare and MA’s prohibition on balance billing.Policy makers addressing surprise billing for commercial enrollees should choose out-of-network payment benchmarks prudently to avoid inflationary out-of-network benchmarks. Additionally, out-of-network benchmarks for anesthesia services, such as the “qualifying payment amount” used in the No Surprises Act as a guidepost for arbitrators, may benefit from considering commercial payment differences across independent anesthesiologist, independent CRNA, or anesthesiologist-CRNA dyad provider structures.

The authors acknowledge the assistance of the Health Care Cost Institute and its data contributors, Aetna, Humana, and UnitedHealthcare, in providing the claims data analyzed in this study.


 Leonard D. Schaeffer Center for Health Policy and Economics at University of Southern California (ELD, BL, ET), Los Angeles, CA; USC-Brookings Schaeffer Initiative for Health Policy (ELD, LA, ET), Los Angeles, CA; Brookings Institution (LA, ET), Washington, DC.

 Arnold Ventures supported this work through a grant to University of Southern California and the Brookings Institution.

 Dr Trish is a consultant to Cedars-Sinai Health System and for a capital management firm, both outside the specific issue of this paper; has performed expert witness work for the Blue Cross Blue Shield Association, Premera, and Varian Medical Systems, outside the specific issue of this paper; and has received speaking fees from MultiPlan. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

 Concept and design (ELD, BL, LA, ET); acquisition of data (LA, ET); analysis and interpretation of data (ELD, BL, LA, ET); drafting of the manuscript (ELD, BL); critical revision of the manuscript for important intellectual content (ELD, LA, ET); statistical analysis (BL); obtaining funding (LA, ET); and supervision (ET).

 Erin L. Duffy, PhD, MPH, University of Southern California, 635 Downey Way, Los Angeles, CA 90089-3333. Email: Erin.Duffy@usc.edu.

1. Garmon C, Chartock B. One in five inpatient emergency department cases may lead to surprise bills. 

. 2017;36(1):177-181. doi:10.1377/hlthaff.2016.0970

2. Chhabra KR, Sheetz KH, Nuliyalu U, Dekhne MS, Ryan AM, Dimick JB. Out-of-network bills for privately insured patients undergoing elective surgery with in-network primary surgeons and facilities. 

. 2020;323(6):538-547. doi:10.1001/jama.2019.21463

3. Cooper Z, Nguyen H, Shekita N, Scott Morton F. Out-of-network billing and negotiated payments for hospital-based physicians. 

. 2020;39(1):24-32. doi:10.1377/hlthaff.2019.00507

4. Duffy EL, Adler L, Ginsburg PB, Trish E. Prevalence and characteristics of surprise out-of-network bills from professionals in ambulatory surgery centers. 

. 2020;39(5):783-790. doi:10.1377/hlthaff.2019.01138

5. Consolidated Appropriations Act, HR 133, 116th Cong (2021). Accessed May 6, 2021. https://www.congress.gov/bill/116th-congress/house-bill/133

6. Data. Health Care Cost Institute. Accessed March 18, 2020. https://healthcostinstitute.org/data

7. Medicare claims processing manual: chapter 12 – physicians/nonphysician practitioners. CMS. Updated March 12, 2021. Accessed August 18, 2020. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c12.pdf

8. Report to the Subcommittee on Health, Committee on Ways and Means, House of Representatives. Medicare and private payment differences for anesthesia services: Medicare’s calculation of payments for anesthesia services. United States Government Accountability Office. June 2007. Accessed August 18, 2020. https://www.gao.gov/assets/gao-07-463.pdf

9. Bai G, Anderson GF. Variation in the ratio of physician charges to Medicare payments by specialty and region. 

. 2017;317(3):315-318. doi:10.1001/jama.2016.16230

10. Song Z. The pricing of care under Medicare for all: implications and policy choices. 

. 2019;322(5):395-397. doi:10.1001/jama.2019.8245

11. Johnson B, Kennedy K, Kurowski D, et al. Comparing commercial and Medicare professional service prices. Health Care Cost Institute. August 13, 2020. Accessed August 19, 2020. https://healthcostinstitute.org/hcci-research/comparing-commercial-and-medicare-professional-service-prices

12. Kennedy K, Johnson W, Fuglesten Biniek J. Surprise out-of-network medical bills during in-network hospital admissions varied by state and medical specialty, 2016. Health Care Cost Institute. March 28, 2019. Accessed August 19, 2020. https://healthcostinstitute.org/out-of-network-billing/oon-physician-bills-at-in-network-hospitals

13. Adler L, Lee S, Hannick K, Duffy E. Provider charges relative to Medicare rates, 2012-2017. Brookings. December 5, 2019. Accessed August 19, 2020. https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2019/12/05/provider-charges-relative-to-medicare-rates-2012-2017/

14. Pelech DM. Prices for physicians’ services in Medicare Advantage and commercial plans. 

. 2018;77(3):236-248. doi:10.1177/1077558718780604

15. Trish E, Ginsburg P, Gascue L, Joyce G. Physician reimbursement in Medicare Advantage compared with traditional Medicare and commercial health insurance. 

. 2017;177(9):1287-1295. doi:10.1001/jamainternmed.2017.2679

16. Berenson RA, Sunshine JH, Helms D, Lawton E. Why Medicare Advantage plans pay hospitals traditional Medicare prices. 

. 2015;34(8):1289-1295. doi:10.1377/hlthaff.2014.1427

17. Boccuti C. Paying a visit to the doctor: current financial protections for Medicare patients when receiving physician services. Kaiser Family Foundation. November 30, 2016. Accessed August 18, 2020. https://www.kff.org/medicare/issue-brief/paying-a-visit-to-the-doctor-current-financial-protections-for-medicare-patients-when-receiving-physician-services/

18. Perloff J, DesRoches CM, Buerhaus P. Comparing the cost of care provided to Medicare beneficiaries assigned to primary care nurse practitioners and physicians. 

. 2016;51(4):1407-1423. doi:10.1111/1475-6773.12425

19. Kleiner MM, Marier A, Park KW, Wing C. Relaxing occupational licensing requirements: analyzing wages and prices for a medical service. 

Articles

Mean in-network commercial allowed amounts and charges per anesthesia conversion factor are 314% and 659% of traditional Medicare rates, respectively. Medicare Advantage payments align with traditional Medicare prices.

Commercial and Medicare Advantage Payment for Anesthesiology Services

 To quantify the proportion of health plan spending on services for which surprise billing is common—provided by radiologists, anesthesiologists, pathologists, emergency physicians, emergency ground ambulances, and emergency outpatient facilities—and estimate the potential impact of proposed policies to address surprise billing on health insurance premiums.

 Analysis of 2017 commercial claims data from the Health Care Cost Institute, comprising 568.5 million claims from 44.8 million covered lives in 3 large US insurers: UnitedHealthcare, Aetna, and Humana.

 We calculate the share of total health plan claims spending attributable to ancillary and emergency services. Next, we estimate the premium impact of proposed federal policies to address surprise billing, which, by removing provider leverage stemming from the ability to surprise-bill, could reduce in- and out-of-network payments for these services, in turn affecting premiums. Specifically, we model the premium impact of reducing payment for these services (1) by 15% and (2) to 150% of traditional Medicare payment rates.

More than 10% of health plan spending is attributable to ancillary and emergency services that commonly surprise-bill. Reducing payment for these services by 15% would reduce premiums by 1.6% ($67 per member per year), and reducing average payment to 150% of traditional Medicare rates—the high end of payments to other specialists—would reduce premiums by 5.1% ($212 per member per year). These savings would reduce aggregate premiums for the nation’s commercially insured population by approximately $12 billion and $38 billion, respectively.

 Addressing surprise billing could substantially affect commercial insurance premiums.

Proposed surprise-billing legislation would not only protect patients from unexpected out-of-pocket expenses, but also likely affect negotiated payments for the ancillary and emergency services that generate most surprise bills.

More than 10% of commercial health care spending is attributable to services for which surprise billing is common: those provided by radiologists, anesthesiologists, pathologists, emergency physicians, emergency ground ambulances, and emergency outpatient facilities.

Eliminating provider leverage stemming from the ability to surprise-bill could reduce commercial insurance premiums by as much as 5.1%, or $212 per member per year. This could reduce aggregate premiums by approximately $38 billion for the nation’s commercially insured population.

Surprise medical bills, which can occur in emergencies or when patients at in-network facilities are treated by out-of-network professionals, have drawn increasing public and policy attention. Although the main focus has been protecting patients from receiving these unfair—and potentially large—surprise bills, policies addressing surprise billing may affect health insurance premiums more broadly.

Most surprise bills are generated by emergency and ancillary providers, such as radiologists, anesthesiologists, pathologists, emergency physicians, emergency ground ambulances, and emergency outpatient facilities.

 Unlike most medical services, for which patients have an opportunity to seek in-network providers, patients generally are not able to choose these emergency and ancillary providers. As a result, these providers can often remain out of network without significantly reducing their patient volume. Not only can this lead to patients receiving surprise bills, but evidence suggests that the ability to surprise-bill creates leverage that enables these providers to obtain higher in-network payments.

 For example, in a letter to Congress, the CEO of TeamHealth, a large emergency physician staffing company, plainly acknowledged that “balance billing…is a contract leveraging tool.”

The expense of these high in-network payments is passed on to consumers and taxpayers through the cost of health insurance premiums. Therefore, although the surprise bills themselves are burdensome to individual patients, the higher in-network payments resulting from this leverage have a broader impact on total health care spending for consumers.

A federal policy eliminating surprise bills would influence in-network payments for this subset of providers and, in turn, influence health insurance premiums. To assess the impact of a federal surprise billing law on premiums, it is critical to quantify the share of total health plan medical claims spending attributable to the subset of services most likely affected, for which only partial estimates are available in the existing literature (to our knowledge).

In this study, we evaluate the proportion of total medical health plan spending on ancillary and emergency services with the highest prevalence of surprise billing. This includes services performed by emergency medicine professionals, radiologists, anesthesiologists, and pathologists (ERAP), as well as emergency outpatient facilities and emergency ground ambulance services. Then, we estimate the impact that potential changes in payments for these services would have on health insurance premiums.

We analyze 2017 commercial claims data from the Health Care Cost Institute (HCCI), comprising 568.5 million claims from 44.8 million covered lives (equating to 36 million member-years) in 3 of the 5 largest US insurers: UnitedHealthcare, Aetna, and Humana.

 More than 90% of observed claims were in network, although there is variation across these provider types (

]). We compute total plan-paid spending on professional, facility, and pharmaceutical services per member per year. We then calculate plan-paid spending attributable to ERAP professional services, identified using 2 methods: (1) HCCI provider categories and (2) Current Procedural Terminology (CPT) codes generally billed by these specialties.

 We also calculate the share of total plan-paid spending per member per year on outpatient emergency facility claims and emergency ground ambulance services identified by CPT codes, as recent evidence suggests that these services would be affected by surprise-billing legislation.

 Then, we estimate the impact of 2 potential changes in payments for ERAP, outpatient emergency facility, and emergency ground ambulance services on insurance premiums. We assume a baseline medical loss ratio of 90% in these estimations to align with the average ratio among large group plans, and that nonmedical spending is unchanged by policies.

First, we analyze the impact of a 15% reduction in average payments for these services, in line with the Congressional Budget Office–estimated effects of surprise-billing legislation proposed by the Senate Health, Education, Labor, and Pensions Committee.

 This proposed legislation would prohibit surprise billing and require minimum out-of-network payments equal to a health plan’s median in-network payments for similar services in the same geographic region.

Second, we estimate the effects of a policy that would have the effect of reducing payment rates for ERAP professionals and emergency service providers to 150% of Medicare’s reimbursement rates for the same service. We choose this level because it is roughly the upper bound of average markups for specialists not commonly involved in surprise billing.

 In contrast, multiple studies estimate average in-network payments at roughly 300% of Medicare for emergency physicians, 200% of Medicare for radiologists, and 350% of Medicare for both anesthesiologists and pathologists.

 Medicare payments are intended to reflect the relative cost of providing care, and excess commercial markups observed among ERAP professionals and emergency service providers may be driven by their ability to surprise-bill. Therefore, we expect that a policy such as network matching

—by eliminating provider leverage stemming from the ability to surprise-bill—could result in negotiated payments with markups over Medicare more similar to these other types of specialists. Although it is impossible to predict the precise magnitude of prices resulting from these policies, we estimate the premium impact of reducing average payments for these services to 150% of Medicare payments.

In this analysis, we do not compute payments as a fraction of Medicare’s payment rates for each service in our data but, rather, use estimates from the literature described previously. For example, we assume that such a policy would reduce spending on radiology services by one-fourth, from 200% to 150% of Medicare’s rates. For emergency ground ambulance services, we estimate that commercial plans currently pay approximately 170% of Medicare’s rates (

). We assume that emergency facility payments would face the same reduction as emergency physician payments.

We find that ERAP professional services account for 7.0% to 8.6% of total plan spending in 2017, depending on the definition (

). Outpatient emergency facility claims account for an additional 3.1% of plan spending, and emergency ground ambulance services comprise 0.3% of plan spending. Average annual plan spending per member-year is $4161 among plans in our data set, with approximately $290 to $357 spent on ERAP professional services, $127 spent on emergency facilities, and $13 spent on emergency ground ambulances.

We estimate that a 15% reduction in payments to ERAP professionals corresponds to a 0.9% to 1.2% (approximately $37-$50 per member-year) reduction in annual premiums per enrollee (

). If average in-network payments for ERAP professionals declined to 150% of Medicare rates, premiums would decline by 3.1% to 3.6% (approximately $129-$150 per member-year), all else staying equal.

Including emergency facilities and emergency ground ambulance services, the estimated premium reduction would increase to 1.4% to 1.6% (approximately $58-$67 per member-year) under the 15% payment reduction scenario and 4.5% to 5.1% (approximately $187-$212 per member-year) if payments declined to 150% of Medicare. Applying these premium reductions to the US commercially insured population (approximately 177 million individuals),

 we estimate that 1.6% and 5.1% reductions in insurance premiums would yield a total savings of $12 billion and $38 billion, respectively.

The financial burden of surprise bills for individual patients has captured public attention, but this study illustrates that provider leverage derived from the ability to surprise-bill has broader effects on health care spending—resulting in commercial health insurance premiums as much as 5% higher than they otherwise would be in the absence of this market failure. Our estimates are roughly in line with others in the literature.

This growing body of research indicates that policies to address surprise billing would address an important market failure that has enabled emergency and ancillary services providers to command high payment rates. Removing the ability to surprise-bill patients reduces leverage for this subset of providers in their payment negotiations with health plans. Several federal proposals employ payment standards or arbitration processes that additionally require insurers to make a minimum payment to out-of-network providers. Other policy approaches would instead address surprise medical bills by imposing “network matching” requirements, whereby emergency, ancillary, and similar professional services delivered through in-network facilities could no longer be billed on an out-of-network basis; in turn, providers of such services would have to negotiate payment with the facility and/or health plans that the facility accepts, with the ability to surprise-bill now eliminated.

The net premium impact of any proposal would depend on the regulatory approach and generosity of any required minimum payments from health plans to out-of-network providers. If a policy were to base payment standards on something that is generally higher than payment rates today, such as provider charges, it could actually increase health insurance premiums.

These findings may not be generalizable beyond the 3 insurers we study, and we do not describe variation in effects across local markets. We may misattribute services to ERAP professionals, although consistent findings using 2 approaches suggest robustness. We analyze only 2 potential policy scenarios within a wider range of approaches.

Although economic theory lends some intuition to the effect that different policies might have, the precise effects of different approaches on provider prices are highly uncertain and we do not account for potential secondary effects such as provider consolidation. There is also some uncertainty surrounding status quo commercial payment levels. Additional specialties may be affected by surprise-billing legislation, which would further magnify premium impacts. For example, legislation may affect inpatient facility spending incurred by patients admitted through the emergency department, but we conservatively exclude such spending from our calculations.

Providers affected by surprise-billing regulation—ERAPs, emergency outpatient facilities, and emergency ground ambulances—comprise more than 10% of total plan spending. Policies addressing surprise billing can meaningfully influence commercial insurance premiums. A well-designed policy to address this market failure could therefore reduce consumer health care spending.


 Leonard D. Schaeffer Center for Health Policy and Economics at University of Southern California (ELD, BL, ET), Los Angeles, CA; USC-Brookings Schaeffer Initiative for Health Policy (ELD, LA, ET), Los Angeles, CA, and Washington, DC; Brookings Institution (LA, ET), Washington, DC; University of Southern California School of Pharmacy (ET), Los Angeles, CA.

 This work was funded by Arnold Ventures. The funding source had no involvement in the collection, analysis, and interpretation of data; in the writing of the manuscript; or in the decision to submit the article for publication.

 Dr Trish is a consultant to Cedars Sinai Medical Center and for a capital management firm, both outside the specific issue of this paper; has performed expert witness work for the Blue Cross Blue Shield Association and Premera, outside the specific issue of this paper; and has received speaking fees from MultiPlan. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

 Concept and design (ELD, BL, LA, ET); acquisition of data (ET); analysis and interpretation of data (ELD, BL, LA, ET); drafting of the manuscript (ELD, BL); critical revision of the manuscript for important intellectual content (ELD, LA, ET); and obtaining funding (LA, ET).

 Erin L. Duffy, PhD, MPH, Leonard D. Schaeffer Center for Health Policy and Economics at University of Southern California, 650 Childs Way, Los Angeles, CA 90089. Email: eld_805@usc.edu.

2. Melnick G, Fonkych K. An empirical analysis of hospital ED pricing power. 

. 2020;26(3):105-110. doi:10.37765/ajmc.2020.41929

3. Adler L, Fiedler M, Ginsburg PB, et al. State approaches to mitigating surprise out-of-network billing. Brookings. February 2019. Accessed August 12, 2019. https://www.brookings.edu/wp-content/uploads/2019/02/Adler_et-al_State-Approaches-to-Mitigating-Surprise-Billing-2019.pdf

4. Cooper Z, Morton FS, Shekita N. Surprise! out-of-network billing for emergency care in the United States. National Bureau of Economic Research working paper 23623. July 2017. Updated January 2019. Accessed August 12, 2019. https://www.nber.org/papers/w23623

5. Duffy EL. Influence of out-of-network payment standards on insurer-provider bargaining: California’s experience. 

6. Murphy L. Re: bi-partisan workgroup’s request for data and information on surprise medical billing. March 13, 2019. Accessed May 1, 2019. https://www.documentcloud.org/documents/6568825-TeamHealth-Letter.html

7. Cooper Z, Nguyen H, Shekita N, Morton FS. Out-of-network billing and negotiated payments for hospital-based physicians. 

8. Commercial claims data, 2014-2017. Health Care Cost Institute. Accessed September 3, 2019. https://www.healthcostinstitute.org/data

9. Current procedure codes. American Academy of Professional Coders. Accessed September 3, 2019. https://www.aapc.com/resources/medical-coding/cpt.aspx

10. Medical loss ratio. CMS. Accessed September 3, 2019. https://www.cms.gov/apps/mlr/mlr-search.aspx

11. S 1895, Lower Health Care Costs Act. Congressional Budget Office. July 16, 2019. Accessed August 12, 2019. https://www.cbo.gov/publication/55457

12. Pelech D. An analysis of private-sector prices for physicians’ services. Congressional Budget Office. January 2018. Accessed October 2, 2019. https://www.cbo.gov/system/files/115th-congress-2017-2018/workingpaper/53441-workingpaper.pdf

13. Biener AI, Selden TM. Public and private payments for physician office visits. 

. 2017;36(12):2160-2164. doi:10.1377/hlthaff.2017.0749

Report to the Congress: Medicare Payment Policy

. Medicare Payment Advisory Commission; 2017. Accessed September 3, 2019. http://medpac.gov/docs/default-source/reports/mar17_entirereport.pdf

15. Stead SW, Merrick SK. ASA survey results for commercial fees paid for anesthesia services—2018. 

16. Song Z. The pricing of care under Medicare for All: implications and policy choices. 

17. Adler L, Fiedler M, Ippolito B. Network matching: an attractive solution to surprise billing. 

. May 23, 2019. Accessed June 28, 2019. https://www.healthaffairs.org/do/10.1377/hblog20190523.737937/full/

18. Health insurance coverage of the total population, 2017. Kaiser Family Foundation. Accessed September 3, 2019. https://www.kff.org/other/state-indicator/total-population/?dataView=1&currentTimeframe=1&selectedDistributions=employer--non-group&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

In addition to protecting patients from receiving unexpected bills, policies to address surprise billing could reduce health insurance premiums by 1% to 5%.

Policies to Address Surprise Billing Can Affect Health Insurance Premiums 

 To describe the number and availability of individual market plans sold by provider-owned insurers and compare differences in premiums between traditional and provider-owned insurers.

 Using the Robert Wood Johnson Foundation’s HIX Compare data, we identified insurers selling Affordable Care Act (ACA)—compliant policies in the individual market and identified those insurers owned by health systems by using information on their websites. We determined the number of insurers selling policies in each market and the size of the population living in areas where provider-owned insurers sold plans in 2016 and 2017. We used least squares regression to compare premiums between traditional and provider-owned insurers within markets, and we adjusted standard errors for clustering at the market and insurer level.

There were 149 insurers that sold ACA-compliant plans in 2017, of which 51 were provider owned. Provider-owned insurers operated in 208 of the 503 exchange markets. We estimate that about 62% of US residents (more than 170 million people) live in a market in which a provider-owned insurer sells plans. Premiums did not differ significantly between traditional and provider-owned plans in 2017.

 Provider-owned insurers play a prominent role in the individual insurance market. Although health systems that sell insurance have incentives to reduce costs, provider-owned insurers and traditional insurers have similar premiums.

By combining the provision and financing of insurance, provider-owned insurers have the potential to reduce costs. We describe the role of provider-owned insurers in the individual insurance market.

There were 149 insurers that sold Affordable Care Act—compliant plans in 2017, of which 51 were provider owned.

Provider-owned insurers operated in 208 of the 503 exchange markets.

About 62% of US residents (more than 170 million people) live in a market in which a provider-owned insurer sells plans.

Premiums did not differ between traditional and provider-owned plans in 2017.

Health policy experts have touted the benefits of integration between insurers and providers for over 40 years,

 but the model has been slow to catch on. Commercial insurers and Blue Cross Blue Shield plans have dominated the health insurance market. The federal government has tried to promote provider—insurer integration via accountable care organizations (ACOs). Although ACOs face limited downside risk, policy makers clearly hope to nudge the healthcare system to be more like Kaiser Permanente,

 a fully integrated delivery system that is often held up as a model of efficient, high-quality healthcare delivery.

In this paper, we describe the number and geographic reach of provider-owned insurers in the individual insurance market, and we compare premiums between provider-owned and traditional insurers. The individual market is of special concern for policy makers, given the exits of some prominent insurers from the exchange markets and subsequent reports of rising premiums. Previous analyses have focused on the role of provider-owned insurers in the Medicare Advantage market and the insurance market generally. Twenty percent of Medicare Advantage enrollees were in plans operated by provider-owned insurers in 2016, and 11 of 19 new Medicare Advantage insurers were provider owned.

 In 2013, there were 107 providers selling insurance that covered 18 million enrollees, including Medicaid managed care and Medicare Advantage enrollees.

Historically, it has been difficult to evaluate the claim that Kaiser Permanente

 and other provider-owned insurers have lower costs. Insurance premiums for employer-based insurance policies are not publicly available, and the lack of standardization of benefits makes it difficult to compare premiums even when they are available. Insurance claims data are an important source of information about healthcare spending generally, but either integrated systems do not release claims data or the data do not have encounter-level transaction prices.

The RAND Health Insurance Experiment remains the most rigorous comparison of costs between provider-owned and traditional insurers. Subjects were randomized to different tiers of fee-for-service health plans or Group Healthcare Cooperative of Puget Sound, a health maintenance organization. Costs were 28% lower in the Group Healthcare arm.

 found that provider-owned insurers had higher premiums in the Medicare Advantage market in 2009. However, premiums in the Medicare Advantage market are highly regulated. If a plan submits a bid below the benchmark, the plan receives a rebate that it must use to increase benefits. Half of the plans in the sample used by Frakt et al had $0 premiums.

The degree of standardization in individual policies brought about by the Affordable Care Act (ACA) offers a novel opportunity to compare premiums between provider-owned and traditional insurers. Premiums are publicly available, insurance products are standardized, and premiums depend on consumer characteristics to a limited degree and in ways that are observable. For plans sold on the exchanges, robust risk adjustment weakens the close correspondence between insurers’ profits and enrollee characteristics that exists in most other insurance markets.

 using 2016 data on premiums for plans sold on the exchanges, found that the minimum Silver plan premium in a market was $12 lower if 1 of the insurers participating in the market was provider owned. Their analysis had 1 observation per market.

 used 2016 data for plans sold on the exchanges in 30 states to compare premiums between provider-owned insurers and 5 categories of traditional insurers. They found that premiums for Blue Cross Blue Shield plans were similar to those for provider-owned insurers, but premiums for national commercial plans were $260 higher. Our study differs from theirs in a number of respects. We (1) use data covering all 50 states and Washington, DC; (2) compare premiums between provider-owned insurers and all other insurers, which we believe is a more interesting, policy-relevant comparison; (3) include market, versus state, fixed effects; (4) adjust standard errors for clustering of plans by market and by insurer; and (5) use 2017 data.

We used the Robert Wood Johnson Foundation’s 2017 HIX Compare data set (the February 2, 2018, version), compiled from insurers’ mandatory submissions to the CMS Health Insurance Oversight System. The data cover every plan sold on the exchanges, including plans sold on federally facilitated, state partnership, federally supported, and state-based Marketplaces, as well as off-exchange, ACA-qualified plans. The data cover every plan’s characteristics but do not include information on the number and characteristics of enrollees. Observations are at the plan-market level. Insurers sell multiple plans across and within markets.

We classified an insurer as provider owned if the insurer was owned by or shared a common owner with a hospital system or multispecialty physician clinic. (We hypothesized that insurers that owned only primary care clinics would not have sufficient leverage or control over the delivery of healthcare to substantially reduce costs.)

We identified provider-owned insurers by examining the About Us section of each insurer’s website. We looked for statements indicating that (1) the insurer was owned by a health system or (2) the insurer owned and operated hospitals and clinics. We then examined network directories to determine if the network included hospitals or physician clinics affiliated with the insurer. A research assistant classified each insurer, and then one of the authors reviewed each classification, using the same methods, to determine its accuracy. 

) contains a list of these insurers and their classifications.

We classified observations at the insurer rather than plan or product level. For example, UnitedHealthcare is a traditional insurer but had a recently closed subsidiary, Harken Health, that operated its own physician clinics. We classified both UnitedHealthcare and Harken Health as traditional insurers because only a small share of the United plans were sold under the Harken brand and because United may have used the profits from Harken to cross-subsidize its other products or vice versa.

Corporate names are used inconsistently in the HIX Compare data (for example, some plans sold by Harvard Pilgrim are associated with “Harvard Pilgrim”; others, with “Harvard Pilgrim Health Care”). We therefore recoded the carrier variable in the HIX Compare data so that all plans sold by an insurer had a common code. This step was necessary to correctly adjust standard errors for clustering of plans by insurer. We grouped all of the Blue Cross Blue Shield plans owned by Anthem, Inc, together. Plans sold by non-Anthem Blue Cross Blue Shield insurers were assigned distinct codes.

We assessed the presence and number of provider-owned and traditional insurers in each market (as defined by exchange rating areas). We merged the HIX Compare data with the Health Resources and Services Administration’s Area Resource File to determine the characteristics of the markets in which provider-owned insurers operate. We measured the association between market characteristics and the presence of at least 1 provider-owned insurer in the market using logistic regression.

We estimated differences in premiums between plans sold by provider-owned and traditional insurers using a correlated random-effects model.

 We restricted attention to each insurer’s lowest-cost Silver plan for an individual aged 50 years in each market. There is 1 observation per insurer per market.

Similar to a fixed-effects model, the correlated random-effects model estimates within-market differences in premiums. However, similar to a mixed-effects model, it also permits adjustment of standard errors for clustering at the market and insurer levels. Plans are nested in markets and in insurers, but neither markets nor insurers are nested in each other (they are “crossed” effects). A traditional fixed-effects model cannot accommodate the complex error structure. The model is of the following form:

 indicates whether the insurer is provider owned. Controlling for the market-level average of the share of provider-owned insurers, 

, ensures that the coefficient on the provider-owned insurer indicator, 

, is equivalent to an estimate from a fixed-effects model. The variables 

 represent insurer and market random effects, respectively.

Availability of Provider-Owned Insurance Plans

There were 149 insurers that sold ACA-compliant plans in 2017, of which 51 were provider owned based on our criteria. Provider-owned insurers operated in 208 of the 503 markets. 

 displays the number of provider-owned insurers in each market. Provider-owned insurers operate in geographically diverse areas in the United States, including the upper Midwest, the coastal West, and the mid-Atlantic. Five providers (CHRISTUS Health, Covenant Health, Memorial Hermann, Prominence Health, and Baylor Scott & White Health) sell insurance in Texas, a state not normally associated with delivery system innovation.

Provider-owned insurers sell individual policies in areas that cover 62% of the US population and have premiums similar to policies of traditional insurers.

Erin Trish, PhD

Articles

Commercial and Medicare Advantage Payment for Anesthesiology Services

Policies to Address Surprise Billing Can Affect Health Insurance Premiums

Provider-Owned Insurers in the Individual Market

Financial Burden of Healthcare Utilization in Consumer-Directed Health Plans

Provider-Owned Insurers