One of the longstanding tensions in health care finance—whether you’re talking about health insurance or managed care, for-profit or nonprofit, workers’ compensation, Medicare, Tricare, automobile medical payments, Medicaid, or the Children’s Health Insurance Program and dozens of state versions thereof—is finding a way to determine the reasonableness of expenses owed for treatment. A new law in Indiana solves a longstanding probem with balance billing in that state.
A few decades ago, in the ’50s and ’60s, injured parties went to emergency rooms for life-threatening injuries or diseases, and to doctors for everything else. Almost everybody had insurance coverage for basic medical treatment through their employer. The welfare state had not really developed, so most able-bodied people worked.
There was polio and tuberculosis, but no AIDS, no computed tomography, magnetic resonance imaging, or positron emission tomography, no auto no-fault insurance, and not much in the way of cost-shifting from one system to another. There seemed to be little need for medical fee schedules except for the developing “cosmetic” surgery specialty.
Property-Casualty Relevance
The modern challenges which have surfaced in financing the more miraculous medical capabilities available today led to a new law in Indiana. The Insurance Institute of Indiana has a reputation for sniffing out emerging threats to its members and, if necessary, endorsing bipartisan legislative solutions. This one should be noted by all property and casualty companies writing auto insurance, because it is doubtful these circumstances are limited to a single state.
During the Great Depression, hospitals had trouble collecting fees owed for care, and the answer in Indiana was to give the hospitals a statutory lien, superior to all other creditors except attorneys, in settlements to resolve lawsuits. This is the reason the issue impacts property and casualty companies more than other types of insurance—it applies only to lawsuit settlements.
Today, instead of submitting billing to plans—which typically negotiate contracts to reduce these charges by up to 40 percent—some Indiana hospitals file liens for the full charges levied by the hospital for treatment, the sticker price that almost no one ever pays.
In some cases, individual patients have been balance-billed for the difference between their plan payments and the full amount charged. This has been allowed because Indiana, like most states, has a law dictating that hospital charges are prima facie evidence of reasonable charges.
Held to Contract Limits
Which brings us to legislation sponsored by Indiana Sen. Brent Steele (R-Bedford) in the latest legislative session. When Indiana’s Senate Bill 5 went into effect July 1, these practices were no longer be lawful. The Indiana law protects patients with language that states:
A hospital lienholder is barred from seeking from the patient or the patient’s representative payment for any amount of the hospital’s charges that exceed the patient’s financial obligation to the hospital under the terms of any public or private benefits to which the patient is entitled, including the terms of any health plan contract and medical insurance. The lien must reflect credits for all payments, contractual adjustments, write-offs, and any other benefit in favor of the patient.
Oh, and by the way, the law also eliminates the ability of local government-owned hospitals’ emergency ambulance services to recover charges associated with a patient’s care and transportation by means of placing a lien on a cause of action, suit, or claim accruing to the patient.
This is a difficult policy area, and it will not be the final skirmish over reasonableness in medical charges, but it should be widely noted. Balance billing for outpatients allows some negotiation between parties and limited market pricing, because a patient has some choice about where to go. Balance billing for inpatients, however, puts vulnerable people at risk when they have no choice about treatment, and should be resisted wherever possible.
This legislative fix is a praiseworthy move by the Indiana state government.
Alan Smith ([email protected]) is Midwest director and a senior fellow at the R Street Institute. Used with permission of RStreet.org.
