Inpatient Balance Billing is an Unfair Medical Practice

Published May 9, 2011

My wife has spent nearly a month in the hospital over the past year, and this has given me experience with a practice among doctors called inpatient balance billing.

I have good health insurance, pay all my bills on time, understand that medical care costs a lot, and generally favor less-onerous regulations on the health care market. And I am increasingly frustrated by this practice.

Here’s how it works. Doctors sign up for managed care networks or work, usually as contractors, at hospitals that have done so, and in return they typically agree to receive certain predetermined payments.

I have heard of hospitals doing inpatient balance billing as well, although it has never happened to me. The doctors collect these payments from insurers — and then, with increasing frequency as managed care has become the norm — turn around and try to dun their patients for more.

When doctors see patients in their offices or even emergency rooms and make it clear that insurance may not cover everything, then setting up payment arrangements outside of the insurance system is perfectly fair and may actually help the market function better.

But when a very ill person has been admitted to the hospital and has no ability to refuse services or learn how much they’ll cost, such billing becomes unfair. In most cases, the doctors already have been paid at what insurance companies say are “usual, customary, and reasonable rates” for services they provided to patients that, because they were in the hospital already, were in no position to refuse them.

Doctors who don’t like this system have some valid complaints, but they need to take them up with insurance companies, not with “customers” who have no ability to refuse their services.

In most states, when the hospital or provider is “out of network,” this behavior is legal, but given that the patients, once admitted to a hospital, have neither choice of medical services, nor choice of providers for the multitude of individual services that might be required, nor any information about how much those services will cost, it is certainly unfair.

And although the practice is supposed to be limited to “out of network” providers or certain types of specialists, my own experience indicates this is not the case: In the past year alone, I’ve personally gotten at least three balance bills from doctors who had joined my managed care network and had already been paid.

Insurers claim to loathe balance billing, and they typically ban it in contracts (as do laws in some states), but in my experience insurers do surprisingly little to help their policyholders resist these extra charges.

One major insurer required me to fax its claims department three collection notices before sending a doctor’s office a single “cease and desist” letter. Insurers may be tempted to tolerate this behavior because doctors drop out of managed care networks that are too strict about their ability to balance bill.

The buck has to stop somewhere, and when doctors work in managed care settings, they should follow the rules. If doctors don’t want to accept insurance payments, they should withdraw from the networks, refuse to work in hospitals that join them, disclose their prices to patients, and refuse to see patients who don’t want to pay directly.

But once they accept insurance payments from hospital inpatients, doctors’ direct charges should be limited to the co-pays and coinsurance specified in the patients’ insurance contracts. Patients, of course, have a big role to play in resisting these bills.

Providers, insurers, and consumers would do well to work these problems out before government steps in to do it for them.

Eli Lehrer is vice president of Washington operations for the Heartland Institute and national director of its Center on Finance, Insurance, and Real Estate.