New Payment Model Tackles ‘Surprise Medical Bill’ Issue

Even when patients go out of their way to find hospitals and labs in their insurance network, they might end up getting treated by an out-of-network specialist.

When this happens, patients are often slapped with what consumer groups call a “surprise medical bill”, meaning they’re forced to pay the out-of-network rate. In 2017, California Assembly Bill 72 banned this type of billing for patients receiving non-emergency treatment at an in-network facility.

But until now, there was uncertainty about how doctors are compensated for these services. As of Jan. 1, the state has finalized the reimbursement rate plans must pay providers.

“[Surprise billing] put the patient in the middle of the health insurer and the physician,” said outgoing insurance commissioner Dave Jones. “That law directed there be a payment rate established, so this regulation does exactly that.”

Under AB 72, plans must either pay providers 125 percent of the Medicare rate or an “average contracted rate”, which the state was required to set by Jan. 1, 2019. Before the adoption of the new system, plans had been using an interim rate.

The new payment system is based on commercial rates paid by health insurers for similar medical services in the same geographic area, adjusted for inflation.

Patients all over the U.S. have reported surprise medical bills that put them on the verge of bankruptcy. A 2015 survey from Consumers Union found that about a quarter of Californians with private insurance were charged an out-of-network rate when they thought their provider was in-network.

AB 72 initially faced pushback from groups such as the California Society of Anesthesiologists, who worried it might lead health plans to narrow their provider networks.

Vanessa Cajina, a legislative advocate for the group, said coming up with a defined payment structure was crucial. She said creating “fair payment plans” between providers and insurers keeps patients out of those disputes.

“[That] gives patients the peace of mind that when they schedule a procedure, they’re not on the hook for anything more than what their health plan told them,” she said.

A representative from the California Association of Health Plans was not available for comment.

The law applies to patients with individual or group insurance regulated by Department of Managed Health Care or the Department of Insurance. It does not affect patients enrolled in Medicare, Medi-Cal, out-of-state plans, self-insured employer plans or other products regulated by federal law.