Column: Opponents launch constitutional attack on laws to end surprise medical bills

President Trump Discusses Ending Surprise Medical Billing
Sen. Lamar Alexander (R-Tenn.), center, confers at the White House on May 9 on surprise billing legislation before his Senate Health Committee, flanked by Sen. John Barrasso (R-Wyo.), left, and Health and Human Services Secretary Alex Azar.
(Alex Wong / Getty Images)

In our fraught debate over healthcare, two principles seem to win support from Democrats, Republicans and independents: People with preexisting conditions should be protected, and “surprise” medical bills should be banned.

You know what we mean by surprise bills — they’re the ones from out-of-network doctors that magically appear in the mail after an emergency-room visit or surgery at an in-network hospital.

Patients may have thought their expenses were covered by insurance, only to discover that their ER doctor or anesthetist or radiologist was outside their insurance policy’s network and therefore free to charge what the market will bear.

The Constitution does not protect a healthcare provider’s right to exploit a market failure to take advantage of consumers.
Cristen Linke Young, USC-Brookings

Insurance will cover a portion of their bills, but since they don’t have network contracts with the insurers, they dun the patients for the balance. (That’s why “balance billing” and “surprise billing” are sometimes used interchangeably.)

Network doctors make a deal with insurers, accepting a negotiated reimbursement rate in exchange for a guaranteed flow of patients; they’re generally forbidden to charge patients more than the negotiated rate.

Congress and several states have passed or are pondering measures to ban or limit surprise billing. California’s law, which limits charges in balance-billing cases to the average contracted rate for a given service in a region or 125% of the Medicare reimbursement, whichever is higher, went into effect on July 1, 2017.

But these measures have been coming under attack as purportedly unconstitutional. The manifesto of this approach comes from Paul D. Clement, a former solicitor general in the George W. Bush administration who has become known for fronting conservative legal challenges to federal laws, notably the Affordable Care Act.


In a paper posted online on June 19 (hat-tip to Harris Meyer of Modern Healthcare), Clement asserted that by forcing doctors and hospitals to accept capped reimbursement, even if they’re not contracted members of an insurance network, the measures could violate the “takings” clause of the 5th Amendment, which bars the government from taking private property without “just compensation.” In this context, the property is the fair value of a provider’s services, if it’s higher than the capped rate.

Clement also maintains that the balance-billing proposals raise 1st Amendment issues because they effectively limit the non-network doctors’ “option of joining together and refusing to accept the [network] rates they are being offered.”

Some legal experts think Clement is overreaching. “These are extremely weak constitutional claims — the sorts of claims that, if accepted, would threaten the constitutionality of any kind of legislative price controls,” Nicholas Bagley, a health law expert at the University of Michigan, told Modern Healthcare.

Clement hasn’t said whether he wrote his paper on behalf of a particular client. His tone is essentially libertarian, but some of his points already have been aired by doctors and hospitals opposed to balance-billing laws. The challenges include a lawsuit in federal court in Sacramento brought by the Assn. of American Physicians and Surgeons and Eileen Natuzzi, an Encinitas surgeon.

Their claim under the takings clause was tossed out on June 13 by federal Judge Morrison C. England Jr. of Sacramento. He found, among other things, that Natuzzi’s claim to have suffered a 25% reduction in income was “far too generalized” to support a takings case. Nor was there any evidence that Natuzzi had tried to take advantage of the provisions of state law allowing non-network doctors to negotiate reimbursements with insurers or appeal their payments.

The association, England ruled, didn’t have standing to bring the case in the first place, because it hasn’t been injured by the state law.

Still, Clement’s points warrant close scrutiny. That’s because they may become factors for Republicans considering a balance-billing measure in the U.S. Senate.

His perspective was questioned by Cristen Linke Young of the USC-Brookings Schaeffer Initiative for Health Policy in an analysis posted Monday.


Only 25 states offer protection against surprise medical bills — 16 of them only partially.
(Commonwealth Fund)

“Put most simply,” she wrote, “the Constitution does not protect a healthcare provider’s right to exploit a market failure to take advantage of consumers.”

The viewpoints of Young and Clement depend heavily on how they picture the healthcare providers doing the balance billing, and under what circumstances. For Clement, they’re victims of a system rigged to benefit insurers. For Young, they’re exploiting loopholes in that system, to their patients’ disadvantage.

Clement sees non-network doctors as holdouts against insurers determined to force them “meekly” to “accept unreasonable rates.” He argues that the doctors’ only leverage arises from their ability to refuse to join a network, charge patients whatever fees they wish, and collect the whole bill.

“Health insurance plans would gain all negotiating power in a regulatory environment where balance billing is unlawful,” he writes. “The credible threat of staying out-of-network and engaging in balance billing thus provides much-needed negotiating leverage for providers.”

The vast majority of surprise bills come from ambulance and ER services, but even inpatients can get a bill from an out-of-network anesthesiologist or radiologist.
(USC Schaeffer-Brookings)

Young’s depiction of the non-network group corresponds more closely to the experience of patients receiving surprise bills — they’re dunning patients who didn’t have a choice between them or network doctors when undergoing treatment.

The quintessential balance-billing victim is someone who suffers an injury, is transported to a hospital in a state of reduced consciousness via an out-of-network ambulance, then returns to consciousness under layers of bills from providers and doctors he or she never had an option of accepting or rejecting.


Indeed, that’s why “surprise billing” and “balance billing” tend to go hand-in-hand. Indeed, according to a Brookings survey earlier this year, the vast majority of surprise bills came from ambulance services or ER visits.

Ambulance services appear to be especially resistant to reaching network agreements with insurers; among patients with large employer-sponsored insurance, 50% of ambulance cases involved out-of-network ambulance services, the Brookings survey found.

Among the most problematic are air ambulances, which by law can’t be regulated at the state level. In the wake of a recent Johns Hopkins study showing sharp increases in air-ambulance charges, those services got added to a balance-billing measure under consideration by the Senate Health Committee, much to the industry’s displeasure.

These realities undercut Clement’s argument that doctors’ option to remain outside insurers’ networks amounts to a “credible threat” keeping reimbursements higher. Patients don’t normally choose non-network doctors unless they’re electing a service or seeking a treatment that isn’t covered by insurance. “Concierge” doctors who don’t contract with insurers exist, but they tend to serve a specialized and often affluent clientele.

For most others, the prospect of a surprise bill for thousands of dollars is the “credible threat” in their healthcare. Brookings’ legal experts don’t believe that the reimbursement caps embodied in state laws or the congressional proposals are anywhere near stringent enough to trigger a “takings” challenge. Clement himself says provisions allowing for arbitration for non-network doctors’ claims would help “mitigate the constitutional problems” he sees in such laws.

Young and her colleagues at the USC-Brookings initiative say that it’s most important to protect patients from surprise billing in cases where they “lack meaningful choice of provider.” That means all emergency care; emergency ambulance transport; and ancillary services delivered at an in-network facility such as anesthesiology, radiology, pathology, assistant surgery, and tests and imaging.

They also recommend that states set caps on what any out-of-network provider can charge, and that insurers be required to “hold patients harmless beyond their normal in-network cost-sharing amounts.” In other words, plans would pay the excess charges.

That would go far to address a problem that exists only because America’s fragmented payer system leaves openings in which medical profiteers thrive and unknowing patients fall. An injury or emergency is surprise enough for most patients; no one needs more shocks to arrive when trying to recuperate.

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