Manhattan Contrarian Public Service: The Easy Solution To "Surprise" Medical Bills

In the long list of unintended consequences of Obamacare, the latest one to attract attention is the so-called “surprise medical bill.” They have given you to think that your all-beneficent government has bestowed upon you that holy grail of healthcare “coverage.” Then you have to go to the hospital. No problem — you have “coverage.” But upon getting home you suddenly get hit with a completely unexpected bill for $2000 or $5000, or even $10,000 or more, and you are told that it is not covered by the “coverage.” What the hell is going on here?

I guess you didn’t read the fine print. The geniuses behind the design of Obamacare insisted that they could mandate both “affordable” premiums, and simultaneously third-party payment for every conceivable health issue (e.g., free birth control for eighty-year-olds). But something had to give. The remaining escape valves have turned out to be high deductibles and narrow networks in the healthcare policies. Thus, for your hospital visit, you may find that your deductible makes you responsible for the first $3000, or even $5000, of the bills. Or, even worse, you may find that even though you carefully selected a hospital that was “in network,” the doctor who treated you was “out of network,” and sends you a bill for $6000 that your “coverage” won’t pay.

This “surprise medical bill” issue has recently attracted enough attention that the Congress has swung into action. When Congress swings into action, it follows the fundamental principal that all human problems are to be solved by some kind of program, regulation, or mandate emanating from the federal government. This principal applies most particularly to solutions to those human problems that were caused by the last round of programs, regulations and mandates emanating from the federal government. And thus we have something called the Lower Health Care Costs Act, recently introduced in the Senate by Lamar Alexander (Republican of Tennessee) and Patty Murray (Democrat of Washington). Writing in the Wall Street Journal on Wednesday, in a piece titled “Get Rid of Surprise Medical Bills” (probably behind pay wall), Benedic Ippolito of the American Enterprise Institute calls the proposed LHCCA the “most consequential bipartisan health-care reform of the ObamaCare era.”

Given that the Obamacare statute was 2000 +/- pages (depending on what version you have), you can’t expect this LHCCA thing to be simple. In the version at the link, it is 165 pages, and to be fair, addresses more than just the “surprise medical bills” issue. But just on the “surprise medical bill” issue, the LHCCA in 25 or so pages proposes no fewer than three potential fixes: price controls; a universal mandatory arbitration regime; and/or a so-called “in network guarantee,” by which an “in network” hospital would have to assure that any doctor it puts on your case is also “in network.” Looking at the three, Mr. Ippolito of AEI opines that the last, the “in network guarantee,” is the best.

As a public service to our readers and to the Congress, the Manhattan Contrarian wishes to state that there is a far, far better and easier solution to this “surprise medical bills” thing than any of the three proposals in the LHCCA. And it is a solution that is already present in existing law. The solution is, if you get one of these “surprise medical bills,” you don’t owe it! You can — and you should — start out by just refusing to pay it. And then, see where it goes from there. The hospital and/or doctors in question may well take a different view, and may put some effort into pursuing you. But in this game, you will find that you hold almost all the cards. With a high likelihood, you can either negotiate an amount that is acceptable and affordable to you, or alternatively the hospital or doctor will just give up on you and go away.

Let’s go through the basics here. Do you think that just because someone sends you a bill that therefore you owe it? Actually, that’s not the way it works at all. The law of whether you owe a bill is part of the law of contracts. In the law of contracts, the fundamental requirement is the existence of an agreement. If you agree that someone will render a service to you, and you agree to the price, and the person renders the service, then you owe the price that you agreed to. You owe it because you agreed to it. Almost all of the bills that you get fall in this category. If you get a bill for rent, it will generally be in the amount that you agreed to when you signed the lease. The bill for a monthly mortgage payment is the amount you agreed to when you signed the note for the loan. The bill for your cell phone is the amount you agreed to when you signed up with the carrier. And so forth.

A “surprise medical bill,” by hypothesis, is a bill where you have not agreed with anyone on the amount. Because you have not agreed to the amount, you don’t owe it. The amount of the bill is therefore, at best, an opening bid in a negotiation.

Now, to say that you don’t owe the bill in the amount rendered is not to say that you don’t owe anything at all. After all, you asked for the medical service to be performed, and you accepted the service. But how can an amount be determined? The law on this subject is a matter of state law rather than federal, and common law (court decisions) rather than statutes, and has different nuances from state to state; but a fair summary is that if someone sues you for payment where there has been no agreement on price, it will be up to the court to find a “reasonable” price. That means first of all that to actually try to collect, the hospital or doctor that rendered one of these surprise bills will have to sue you and be prepared for a very expensive court trial where anything that might go to “reasonableness” of the bill could be considered.

What might go to reasonableness? Pretty much anything might. Your ability to pay could well be a part of it. The fact that they didn’t tell you that an out-of-network doctor was going to operate on you and then sent you an enormous surprise bill will almost certainly be considered. Also likely to be considered will be the amounts that they have accepted from others for the same service. What does Medicaid pay for this service? How about Medicare? What do they take from insurance companies where the patient is insured? What is the lowest amount that they have ever accepted for this service from an uninsured patient? Are there other facilities in your area, such as store-front urgent care centers, where you can get a much lower price quote for the same service? How much does this bill come to per hour of the doctor’s work? Five thousand dollars for a two-hour operation? Really?

In my own experience, Medicaid (even more so than Medicare) is their achilles heel in trying to collect on one of these surprise bills. Chances are that Medicaid pays a small fraction of what they have billed you — perhaps as little as 20%, or even 10%. They will want very badly to avoid telling you how little it is, not only because as soon as you know you won’t pay any more than that, but also because once the word gets out nobody will pay more than that. But if they are forced to sue you, in the litigation you will almost certainly be entitled to find out how much they take from Medicaid for this service. In my own experience, which admittedly is limited, once I demanded to know what they take from Medicaid, I never heard from them again.

Does it perhaps seem to you to be daunting and impossible to have to take on the task of a negotiation with a hospital over one of these bills? I’m not saying it’s easy, but overall a world where you take responsibility for dealing with something like this is far better than one where you think that the federal government can somehow magically solve the problem with yet another complicated statute. All of the proposed “solutions” in the LHCCA are far more complicated than the basic law of contracts, which is very intuitive. Also, in any of the proposed “solutions” in the LHCCA, some new unintended consequences will almost certainly pop up in short order.

But on the other hand, consider a world where patients learn about the basics of their already-existing rights, and respond to these “surprise medical bills” by saying “I don’t owe that,” followed by maybe a low-ball offer and/or a demand to know how much Medicaid or Medicare pays for this. In that world, there is a real prospect for meaningful declines in the prices these guys try to charge.