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Surprise medical bills occur when a patient unexpectedly or involuntarily receives care from an out-of-network provider and is billed for the amount not covered by insurance. Past studies were unab...

In 2018 New Jersey implemented a final-offer arbitration system to resolve payment disputes between insurers and out-of-network providers over surprise medical bills. Similar proposals are being considered by Congress and other states. In this article we examine how arbitration decisions compare with other relevant provider payment amounts by linking administrative data from New Jersey arbitration cases to Medicare and commercial insurance claims data. We find that decisions track closely with one of the metrics that arbitrators are shown-the eightieth percentile of provider charges-with the median decision being 5.7 times prevailing in-network rates for the same services. It is not a foregone conclusion that arbitrators will select winning offers based on proximity to this target, although our findings suggest that it is a strong anchor. The amount that providers can expect to receive through the arbitration process also affects their bargaining leverage with insurers, which could affect in-network negotiated rates more broadly. Therefore, basing arbitration decisions or a payment standard on unilaterally set provider-billed charges appears likely to increase health care costs relative to other surprise billing solutions and perversely incentivizes providers to inflate their charges over time.

A surprise medical bill is a bill from an out-of-network provider that was not expected by the patient or that came from an out-of-network provider not chosen by the patient. We investigated consumers' hospital choices after receipt of surprise out-of-network medical bills in an elective situation, using a large national sample of medical claims for obstetric patients with two deliveries covered by employer-sponsored health insurance in 2007-14. We found that 11 percent of mothers experienced a surprise out-of-network bill with their first delivery, and this was associated with an increase of 13 percent in the odds of switching hospitals for the second delivery, compared to mothers who did not experience a surprise bill. Mothers who switched hospitals after a surprise out-of-network bill reduced their relative risk of receiving a second surprise medical bill by 56 percent, compared to mothers who did not switch after receiving their first surprise bill. These results highlight the harmful effects of surprise out-of-network bills, as patients are more likely to switch from their preferred hospital after receiving a surprise bill. Patients would benefit significantly from laws protecting them from the damaging financial consequences of surprise out-of-network bills, including those incurred in elective situations.

A surprise medical bill is a bill from an out-of-network provider that was not expected by the patient or that came from an out-of-network provider not chosen by the patient. In 2014, 20 percent of hospital inpatient admissions that originated in the emergency department (ED), 14 percent of outpatient visits to the ED, and 9 percent of elective inpatient admissions likely led to a surprise medical bill.