Cost-containment companies—businesses that act as middlemen between insurance carriers and providers in controlling costs—could be hard-hit by proposed regulatory changes, a new report finds.

The report by Moody's Investor Services says that recent moves in Congress to address concerns about "surprise billing" could significantly affect the business models of cost-containment firms, which provide services such as claims, case, and utilization management to insurers.

Surprise billing, also called balance billing, involves out-of-network charges to health care consumers, whose insurance nominally covers the facilities involved, but may not cover all services and providers.

Media reports of cases where consumers thought they had insurance coverage for a procedure and then received large bills has moved politicians on both sides of the aisle to propose solutions such as "benchmarking" or setting a median rate for a service. This kind of price control has raised concerns, however, as it could disrupt the operations of many firms, as well as possibly resulting in higher prices for some providers and consumers.

Rising costs, rising risks

The Moody's report notes that cost-containment models that include balance billing have been driven by higher medical spending; population growth; increased incidence of chronic illness; and waste and fraud in health care.

"At the same time, the cost-containment industry's social and regulatory risks are rising," the report observed. "Depending on their final form, legislative proposals to curb surprise billing … could seriously challenge the business model of some cost-containment companies. In a longer-term worst-case scenario, the adoption of a single payer health care system would also threaten the industry."

However, the report added, not all cost-containment businesses would be affected the same way, depending on what legislation is enacted. For example, some companies are more invested than others in services that review and negotiate out-of-network billing. Other companies exist in regulatory systems that don't have balance billing issues. "Companies that service home health care and/or workers' compensation providers would be largely immune to the proposed legislation," the report said.

Private equity firms draw attention

The Moody's report noted that private equity firms are stakeholders in many of the cost-containment firms offering strategies that include balanced billing. Since private equity firms leverage debt to do business, regulations that involve benchmark pricing is a bigger risk for them, the report said.

"Benchmark pricing would eliminate the need for cost-containment companies to function as middlemen who review and renegotiate pricing for out-of-network bills," the report said. "Should the new legislation set benchmark pricing, repricing claims would become de facto irrelevant, making part of these companies' business models obsolete."

Some lawmakers have blasted lobbying efforts by private equity firms on this issue. A recent story in The Hill described lawmakers criticizing the private equity firm Blackstone, which owns a doctor staffing company. "Backers of the Energy and Commerce Committee legislation have attacked private equity firms for lobbying against their proposal, saying that they are only interested in protecting their profits so they can keep sending surprise bills to patients," the story said. "The lobbying has helped stall efforts by Congress to move forward on action to cut down on surprise billing, despite both parties wanting to reach a solution."

The Moody's report avoids politics, noting instead that businesses in the cost-containment field may be able to adapt to possible changes with a minimum of disruption. "We expect that any new surprise billing legislation would not be implemented until 2021 at the earliest, leaving affected companies time to adapt their business models, cost base, and financial policies," the report said.

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Surprise billing regulation could hit hard for some cost-containment firms

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