While lower costs are good for patients, if revenues felltoo much, hospitals might have to close or reduce care quality,which wouldn't be in patients' best interest. (Photo:Shutterstock)

Capping out-of-network payments for provider services couldyield health care cost savings nearly equivalent to Medicare for All style proposals, arecently released analysis by Rand Corp. hasfound.

The study looked at four different payment limits onout-of-network fees from 80% of average state billing charges to200% of Medicare payment rates. It found that a strict limit of125% of Medicare payment rates would reduce in-network negotiatedhospital prices by 31% to 40% and yield savings of an estimated$108 billion to $124 billion annually.

Related: Did HHS just put an end to surprisebilling?

The researchers found that the approach could producesignificant cost savings across the health care system bypressuring downward the amount health care providers can negotiatefor in-network payment rates with private insurers, while alsolimiting so-called surprise medical bills from balance-billing forout-of-network costs.

"The whole idea behind limiting out-of-network bills isprotecting patients from surprise medical bills, which is a reallygood policy. But we have found there is an indirect effect ofchanging price negotiation dynamics that leads to systemic changesin how prices are negotiated and those fundamental changes willlead to substantial price savings," said Christopher Whaley, Randpolicy researcher and professor at Pardee RAND Graduate School inan interview Friday.

But because it also could sharply reduce hospital revenues, theout-of-network price caps would have to be monitored carefully soas not to disrupt hospital operations, the researchers said. Ifrevenues fell too much, hospitals might have to close or reducecare quality, which wouldn't be in patients' best interest, theresearchers said.

"Among the many bold proposals to contain the cost of hospitalcare, limiting out-of-network payments arguably is lessheavy-handed as it does not impose rates on all providers or shiftthe source of health insurance coverage for a large share of thenation's population," said Erin L. Duffy, the study's lead authorand an adjunct researcher at RAND, a nonprofit researchorganization, and post-doctoral research fellow at Schaeffer Centerfor Health Policy and Economics at University of SouthernCalifornia, in a statement.

In an interview Friday, Duffy said, "addressing out-of-networkpayment limits doesn't totally upend the system of private healthinsurance in this country or employer-provided insurance, so it ispolitically more feasible and administratively less burdensome thanMedicaid expansion or public options."

The study's authors noted growing interest by state and federal lawmakersin the U.S. in using out-of-network payment limits to controlrising health care costs as well as to eliminate surprise medicalbills for consumers. Medicare Advantage and some other governmentinsurance plans already impose caps on out of network payments. TheU.S. The Department of Health and Human Services also recentlyincluded terms and conditions for eligibility for COVID-19emergency funding for health care providers language that limitedsurprise billing of patients. Broad payment limits also have beenproposed in the U.S. Senate legislation and by several Democraticpresidential candidates.

A California law enacted in 2017 caps the total amount thatphysicians in that state can charge out-of-network and preventsthem from billing patients for the balance.

"The approach taken by California legislation that limits thefees that can be charged by out-of-network facility-basedphysicians appears to be reducing the number of surprise medicalbills that patients receive for care at in-network hospitals,"Duffy said in a statement last year when findings on a study ofthat law were published.

"It also appears to be reducing physicians' leverage tonegotiate higher in-network payments, and in turn is speeding theconsolidation of physician groups as they seek to regain lostleverage,"she said.

The Rand study released last month applies a similar policyprinciple and expands it to hospital facility payments. It findsthat in addition to limiting surprise bills, out-of-network paymentcaps reduced health care providers' leverage in contractnegotiations "by shifting the threat-point of out-of-networkservices from its self-imposed charges to the level of the legalpayment limit," according to the news release.

Some health care providers, including physicians' groups andprivate-equity owners, oppose such out-of-network caps for thatvery reason. The researchers noted, however, that cappingout-of-network billing would be less disruptive to providers thansome other policy alternatives such as Medicare for All.

"Limiting out of network caps in a smart manner can get you thesame savings as reformulating the U.S. health care system with lesspotential disruption," Whaley said.

The Rand Corp. study examined the potential effect of fourproposals for limiting out of network payments: They were a strictlimit of 125% of Medicare payment rates; a moderate limit of 200%of Medicare payment rates; a moderate limit of the average ofpayments made by private health plans in a state; and 80% ofaverage billed charges in a state, a loose limit.

They used information from the 2017 Centers for Medicare &Medicaid Services Hospital Cost Report Information System toestimate status-quo hospital operating expenses, Medicare payments,payments by private plans and hospital charges .The analysis foundthat limiting out-of-network payments to 125% of Medicare createsthe biggest reduction in hospital payments.

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