Limiting the amount hospitals can bill payers for involuntary out-of-network care would have a significant impact on hospitals' bottom lines, according to a study by Rand Corporation.
The report, commissioned by for-profit CarePoint Health in Jersey City, N.J., centers around controversial legislation undergoing review by the New Jersey assembly.
Under New Jersey law, patients who involuntarily receive out-of-network care in emergency situations are billed at the hospital's in-network rate for the same services. The patient's insurance company is responsible for footing any outstanding costs.
Because out-of-network rates are not state regulated, health plans argue hospitals take advantage of the opportunity to demand whatever payment amount they want, typically requesting "excessive" reimbursement, according to the report.
Proposed legislation, known as the Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act, would limit the amount hospitals can bill insurance companies for involuntary out-of-network care to between 90 percent and 250 percent of the corresponding Medicare payment rate.
Rand's study explored the bill's potential affect on hospital finances. To do this, Rand used data on 71 New Jersey hospital's payer mixes from 2010 to 2014 to extrapolate the potential impact on revenue.
The firm found involuntary out-of-network charges accounted for less than 20 percent of hospitals' total commercial revenues but almost 40 percent of their profits from treating commercially insured patients from 2010 to 2014.
Based on the data, Rand estimated implementing the proposed legislation would reduce hospital payments from commercial health plans between 6 percent and 12 percent. This would cause between 48 percent and 75 percent of state hospitals to operate at a loss, depending on how high the cap is set.
"Hospitals live off the margins from these out-of-network payments," Soeren Mattke, senior scientist at Rand, said in a statement. "If you take them away as the law proposed, you put a good chunk of them in an operating loss."