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Claudia Knafo stands outside with her elbow propped on a garden wall.
Claudia Knafo did everything she could to make sure her surgical procedure was covered by her insurance, but she was still hit with a whopping bill.
Amelia Holowaty Krales for Vox

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A spinal surgery, a $101,000 bill, and a new law to prevent more surprises

How New York state fought surprise medical bills — and won.

When Claudia Knafo needed spine surgery in 2012, she interviewed multiple surgeons and ultimately settled on one whose website claimed to take her health insurance. She called the doctor’s office and confirmed he was in network. At an appointment before her surgery, she handed over her insurance cards to be photocopied.

Knafo’s operation was successful and her recovery smooth. But a few weeks later, she got bad news: The website was wrong and the surgeon wasn’t in network. He didn’t have any contract with her health plan.

Knafo’s health plan did mail her a check for $66,000 to cover the surgery, which she signed over to the doctor. But the surgeon charged $101,000 for the operation, so he wanted an additional $35,000 from Knafo.

Making matters worse, the insurer reached out a second time to say they’d made a mistake and had overpaid the doctor. They told Knafo she needed to get the $66,000 back from her surgeon — who had no intention of parting with the money.

“It felt like I was in the middle of a nuclear attack,” Knafo says. “I had the insurance coming after me for $66,000 and the doctor coming after me for $35,000. I was stuck in every hole in the system.”

Claudia Knafo in her home in Manhattan, New York, on March 14, 2019.
Claudia Knafo, a professional pianist, at her home in Manhattan. In 2012, she received a $101,000 surprise bill for spinal surgery.
Amelia Holowaty Krales for Vox

Knafo is an outspoken New Yorker — the type of person who, when under attack, launches her own nuclear missiles back. She started telling her story to anyone who would listen: insurance regulators, consumer advocacy groups, even the state attorney general’s office.

Two years after surgery, Knafo, a professional piano player, was traveling to Albany to urge lawmakers to pass legislation to protect patients from what she went through.

They listened. In 2015, New York passed one of the strongest laws in the country to prevent surprise medical bills.

“It seems so ludicrous to be a pawn between an insurance company and a hospital,” Knafo says. “Now, it really feels like I’ve at least done something good with it.”

New York’s law — and its unique binding arbitration process — has captured the attention of legislators and health wonks across the country. Last year, New Jersey passed a law modeled on New York’s, and Congress is now eying the New York law as a promising base for national legislation.

Passing a national version of New York’s law would, in a narrow way, solve one of the most expensive problems that consumers can face in American health care: patients hit with high bills after being seen by out-of-network doctors at in-network hospitals. Republicans and Democrats are working together on the legislation in Congress.

But the law won’t address the underlying cause of the problem: America’s sky-high medical prices. Unlike in places like Canada or Europe, where you don’t hear about consumers being hit with huge surprise medical bills, America does not regulate prices.

So while Congress works to lower the cost of one type of surprise bill for patients (a goal that could very well help many Americans), insurance companies could decide to raise costs elsewhere in the system to account for any losses. And there’s no appetite in Congress to take on across-the-board health care costs.

How Major League Baseball helped New York fix surprise medical bills

New York’s surprise billing law takes inspiration from an unlikely place: professional baseball.

In Major League Baseball, newer players frequently end up in disputes with their teams over salary. Since the 1970s, when the players unionized, the league has used a unique arbitration process to settle those disputes. Both the player and the team get one chance to name an appropriate salary, and then an impartial arbiter picks one of the numbers.

Marvin Miller, the executive director of the Major League Baseball Players Association (MLBPA) holds a press conference, circa 1975. Miller was credited in transforming the players’ union into one of the strongest unions in the US.
Marvin Miller, the executive director of the Major League Baseball Players Association (MLBPA) holds a press conference, circa 1975. New York state looked to professional baseball’s process for settling salary disputes in setting up a system to end surprise medical bills.
Focus on Sport/Getty Images

This creates an incentive for both parties to choose reasonable numbers — they want the arbiter to pick their offer — so the player won’t shoot for the stars, and, likewise, the team won’t go super low.

When New York was exploring ways to tamp down on surprise medical bills, one option was this “baseball-style” arbitration: essentially forcing doctors and insurers to negotiate, with the help of a neutral arbiter.

The other was price regulation. The state government could cap the prices doctors can charge in situations where patients had little ability to pick a provider (an emergency room, for example, or an anesthesiologist they’d never actually meet). California limits surprise billing this way, capping what certain doctors can charge as a percentage of Medicare rates. A bill introduced by Sen. Bill Cassidy (R-LA) last year would do something similar nationally.

Prices dropped when New York passed a new law

New York went with the baseball-style approach. Those involved in the law’s drafting worried that price regulation would struggle to set the right number to pay doctors — that setting a rate might actually encourage some physicians to increase their prices to meet that new number.

A negotiation process, on the other hand, would force insurers and doctors to make honest guesses about what the price should be.

“In baseball arbitration, whoever is closer to reality wins,” says Jeffrey Gold, a senior vice president with the New York Hospital Association, who helped work on the law’s drafting. “I felt that was very quick and easy and would very quickly set a market rate for what was an acceptable behavior.”

New York’s law passed in 2015. It had the support of the emergency room doctors and the insurance plans, two lobbies that often find themselves at loggerheads in these type of debates.

Now when a New York doctor thinks a health plan has underpaid, this law will often prevent the doctor from turning to the patient for the additional money in the way Knafo’s surgeon did. Under the baseball-style arbitration law, the doctor can go to the state and request an arbitration process. The state will bring in a neutral arbiter to pick one of two prices: what the doctor is charging or what the insurer is paying.

New York’s law has been in place for two years and has been used to settle about 2,000 billing disputes. Consumer advocates are happy with how the law has worked, as are the hospitals, and early economic research suggests that it’s working.

In a working paper published last year, Yale’s Zack Cooper, Nathan Shekita, and Fiona Scott-Morton found that out-of-network bills in New York declined 34 percent since the law took effect and that the prices in-network emergency room doctors charge have dropped 9 percent. Now that emergency doctors know there is a limit to what they can charge — because they could be taken to the arbitration process — they seem to be pricing a bit lower than they have in the past.

“The economic literature suggests that with arbitration, you are going to get something approximating a competitively set price,” says Cooper, the study’s lead author. “What is cool and exciting for an economist is when you have a theory and you find exactly what the theory would predict happening in the real world.”

Other economists who have studied the New York law generally agree that it seems to be successful in protecting patients against surprise bills, although they caution that it’s still too early to know whether future studies will also find that it drives down prices.

“One thing that is pretty clear is that it’s keeping patients out of the middle of these billing disputes, and that was a key goal of the law,” says Benjamin Chartock, a researcher at the University of Pennsylvania who is currently studying the New York law.

New York’s law was the inspiration for a bill introduced by Sen. Maggie Hassan (D-NH) that would create a national version of the state’s arbitration process. Hassan is now part of a Senate bipartisan working group that is exploring how to tamp down on surprise emergency bills.

“I thought it was important to think of a way we could remove the consumer from what is really a dispute between a provider and a health plan,” Hassan told me in an interview last year. “In a system where charges are often not connected to market forces, it seems like an opportunity for an independent dispute resolution process. You essentially use the baseball model.”

Arbitration could fix surprise bills. But it won’t fix the American health care system.

Knafo is proud of the advocacy work she did to help pass New York’s surprise bills law. “I had all this rage, and I was able to turn it into something positive, and that was a really great feeling,” she says.

But she’s also aware of a great irony about New York’s surprise billing law: Turns out it wouldn’t protect a patient against a surprise bill like hers.

The New York law is aimed at protecting patients against surprise bills in situations where they can’t reasonably be expected to make informed choices about their doctors. So it covers patients seen by an out-of-network doctor at an in-network emergency room, for example, or an out-of-network radiologist who read a scan for an in-network surgeon.

But a scheduled surgery like Knafo’s isn’t covered under the law. Because she picked her doctor — and the surprise bill was a result of an inaccurate website, not care from an unexpected provider — New York doesn’t offer her any protections.

A woman sits at a table looking at her medical bills in a binder.
“It felt like I was in the middle of a nuclear attack,” says Knafo of her surprise bill experience in 2012. “I had the insurance coming after me for $66,000 and the doctor coming after me for $35,000. I was stuck in every hole in the system.”
Amelia Holowaty Krales for Vox

“When people are considering federal legislation, we would strongly encourage them to include something regulating plan misinformation,” says Elisabeth Benjamin, who oversees health initiatives at the nonprofit Health Care for All New Yorkers, which supports the surprise billing law. “It should cover situations where someone looks at a plan website or talks to a provider who says they’re in network and then, lo and behold, they get a surprise bill from that person.”

Benjamin worked on the drafting of the New York bill. She looks at this loophole as a “rookie mistake” — something the bill authors didn’t think about because they were drafting an entirely new approach to regulating surprise medical bills.

But viewed another way, it’s emblematic of the challenge of trying to tackle a narrow issue in American health care that is actually a symptom of a much larger problem.

Americans pay exorbitant prices for all kinds of care. On average, an MRI in the United States costs $1,119. That same scan costs $503 in Switzerland and $215 in Australia. In my reporting on health care, I’ve written about Band-Aids that cost $629 and MRIs with a $25,000 price tag.

You don’t see those kinds of prices in any other country because our peer nations choose to regulate their health care prices. They see medical services as something akin to electricity or water — something so important that the government ought to step in and set the price so all citizens can afford to use it.

If Congress passed a law similar to what exists in New York, you’d see some patients saved from truly ruinous situations. This is the type of reform that — unlike broader Medicare-for-all plans — could get bipartisan support. It’s an incremental step toward a health care system that works better for patients, and one that, according to the Yale study, would even bring down prices a bit too.

But as Knafo’s case illustrates, there are all sorts of expensive medical bills that would still be perfectly legal. Passing a bill to prevent surprise medical bills is a bit like playing whack-a-mole. You tamp down on certain types of bills, but others will keep popping up. To really solve the problem, you’d need to unplug the machine entirely, a step legislators aren’t quite ready to take.

Price regulation isn’t easy. The politics are messy, and it is very tough to figure out how prices should be set when patients would pay an infinite amount for the care they need. It is easy for price regulation to go awry. I’ve written about situations where regulators have the power to set prices but end up setting those prices extremely high — not a winning situation for patients by any means.

Price regulation is hard to do right. When you look at other countries, however, you see it’s the only solution they’ve come up with to really, truly do away with surprise medical bills altogether.

When Knafo and I spoke, she was actually preparing to undergo a second spine surgery. She was taking the same steps she took last time to try to guarantee that her doctor was in network.

But she wasn’t sure it would work. She was worried that even with New York’s landmark law, America’s sky-high health care prices could leave her with another big bill.

“I’m trying to get something in writing,” Knafo said. “And I’ll be checking that against my plan to make sure there are no loopholes. After having an experience like I did, how can you do something else?”

Even with her experience fighting a surprise medical bill — and advocating for a new law — Knafo isn’t certain that she’d be able to avoid that type of situation in the future.
Amelia Holowaty Krales for Vox