Federal billing transparency reform: An opportunity for Texas

For many Texas families, a routine doctor’s visit can lead to a startling discovery in the mailbox. When hospitals acquire physician practices, it may allow them to charge a new, separate facility fee alongside the professional fee for the physician’s services. These additional fees have tangible consequences for Texas families. In one instance, a routine Type 1 diabetes visit for a child — previously $90 — increased to nearly $600 after a change in ownership resulted in the application of a new facility fee. These hidden costs are driving up the price of care for consumers.

Such opaque billing practices often result from a lack of transparency in the identification of medical sites during the billing process. In the latest federal government funding bill, Congress included a provision aimed at solving this by improving billing transparency and reducing incentives for higher-priced sites of care. Off-campus hospital outpatient departments must now obtain a separate National Provider Identifier for Medicare claims. This bipartisan effort has the intent of allowing payers to more accurately identify the site of care and reimburse accordingly, rather than allowing the billing of services performed off-campus as though they occurred at the main hospital. The Congressional Budget Office has estimated that this reform could save taxpayers approximately $2.3 billion over the next 10 years.

Vertical Integration and the Role of NPIs in Billing Transparency

Around the country and here in Texas, hospitals have increasingly acquired physician practices. This process, known as vertical integration, occurs when organizations at different levels of the health care delivery system combine under common ownership or control. When hospitals acquire physician practices, billing practices can make it less transparent where services are delivered.

Health care providers — including physicians, hospitals and other facilities — receive a 10-digit numerical identifier known as a National Provider Identifier (NPI) used to bill for health care services in both Medicare and the commercial market. Currently, off-campus hospital outpatient departments can bill under the same NPI as the main hospital that owns them, even though a service did not occur on the main hospital campus. This can make it difficult for payers to track where services are being provided and whether reimbursement reflects the site of care.

Facility Fees and Consolidation May Contribute to Higher Prices

The separate facility fee can bypass standard zero-cost protections and may trigger patient deductibles, effectively shifting additional costs onto patients for routine office visits. National research has found that hospital acquisition of physician practices is often associated with higher prices, while evidence of consistent quality improvements has been mixed.

Furthermore, the ability to bill these fees may create a financial incentive for hospitals to acquire independent physician practices. Without clear billing distinctions, the Texas health care market may lack sufficient transparency. The result may be fewer independent practice options for Texans, reducing competitive pressure in some markets and contributing to higher prices.

Aligning Texas Standards with Federal Reform

While the new federal NPI requirement is a significant step for Medicare, it currently applies only to that specific segment of the health care market. This federal reform provides a technical foundation that Texas leaders could potentially leverage to extend this transparency standard to the commercial market. Aligning state requirements with these new federal standards would provide a more uniform billing environment for Texas patients and employers.

How This Could Protect Texas Patients and Employers

The adoption of location-specific identifiers on all claims could assist Texas in moving toward a more site-neutral reimbursement framework. Implementing the NPI requirements can provide the following protections for the Texas market:

• Supporting Access to Low-Cost Preventative Care: Improved identification can help ensure that facility fees do not inadvertently override federal consumer protections intended to provide preventative services at $0 out-of-pocket.
• Streamlining Payments for Employers and Insurers: Clearer billing could enable employers and insurers to process payments to doctors and facilities more accurately, potentially reducing administrative errors and overpayments.
• Enhancing Oversight Against Improper Billing: A unique NPI for each location provides a more detailed record of where medical services are performed, which may assist in identifying and addressing instances of improper or fraudulent billing.

A Policy Option for Texas Lawmakers

Last session, lawmakers pushed legislation that required hospitals to use location-specific NPIs, similar to the recent federal requirement. While Congress has required all off-campus hospital outpatient departments to obtain a separate NPI, the federal requirement to use that number applies only to Medicare billing. The Texas Legislature could consider building on this federal requirement, now that the infrastructure is in place, and require any off-campus outpatient department use its specific NPI on every claim, not just Medicare claims.

For health care markets to function effectively, billing systems must accurately reflect the site of care. Billing transparency reform may be one tool lawmakers can use to improve market transparency and reduce incentives that contribute to higher health care prices. Extending similar requirements in Texas could help ensure patients, employers and payers have better information about where care is delivered and how it is billed.