Our Call: Capstone first wrote in December 2018 that federal surprise medical bill legislation—recently introduced in the US Senate—was likely to garner significant momentum in 2019 and pose a meaningful risk to physician staffing companies, particularly those with emergency department exposure such as Team Health Inc. (TMH) and Envision Healthcare Corp. (EVHC). The policy under consideration would reset the terms of negotiation for out-of-network bills between insurers and providers, granting additional leverage to insurers and ultimately driving down in-network commercial reimbursement rates. However, in October 2019, we lowered our odds that surprise medical bill legislation could pass prior to the 2020 election, providing relief to Team Health and Envision bonds, which sold off dramatically during the course of 2019.

Background: Surprise medicals bills occur when a patient goes to a hospital in his or her insurance network, but unknowingly receives treatment from an out-of-network doctor, resulting in a direct bill to the patient; or when a hospital and the insurer cannot agree on a reasonable price for out-of-network emergency care, leaving patients paying the difference, in a practice called balance billing. Federal efforts to restrict surprise medical bills could pose significant headwinds for physician outsourcing firms such as Team Health and Envision because they use out-of-network strategies to increase in-network reimbursement rates. Although drug pricing gained attention as an area for healthcare reform in 2019, we believe congressional interest in surprise medical bills will continue to gain traction, resulting in comprehensive legislative proposals to address the problem. 

Our Rationale: Momentum favored passage of surprise medical bill legislation that would reduce commercial reimbursement rates for certain physician specialties such as emergency room doctors and anesthesiologists during the first six months of 2019. The concept had broad bipartisan support, polled well across a broad constituency of voters, would generate a positive budget score that could be used to fund other healthcare priorities, and was supported by both large self-insured companies and the insurance industry. However, quiet opposition was building against the idea from members of Congress sympathetic to the hospital industry, fracturing Democratic support.

Our Process: We translated dozens of conversations and meetings with policymakers and lobbyists into forward-looking, actionable research reports for clients. Outreach included:

• Offices of Democratic and Republican Members of Congress
• Staff of Senate Health, Education, Labor and Pension (HELP) Committee and House Ways and Means Committee
• Industry associations such as the American College of Emergency Physicians (ACEP), ERISA Industry Committee (ERIC), and National Business Group on Health

The Outcome: After predicting an increased congressional focus on surprise medical bill legislation in the first half of 2019—and a subsequent selloff in related securities—we updated our view on the likelihood of surprise medical billing legislation passing before the 2020 election. Subsequent to that, disagreements among leading congressional members derailed the legislation from being included in a December 2019 spending bill. Additionally, general healthcare industry sympathies shifted in early 2020 as a result of the coronavirus (COVID-19), pushing the timeline for surprise medical bill legislation beyond the 2020 election.