Surprise medical billing—cases in which patients are unexpectedly billed at highly inflated prices from providers who do not accept their insurance—has attracted policymakers’ attention. In this report, we outline the economic rationale for why markets have not eliminated this behavior and present policy solutions. We emphasize that much of this phenomenon can be solved via contract reforms that require health care providers to negotiate market prices among themselves. This strategy produces market outcomes and minimizes the risks associated with rate regulation. Targeted rate caps should be considered only in cases in which contractual reforms are not feasible.
