Surprise medical bills have bludgeoned most Americans. In fact, about half of insured Americans face unexpected charges every year. In 2020, Congress passed the No Surprises Act, which banned out-of-network billing rates for some services. It also entitled patients who aren’t using health insurance to a “good faith estimate” of out-of-pocket costs before receiving care. But there’s a catch that stacks the deck against patients and taxpayers: final bills within $400 of the original estimate are legally collectible.

After stinging GOP losses in November, health care “affordability” is all the rage. Voters are frustrated that every other medical appointment brings another unexpected charge and an inevitable battle of wills and wits with the billing department. Christopher Jacobs recently opined in these pages that “Republicans should stop playing into Democrats’ hands and start … reducing the underlying cost of health care.” In that spirit, President Donald Trump should ensure that hospitals do not profit from “errors” with executive action.

In February, Trump issued an executive order building on a first-term order that required hospitals to post public prices for common, standardized procedures like CTs, MRIs, mammograms, etc. If hospitals must post prices rather than bill insurers and patients later, patients will price-shop and save money for themselves and their insurers (which, if they are on Medicare and Medicaid, is you, the taxpayer!). But the $400 wiggle room embedded in the No Surprises Act eliminates much of the intended benefit.

Imagine that two competing hospitals offer CTs. Hospital A knows its real cost to provide a CT is $400. Hospital B knows its real cost is $300. If both post prices and provide estimates that reflect real charges, Hospital B will have an advantage. But with a $400 allowed error, why wouldn’t Hospital A estimate its CT at $150 to undercut Hospital B, knowing the patient will pay more than double that in the end? Hospital A can attract more patients without any cost to itself. If the patient goes to Hospital A, he pays $400 instead of Hospital B’s $300, and his insurance company probably loses more. Hospital A wins and everyone else loses.

The financial incentives encourage all hospitals to consistently provide underestimates. While fraudulently botching an estimate is illegal, it would probably take a whistleblower to prove an estimate was not in “good faith,” since it would require proving “intent.” Potentially defrauded patients have no access to other patients’ records to ascertain whether a pattern exists. Current law shelters deceptive, anti-competitive behavior.

Of course, error by itself is not a sign of purposeful deception. But consistent errors in the same direction — errors that do not roughly average to zero over time — suggest the estimator is missing on purpose. In my industry (banking), we don’t fire a teller who’s off $10 on his daily count. A teller could have many small errors over the course of a year, but if his errors roughly average to zero, it’s almost certainly inadvertent. But if the teller’s drawer is consistently wrong in his favor, he is fired. Applying the same concept to health care estimates is straightforward and imposes minimal regulatory burden while protecting patients.

Hospitals should be required to record every estimate they give in a single document (probably a spreadsheet), along with the actual amount billed, and subtract the two to obtain an error amount.

For example: you get an estimate of $200 for a procedure and pay $275. The error is $75. The hospital tracks this for every patient, and provides the spreadsheet tracking their aggregate error to the Department of Health and Human Services at the end of the fiscal year. However much the hospital billed more than estimated amounts is then repaid to patients who were charged more than estimated amount (or taken off their bill if they have not yet paid), in proportion to their overpayments. The smaller the hospital’s overall error rate, the smaller the refunds owed.

This system would not punish honest errors. The average of honest errors is zero over time. If the hospital’s overestimates and underestimates cancel each other out, it doesn’t owe anything back to anyone. But if there is an aggregate error, it is refunded to the harmed patients. A hospital’s incentive to low-ball people to get them in the door is replaced by a powerful incentive to provide the most reliable estimates possible. This new rule could reduce overall administrative burden, lessening the need for time-consuming arbitration over individual estimate discrepancies.

This market-based approach does not require proving intent to deceive. A hospital that is bad at estimation but not doing it on purpose would be punished not for willful violation, but for incompetence and inefficiency. The burden of proof is taken off of individual patients to prove wrongdoing in this scheme. Such a rule, especially if framed as an executive order to buttress the price transparency action already taken in February, would prove much harder to challenge or evade than statutes requiring proof of intent.

President Trump is on the right track with pursuing greater price transparency in health care. His administration must continue to help lower health care costs and end the recurring nightmare of unexpected medical bills. American taxpayers now spend nearly $1 trillion on Medicare, and health care gobbles up 18 percent of GDP. Reducing inefficiencies is a national imperative, not a wonky side project — and eliminating hospitals’ incentive to provide incorrect estimates is a necessary part of this reform.

Nathan Richendollar, The Federalisst