Legislation introduced in New Jersey to cap how much hospitals can be paid for out-of-network charges would have major financial consequences on acute-care facilities in the state.

NJBiz reported on a CarePoint Health/RAND Corporation study assessing the potential effects of the bill, which is aimed at limiting “surprise” bills for patients who unknowingly use out-of-network hospitals or physicians, normally in the course of emergency care.

The bill would cap such payments at 250 percent of Medicare costs for the same services. The result, according to the report, would be cutting an area which accounts for almost 40 percent of New Jersey hospitals’ profits for treating the commercially insured, with a total of $1 billion in decreased revenue in facilities across the state.

“Market rate is what the cost is based on physician time, facilities, equipment, expertise and covering staff—all that goes into what the cost is,” said Mishael Azam, senior manager of legislative affairs at the Medical Society of New Jersey. “Artificially lowering to Medicare rates doesn’t just depress out-of-network rates, it takes away the incentive (of commercial insurers) to offer fair rates when they know they can pay as little as Medicare. There is suddenly a law allowing them to pay as little as Medicare.”

CarePoint has good reason to battle any cap on out-of-network billing, since it’s not in-network for any major insurer in New Jersey. According to NJBiz, those out-of-network charges have helped make the hospital lchain profitable.

For more on how the bill could shake up future negotiations between insurers and providers, click on the link below: