California’s Surprise Medical Bill Law Papers Over A Systemic Problem
(A version of this Health Alert was published by Fox & Hounds.)
Insured patients who go into hospital for scheduled surgery are often shocked to find they owe bills well beyond what they expected to pay, especially if they understood the hospital and surgeon to be in their health plan’s network. The problem usually occurs when an anesthesiologist or other specialist involved in the procedure is not in the insurer’s network. Until now, when it came to the amount the out-of-network specialist could charge, the sky was the limit. A recent Consumers Union survey found nearly one third of Americans who had hospital visits or surgery in the past two years were charged an out-of-network fee when they thought all care was in-network.
The new law, AB 72, which was proposed by Assemblyman Rob Bonta, addresses this problem with two new regulations. First, a patient cannot be charged more out of pocket (deductible or co-pay) by a specialist who is out of network versus one who is in network. Further, the total charge (most of which is paid by the insurer) will be limited to 125 percent of the amount Medicare pays for the same procedure.
As a finger in the dyke, the law is okay. By increasing the rate to 125 percent of Medicare’s fees from a previously proposed 100 percent, the bill defused organized medicine’s opposition. Doctors often exaggerate how much insurers negotiate their rates down. Complaining about contracts offered by insurers, a surgeon told Casey Ross of STAT News: “Insurers won’t negotiate with us. They tell us, ‘Take it or leave it. Here’s what we’re going to give you,’” adding that insurers might offer 90 percent of the Medicare reimbursement rate.
This is hard to swallow. Although there are idiosyncratic cases where private insurers pay doctors less than Medicare does, private insurers pay significantly higher fees than Medicare does, on average. A freshly published study of doctors’ claims in Texas using 2013 data showed private payers paid fees ranging from 148 percent to 235 percent of Medicare’s fees for facility-based services.
So, AB 72 will likely encourage some more specialists to sign contracts with insurers, in order to avoid getting paid 125 percent of the Medicare rate. And it will likely reduce patients’ problems with surprise bills. However, it will not get rid of our medical billing mess because it ignores the fundamental, systemic problem: Patients control an almost insignificant share of the dollars spent on our health care. Only about ten cents of every dollar spent on our health care is spent directly by us. The rest is controlled by insurers or governments (while we pay indirectly through premiums and taxes).
No wonder out of network specialists can inflict so much financial anxiety on patients in such an off-hand, almost careless way. They really do not have an incentive to worry about the pain they cause patients’ pocketbooks, because their incomes do not depend on ensuring a patient is able and willing to pay his bill in a relatively frictionless way.
Imagine if other service businesses operated like this. Remember when President Obama was trying to convince us that the Obamacare health-insurance exchanges would operate like Expedia or Travelocity? It is laughable in hindsight. Nevertheless, while most people agree that actual airline travel (which is regulated by the federal government) is miserable, buying a ticket to fly is a convenient and transparent process. A passenger does not get a bill from the co-pilot a month after his flight, stating the co-pilot was not in the airline’s network, and the passenger must pay extra!
There is no reason all charges for hospital care cannot also be clearly communicated and accepted upfront. This is the way medical tourism works: Foreign patients agree to a fixed charge for all services associated with a procedure. Overseas hospitals know they have to operate this way to attract direct-paying international patients who do not have entire departments (like insurers do) to wrangle with hospitals and specialists over minutely detailed and confusing fee schedules.
A real solution to the problem of surprise medical billing will only come when Americans demand a very different healthcare payment system; whereby insurers indemnify patients for catastrophic costs, and hospitals and specialists depend on patients directly for their incomes.
“There is no reason all charges for hospital care cannot also be clearly communicated and accepted upfront.”
I can think of one good reason… because surprise balance bills are in the self-interest of some providers who the patient is unlikely to every meet in person prior to the procedure. Think radiologists, anesthesiologists, pathologists emergency physicians, some assistant surgeons.
I don’t want the government to tell doctors how much they can make any more than I want the government to regulate my wages. But, at the same time, medicine is a regulated cartel. By that I mean doctors are granted a license to practice medicine. It is not in the publics’ best interest to have physician business models predicated on gouging patients (or insurers) because the providers works in an area where they can perform service without prior contact with the patient.
As John suggested, there are several possible remedies (some better than others). At NCPA we propose making it harder for a physician to collect his or her fees unless there is an arms-length signed agreement. For example, a “meeting of the minds” is required under contract law for a contract to be enforceable. It’s pretty easy to argue a signed form presented to the patient by the business office admissions clerk does not really represent a meeting of the minds.
Alternatively, a hospital could be on the hook for some surprise fees if the facility did not make a good faith effort to connect doctor and patient. Doctors and hospitals will say, “that’s too much of a burden!” But, the hospital has to ensure a physician has appropriate credentials. Why would it be a burden to ensure the physician is either a member of X,Y and Z networks and or has a sheet with the estimated fees. It is works for plumbers, air conditioner repairmen, and every other service worker, why should one profession be exempt when the funds are an order of magnitude higher? Hospitals will say “wait a minute, we don’t employ the doctors, we cannot make them do anything!” That’s also a bogus argument. If a physician wants to work in a given facility, they can abide by some standard operating procedures. Those procedures should include clear disclosure of fees. Doctors would be free to charge what they believe the market would bear. But they would not have the benefit of a surprise bill after-the-fact. There would be time to seek the service elsewhere.
Exactly! This is not an insurmountable problem. It is just that the system is structured such that without tearing it down and rebuilding it from scratch (e.g. third-party payment, licensing of physicians, laws regarding corporate practice of medicine) there will be unintended consequences of any solution.
There was an event hosted by Brookings Institution a few days ago, in which the bias of the panel was that Congress should try to solve this problem. Nothing could be worse!
Far better that individual states continue to address it, perhaps even by passing laws with sunset clauses, to ensure the issue is revisited as new information emerges.
John, you wish for, “hospitals and specialists depend on patients directly for their incomes.” hahaha – YOU have decided that insurance should be outlawed altogether.
Maybe John Americans should be free to finance health care as they choose, an old American tradition. Maybe you should be talking about how the tax code enables high earners like you to write off employer-based insurance premiums and save so much in taxes.
Your love of employer-based insurance, which you will say that I’m wrong, makes you dream up goofy fixes to steal the freedom of choice away from Americans.
Good job not discussing any fixes to Obamacare before this election. Nobody is saying that the NCPA has a plan that is better than the Socialistic Obamacare herding people onto over-priced employer-based health insurance like cattle.
Non-Profits don’t pay taxes then don’t do what they say they are going to do. The Clinton Foundation took billions of dollars for Haiti and then kept the money and let those poor people die. NOW after the Cat 4 hurricane just hit them again we can’t even know about the dying because then people might think about the Clinton Foundation scams of the past. It is really really bad:
https://www.youtube.com/watch?v=Qm27MDUx7as
Why do we have these non-taxed organizations? We should tax everybody the same and stop rigging the system for special organizations. Let’s tax employer-based health insurance too and stop the monopoly.
Let’s tax the NCPA, the Clinton Foundation and employer-based health insurance.
Stop the rigged system – repeal Obamacare – Vote Trump
I would check with your insurance company before going to the hospital for a procedure. Say you want to make sure that everybody billing you is in network and that all procedures are covered. Remember, many insurance companies have two deductibles: in network and out of network. So even if the out of network provider is inexpensive, his fees apply to out of network deductible.
Also, one problem with employer health care that is seldom mentioned. Most have gone to high deductible plans. Suppose you blow through your deductible and then are laid off. You quickly find new employment with a company that uses a different health insurance company. Your deductible starts all over again. People need portable health insurance.
Fair enough but who even knows the name of their anesthesiologist or pathologist? In a functioning market this would all be bundled together as one service.
What is wrong with Congress trying to fix this problem?
The experience of Medicaid and in fact the ACA would demonstrate (at least to me) that state bases solutions will be very uneven and sometimes non existent. Arizona did not have Medicaid at all for about 20 years after 1965. High risk pools were a disaster state by state.
In the case of health care, you have people who live in one state but have a serious illness while traveling or wintering in FLA. Should they be denied protection against surprise bills because the state they travel to is sluggish about passing corrective laws?
There may well be some reason why federalism is better than national action on this particular issue.
I am willing to listen for sure, even though my instinct is to prefer a national solution.
Bob — I basically agree with you on this issue but I think there are a lot of people who would rather live with all the problems and inequities that you cite in order to keep the federal role small or non-existent because they equate small government with maximum freedom and liberty.
The meeting of the minds concept that Devon Herrick prefers would probably have patients in court all the time at considerable cost and different judges could rule differently on the same set of facts.
This one lends itself to a national legislative solution and there would be nothing to stop hospitals from paying these doctors a supplemental per diem amount if necessary to practice in their facility and build that cost into their charges.
“What is wrong with Congress trying to fix this problem”?!?!?
As we have discussed, the solutions will have unintended consequences so they should be diverse.
With respect to people travelling to Florida, when they get to Florida, they are subject to all of Florida’s laws. If a visitor parks his car illegally in Naples, FL and gets a ticket, should Congress pass a law preventing enforcement because the parking ordnance is different in his home town of Darien, CT, and his ticket was a “surprise bill”?
That may be a trivial example, but if we expect Congress to solve all our problems, we might as well get rid of all other levels of government.
(Besides, the issue we are discussing is scheduled surgery not emergencies.)
John — With all due respect, the consequences of the unexpected $50 traffic ticket are not in the same league as a surprise bill for thousands of dollars from an anesthesiologist or assistant surgeon. Insurance is supposed to cover big stuff like that and if there is a problem it should be resolved between the provider and the insurer rather than having the patient get stuck with it.
Surprise out-of-network medical bills lend themselves to a federal solution. Parking tickets and speeding tickets while traveling outside your home area don’t.
The concept is the same. In an case, we are
discussing scheduled not emergency services.
Plus, whatever you suffer when travelling in another state, the in-state residents will also suffer. They need to advocate reform that will also benefit you (even though they don’t do it for that reason).
This is similar to discussions about federal regulation of health insurance, which has increased with every iteration of health “reform” because state regulations are imperfect so “we need a federal solution” as if federal politicians have greater insight than state politicians.
Auto, professional liability, and property & casualty insurance markets are also imperfect, yet the federal government has not interfered with state regulation of insurance in those markets. Nevertheless, there are national standards promulgated by NAIC.
Would you say those markets are better or worse regulated than health insurance?
There is a big difference between a national solution and a federal solution.
There are several key differences between health insurance and auto and property & casualty insurance. First, in the case of the latter, once you hit your deductible on a covered claim, the insurer pays the rest and negotiates with the contractor on your behalf if necessary. There are no surprise bills. Second, there is no such thing as employer provided coverage, subsidized insurance just for those over age 65 or disabled and separate means tested coverage for low income people. In addition, people don’t feel ripped off if their claims don’t exceed what they paid in premiums. In fact, they probably consider themselves lucky if they never have a claim. Health insurance is different on many levels.
Agreed. And the differences you describe are consequences of government action, which leads me to conclude the way forward is to make government action in health insurance more in line with government action in other lines of insurance, not to continue trying to fix health insurance with more federal laws.
That sounds good in theory but I just don’t see Medicare, Medicaid or employer provided health insurance going anywhere anytime soon. I’m told there was an effort during the Truman Administration in the late 1940’s to make the value of employer provided health insurance taxable income to employees but the unions, which were much more powerful back then, successfully opposed that proposal. In retrospect, that’s unfortunate.