California’s Surprise Medical Bill Law Papers Over A Systemic Problem

(A version of this column 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.