California’s surprise billing “fix” compromises care for millions of patients

Ross Marchand

January 15, 2020

This article originally appeared in the OC Register on January 14, 2020.

In the People’s Republic of California, delivering and receiving healthcare is akin to paying a visit to the Department of Motor Vehicles (DMV).

It didn’t have to be this way; there are more than 50,000 talented doctors statewide eager to give consumers quality healthcare at a competitive prices. But, like most parts of the Golden State’s economy, a blizzard of bureaucracy has buried the sector in an avalanche of regulatory costs.

In particular, a 2017 law meant to stop surprise medical billing has led to increased costs and the consolidation of doctor’s offices across the state. And now, Congressional lawmakers, led by Sen. Lamar Alexander, R-Tennessee, and Rep. Greg Walden, R-Oregon, are trying to export the failed California model nationwide. Policymakers should allow doctors and patients the freedom to interact as they see fit, instead of dictating care and prices.

Each year, millions of Californians face a familiar but daunting scenario: days or even weeks after being discharged from a (supposedly in-network) emergency room, they receive an unwanted bill in the mail for procedures rendered. Their insurance cards may be valid and unexpired, but chances are, there was at least one doctor attending to the patient that is not a part of the patient’s insurance network.

This issue of “narrow” insurance networks mostly has its origins with the advent of the Affordable Care Act (aka Obamacare) signed into law in 2010 by President Obama.

Obamacare hoisted expansive requirements on insurers to cover newly-defined “essential benefits” such as smoking cessation and maternity care coverage that millions of Californians did not want or need.

As a result, insurers such as Anthem California had less revenues to offer doctors the pay they deserve, resulting in networks that excluded doctors in costly specialties such as anesthesiology. As a result, around three-quarters of Obamacare plans offered in California have narrow networks, resulting in the medical billing disputes that patients fear and loathe.

Enter the California State Legislature, who decided that the only way to deal with this government-created issue was to…further increase regulation.

Assembly Bill 72, which kicked in on July 1, 2017, requires that physicians accept the median insurance rate for services provided to patients (or 125 percent of the Medicare rate), even when such arbitrarily-defined rates are far lower than the costs of the physician’s time. Two and a half years after the bill’s enactment, the results are in: Doctors’ statewide pay was slashed pretty much overnight, resulting in small practices struggling to keep their heads above water.

According to a 2019 American Journal of Managed Care study by USC-Brookings Schaeffer Initiative scholar Dr. Erin Duffy, doctors and hospitals increasingly cite consolidation as a growing problem in response to the 2017 law.

Strength in numbers is seen as a necessary bulwark against pay declines and the decreased willingness by insurers to negotiate with physicians. Some doctors interviewed by Dr. Duffy expressed concerns with recruiting high-caliber employees, and even contemplated practicing healthcare in another state.

Unsurprisingly, consolidation isn’t popular among patients who have relied on their local doctor’s office for decades. According to data from the California Department of Managed Health Care, care access complaints have skyrocketed from 415 in 2016 to 614 in 2018, an increase of nearly 50 percent.

Despite these problems, Congress has proven persistent in trying to transform California’s missteps into a national experiment in government healthcare. As in California, Sen. Alexander and Rep. Walden’s proposal to have the federal government rate-set doctors’ prices across America would lead to countless closures and compromise care.

Fortunately, lawmakers trying to fix the issue needn’t choose between surprise medical billing reform and access to care. In 2015, New York passed wide-reaching reforms to curb these bills using a market-friendly approach called arbitration. Under this framework, the patient only has to pay the ordinary in-network rate for out-of-network ER services provided, while doctors and insurers negotiate payment over the remainder. Both parties submit their claim to an online portal, where examiners decide proper payments by considering the particulars of the case as well as the doctor’s experience and payment history.

By all accounts, the process is even-keeled and has led to doctor, insurer, and patient satisfaction. Meanwhile, out-of-network medical bills are down 34 percent for New York patients. The Empire State’s experience proves that seeking out medical care needn’t feel like a DMV visit defined by needless government meddling. Marked-based negotiation, rather than the heavy hand of bureaucracy, is key to fixing the pressing problem of surprise medical billing. New York’s solution to the issue can be a nationwide template for reform, but only if lawmakers are willing to listen to the evidence.

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