SUMMER READING: Healthcare Price Controls

Whether relaxing at a resort or rushing around Capitol Hill, lawmakers are (hopefully) familiar by now with mask requirements and social distancing restrictions. After all, members of Congress have heard enough horror stories about colleagues and constituents coming down with Covid-19 and facing ill health for weeks (or even months). And, when coronavirus patients find themselves in the emergency room for a sudden bout with the deadly disease, there’s no assurance that their insurance network will cover all the attending doctors. Even after they think the ordeal is over, 1 in 7 patients will receive an unwanted, unexpected “surprise bill” in the mail. Lawmakers are hard at work figuring out how to “solve” this pressing issue, but not all solutions are created equally. Some proposals would lean heavily on onerous price controls and have bureaucrats dictating prices to doctors and patients. Members of Congress need to do their homework on the myriad unintended consequences of rate-setting (price controls) before prescribing this wrongheaded solution because millions of lives depend on finding a solution. Fortunately, the Taxpayers Protection Alliance (TPA) and the Coalition Against Rate-Setting (CARS) are offering lawmakers ample summer reading on this pressing issue.

Surprise billing is a very real issue impacting tens of millions of Americans. And the spread of the novel coronavirus has made matters worse for those people infected. Health Affairs contributors Jack Hoadley, Kevin Lucia, and Katie Keith explain: “Even before the outbreak, two-thirds of Americans were worried about being able to afford an unexpected medical bill, and millions face the risk of a bill from an out-of-network provider during an emergency, during surgery, and even during a stay at an in-network hospital. Unfortunately, in addition to its other stresses on access to health care, coronavirus is expected to increase the odds of receiving a surprise bill across all phases of testing and treatment. In 2018, nearly one in five Americans with pneumonia (a condition that is arguably similar to coronavirus) who were admitted to a hospital faced an out-of-network bill during their stay—a slightly higher rate than for other health conditions.”

But some proposed solutions – such as rate-setting – are worse than the disease and would cripple the healthcare system at the worst possible time. Since the start of the pandemic, Sen. Lamar Alexander (R-Tenn.) and Rep. Frank Pallone (D-N.J.) have repeatedly attempted to get rate-setting inserted into “relief” legislation. Their proposal would benchmark provider compensation at the median in-network insurance reimbursement rate. Mandating these artificially low rates would spell disaster for millions of healthcare workers and their patients, triggering a slew of closures and consolidations of doctor’s offices and hospitals.

This scenario unfolded when California implemented a similar “solution” in 2017. A 2019 study in the American Journal of Managed Care by USC-Brookings Schaeffer Initiative scholar Dr. Erin Duffy surveyed “28 individuals representing policy experts, representatives of advocacy organizations and state-level professional associations, and current executives of physician practice groups, hospitals, and health benefits companies” on the consequences of California’s legislation. Dr. Duffy found that, “Interviewees report that leverage has shifted in favor of payers, and payers have an incentive to lower or cancel contracts with rates higher than their average as a means of suppressing OON [out-of-network] prices. Physicians reported that this experience of decreased leverage is exacerbating provider consolidation…One anesthesiologist expressed fears about the uncertain future of their practice if ‘rates are insufficient for me to recruit and retain the caliber of physicians that our hospital and surgery center clients expect.’ Another anesthesiologist contemplated leaving California to attain a higher standard of living in a state without OON payment regulations.”

Exporting this failed model nationwide at the height of a pandemic would compromise care for tens of millions of patients. And now, more lawmakers (such as Virginia Democratic Sen. Mark Warner) are entering the fray with their own, misguided healthcare price-fixing “solutions.”  Sen. Warner proudly proclaims that his recently-introduced “Health Care Improvement Act will create additional federal protections to ensure Americans no longer receive surprise medical bills” via rate-setting, without mentioning the significant unintended consequences of that approach. Fortunately, other members of Congress such as Sen. Bill Cassidy (R-La.) are proposing solutions that would keep bureaucrats from meddling in medicine. His preferred approach would shield patients from receiving surprise medical bills, while ensuring that doctors and insurers seek private mediation (known as “arbitration”) to resolve reimbursement disputes. This system has worked wonders in New York State, which passed legislation in 2015 enabling arbitration. According to a 2018 study by Yale University researchers, “the New York law reduced out-of-network billing by 34 percent and lowered in-network emergency physician payments by 9 percent.” States such as Georgia are following in New York’s footsteps, allowing for expanded access to a proven dispute resolution process.

But even if not all groups agree on the solution to surprise medical billing, there’s a broad-based consensus that rate-setting is not the answer. Comprised of 34 federal and state free market organizations, CARS has written letters, statements, and op-eds pointing out the many problems with healthcare price controls. In a July op-ed in The Hill, Hispanic Leadership Fund (a CARS member) President Mario Lopez noted, “Price controls, like ObamaCare, would again tip the law in favor of big insurance companies. Insurers would have no incentive to renew contracts for doctors who are paid above in-network rates. And as the process continues, payments to doctors would keep decreasing.” As Lopez and other CARS representatives have pointed out, this is the worst possible time to slash compensation to doctors. Fortunately, the members of CARS continue to fight the good fight in preventing rate-setting and holding lawmakers accountable (listen to a podcast with the Pegasus Institute and Wayne Winegarden with the Pacific Research Institute here).

The problems with price controls don’t stop with surprise billing.  President Trump signed an executive order last month mandating price controls for drugs. This price control policy, known as the “international pricing index” and now being rebranded as a “most favored nation” proposal, will tether Medicare Part B drug payments to artificially low prices paid by other governments across the developed world. In previous decades, these low prices imposed by other countries have led to medication shortages, diminished drug production, and less access for patients. Meanwhile, President Trump’s push for the reimportation of medications from Canada has encountered opposition from leading American and Canadian health experts, who have highlighted the drawbacks and dangers of this policy.

The Democratic candidates are embracing Medicare for All during their convention this week which would impose price controls across the healthcare system.  Under Joe Biden’s “Affordable Care Act 2.0,” the HHS secretary would have the authority to institute price controls into the Biden “popular” drug plan.  Medicare for All would cut reimbursement rates for medical providers leading to fewer resources to treat patients and worse outcomes. While private options may still exist (in theory) under this proposal, the predominance of rules and regulations and an all-encompassing “public option” that cannot go out of business would create considerable complications for choice and competition. When bureaucrats set prices for doctors and medications, quality and availability stagnate while care access complaints skyrocket.

Members of Congress should be going to bat for patients by rejecting price-controls and insisting on market solutions to surprise billing. But first, they need to do their homework.