AHIP (America’s Health Insurance Plans)
One tool that health insurance plans use to improve quality and make health care more affordable for consumers is the establishment of provider networks.
Some out-of-network providers are charging exorbitant prices — several hundred or even over a thousand percent of the Medicare reimbursement for the same service in the same area. Recent examples: $4,500 for an office visit when Medicare would have paid $134; $14,400 for removal of a gallbladder when Medicare would have paid $656; and $40,000 for a total hip replacement when Medicare would have paid $1,558.
Consumers who are charged exorbitant fees by out-of-network providers incur additional costs because the protection against balance billing generally does not extend to services provided out-of-network. This detracts from the ability of health plans to offer affordable access to out-of-network providers for those consumers who want the advantages of a network, but also maintain the option to go out-of-network if they choose.
New Report Examines Out-of-Network Charges by Some Physicians
August 12, 2009
While the issue of how much is appropriate for out-of-network physicians to charge has not been part of health reform discussion to date, this report demonstrates that it needs to be. No mechanism exists to protect patients who seek care out-of-network from receiving bills that are unreasonable and unaffordable.
“As policymakers pursue health care reform, we encourage them to look at how much is being charged for services, particularly since higher charges don’t mean high quality of care,” said AHIP President and CEO Karen Ignagni. “With the nation facing the crushing burden of rising medical costs, all stakeholders should be focusing on constructive ways to bring costs under control.”
By Don McCanne, MD
As we look at comprehensive health care reform, we really have to ask ourselves just what is it that the private insurance plans are providing us in exchange for their exorbitantly high administrative costs and the costly administrative burden they place on the health care delivery system?
Risk pooling? Public systems pool risk much more effectively than private plans. In fact, the private insurance industry wastes resources in their efforts to avoid risk. They’re not selling us the equitable risk pooling function that we want, and yet they’re charging us more for their lousy services. We don’t need that.
Managed care? Patients and their health care professionals do not want intrusive administrative managers intervening in their care. The private insurers have received that message and have backed off on the more explicit prohibitions of care. What they have not backed off on is selling us ever more of their wasteful, expensive managed care administrative services that are no longer particularly effective in moderating health care costs increases. They are perpetuating their unwanted intrusions, and they are charging us more for that. We don’t need that either.
So what service are they providing us? They have instituted private sector price controls by establishing contracts with hospitals, laboratories, health care professionals and other sectors of the health care delivery system. Their report released this week confirms that this is an important function. Prices set by the health care industry are much higher than prices dictated by the health insurance industry. If you think health insurance premiums are high now, just think of what they would have been without the private sector price controls applied to the contracted networks of providers.
Of course, there are trade offs. It is very expensive to provide the administrative services of both the insurers and the providers that are necessary to establish and manage these contracts. More dollars are diverted from actual health care to pay for these administrative excesses. A more perverse trade off is that patients are denied their free choice of health care professionals, hospitals, and laboratories since they must choose from the limited in-network panels provided by the insurers. They are limiting our choices, and they are charging us more for these unwanted services. Who wants that?
There is one more trade off that has left a gigantic, gaping hole in the private insurance model of health care financing. There are many legitimate reasons why an individual may receive care from out-of-network providers. When the private insurers do not have contracts with these out-of-network physicians and hospitals, they have no ability to dictate private sector prices. If the private insurers pay the full out-of-network fees, in-network providers will cancel their contracts and then demand the same prices, thus driving up our insurance premiums. If the insurers do not pay these high out-of-network fees, the patient is stuck with them. This is one of the reasons that individuals with “good” insurance end up in bankruptcy due to medical debt.
The timing of this AHIP report is no accident. Congress and the administration have now agreed that individuals will be required to purchase private health plans, perhaps with the additional option of a private model plan that is public in name only. Since the insurers have agreed to provide coverage for everyone not covered by other public and private plans, and since they will continue to use contracted provider networks (PPO, POS, and HMO), they understand that a solution to the high prices of out-of-network providers will have to be provided.
What is their solution? Although it appears only between the lines, their proposal is really not that subtle. “Out-of-network providers are charging exorbitant prices.” AHIP places the entire blame on those who refuse to sign their contracts. “No mechanism exists to protect patients who seek care out-of-network from receiving bills that are unreasonable and unaffordable.” AHIP obviously is calling for a mechanism to control the prices of providers with whom the insurers have no contract.
Lacking the ability to enforce private market contracts that were never agreed to, there is only one other entity that can provide a price-control mechanism. Jumping out from the space between the lines of their report, that entity is obviously the government – yes, the GOVERNMENT! AHIP is implicitly supporting government price controls for health care. But then that isn’t such a foreign concept for them. For decades, they’ve been using price controls through their own private bureaucracies.
So the only service they are providing is a profoundly expensive, administratively wasteful set of fragmented, restricted networks of providers that fall short of controlling prices throughout the system, and for that we have to give up our choice of health care professionals and facilities, not to mention giving up more of our money.
What if we got rid of the private insurers and had the government do it instead? Our experience with Medicare should give us an idea of how that might work. The administrative waste in the Medicare program is much less than that of the private plans. The additional administrative burden placed on the health care delivery system would be reduced dramatically since the providers would have to deal with only one payer and one set of rules. Not only would all risks be pooled together into a single pool, that pool would be funded much more equitably based on ability to pay. Since virtually all physicians and hospitals would participate in the program, patient choice would be almost unlimited, including the right to choose an integrated health system, if so desired.
Just like the private plans, Medicare has established prices for those contracting with the program. But what about those providers who do not have contracts? These are like the providers over whom the private insurers have no control. Well, Medicare is a government program. As such they dictate the prices, with slight adjustments, for non-contracted providers. The only way a physician can charge a Medicare patient the full list price is to refuse to bill Medicare for any patient at all for a minimum of two years, and to have this patient sign an agreement that he or she likewise will not try to collect from Medicare.
So we already have the heavy hand of government administering price controls. But isn’t that what AHIP is not so subtly advocating? GOVERNMENT PRICE CONTROLS for those providers who refuse to sign their private insurance contracts! If the government is going to control prices anyway, then why would we need or even want the private insurance contracts?
BusinessWeek’s statement this past week that the health insurers have already won should not be accepted as a given, but should be considered a challenge to us to demand, in loud and clear terms, the reform that we need. Let’s make it a very hot August for our representatives in Congress, but let’s make our message effective by being polite while we generate heat.