CCAGW Sends Letter Opposing Price Controls | Council For Citizens Against Government Waste

CCAGW Sends Letter Opposing Price Controls

Letters to Officials

October 20, 2020

U.S. Senate
Washington, D.C.  20510


Dear Senator,

It is our understanding that Sens. Lamar Alexander (R-Tenn.) and Bill Cassidy (R-La.) have reached a compromise on a “broad, bi-partisan” bill to address surprise medical billing.  But broad and bipartisan does not necessarily mean it is a good solution.  The Council for Citizens Against Government Waste (CCAGW) agrees that patients should not pay more than is required under their insurance policy if they have done their due diligence, utilized an in-network facility for medical care, and did not ask for an out-of-network provider.  However, the two leading solutions that have been pushed in Congress to solve surprise medical billing, rate-setting and independent dispute resolution (IDR), are nothing more than price controls that will cause shortages, particularly in rural areas, and disrupt healthcare markets, as do all price controls.  We urge you to reject any legislation that include rate-setting or IDR.

According to an October 5, 2020 USA opinion piece, the compromise would “provide timely payment to health care providers based on where the patient lives and where they receive care.  This is often called an interim payment.”  But this scheme is a price-controlled rate-setting system where the price for the procedure is based on a local benchmark.  If the “health care provider determines the interim payment is unfair, the payment can be changed through a process known as Independent Dispute Resolution.”  IDR is simply a delayed price control because arbitrators look at the local rates to come up with a justified amount.

The July 2020 “HHS Secretary’s Report on: Addressing Surprise Medical Billing,” pointed out that problems can result from both rate-setting and IDR.  In California, a rate-setting bill was enacted into law in 2017.  It requires insurers to pay out-of-network physicians working at in-network hospitals the greater of the insurer’s local average contracted rate or 125 percent of the Medicare rate, and has an IDR process for resolving differences.  The report noted the California Medical Association claimed networks are now narrower, resulting in reduced access, while insurers found an increase of 16 percent of in-network physicians across all specialties.  While the Brookings Institution found a reduction in out-of-network care, the researchers noted the surprise billing law did not directly regulate emergency room care and that more independent research is needed.

Senators may want to review this study as well as an August 2020 Pacific Research Institute report, which found the California law is incentivizing lower quality healthcare services and accelerates healthcare cost pressures, like practice consolidation.

The HHS report also discussed New York’s IDR process, which began in 2015.  State guidance suggests arbitrators should consider the 80th percentile of all charges for a health service in the local area.  While the state issued a report in 2019 noting that the law saved consumers more than $400,000,000 between 2015 and 2018, the HHS report noted it did not provide supporting evidenced for the assertion.  A Brookings Institution study suggested “arbitration decisions have averaged 8 percent higher than the 80th percentile of charges” which implies that “the process is increasing, not decreasing costs.”

Anytime the government sets an amount to trigger an action, like paying surprise bills under $750 at the in-network price and bringing bills over that amount to arbitration, the market will react in a manner that leads to minimizing bills under $750 and maximizing bills greater than $750.

A better solution to surprise medical billing would require truth-in-advertising and enforcement through applicable laws and regulations.  This proposal is laid out in “A Targeted Approach to Surprise Medical Billing” by Doug Badger and Brian Blase at the Galen Institute.  Because insurers advertise that a healthcare facility is in their network, and that the facility, like a hospital, will claim it is within the insurer’s network, when an insured patient patronizes an in-network facility and does not specifically request an out-of-network provider, that patient would not receive a surprise bill.  If the patient receives a bill from an out-of-network provider, then stiff penalties would be established for both the insurer and hospital for false advertising.  This would also apply to any emergency care provided at an in-network facility by an out-of-network provider.

This process would encourage healthcare facilities and out-of-network providers to agree to a payment arrangement in advance.  Perhaps all providers at an in-network hospital would either contract with the insurers that cover the hospital’s expenses, or an out-of-network physician would accept direct payment from the hospital, whose costs would become part of the hospital’s overall expenses. 

There is no perfect solution on what to pay when a patient uses an out-of-network facility for emergency procedures, as defined in the 1986 Emergency Medical treatment and Active Labor Act (EMTALA).  The Galen Institute suggests the patient would pay the network cost-sharing rate and the insurer would have to provide reasonable reimbursement for such services, which are defined in current HHS patient protection regulations.

Because hospitals, out-of-network providers, and insurers depend upon each other to stay in business and have leverage in negotiating payments, truth-in-advertising requirements would encourage a market-based solution to stop surprise billing.  The Alexander-Cassidy “compromise,” which would result in heavy-handed government price controls, which never reduce prices and never solve problems, should be rejected.


Tom Schatz

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