Sticker Shock for Out-of-Network Care

Today’s Managing Health Care Costs Indicator
is $60,000

America’s Health Insurance Plans, AHIP, the lobbying arm of the US health insurance industry, released a report yesterday that outlines the high “out of network” charges levied by some physicians who refuse to participate in health plans.

Here’s how it works.  The physician opts out of health insurance plans.  She can no longer collect payment from insurance plans, but she is no longer bound by their fee schedules.  Whatever she bills, she can collect directly from patients.   Health insurance plans used to pay out of network fees when the patient had no choice (such as when an in-network hospital had out-of-network anesthesiologists!).   However, they’ve increasingly capped their liability at some portion of the Medicare allowable (usually under 150%) – so the patient bears the lion’s share of responsibility for these excessive charges.

The New York Times reported on a graduate student in New York living on $18,000 a year who had emergency gallbladder surgery, and was billed $60,000 ($30,000 for the surgeon, and the same for the assistant).  He had “good” insurance, and the hospital was “in plan.”  However, both the surgeon and assistant were out of network.  United Health Care said the allowable fee was $1273, and paid $838. That left a $59,162 balance for the graduate student to pay.

The graduate student eventually appealed to a advocacy organization, and the surgeon eventually relented and accepted a significantly reduced payment. 

I learn two lessons from the AHIP report and the NYT anecdote.

1)      There are some egregious billing practices going on – and the health plans are in no position to interdict it because they can only police those who sign their contracts.  Government price control has a bad reputation because of ‘regulatory capture,’ where some contractors have enough influence that they manage to obtain overly high reimbursement.   However, it’s hard to imagine things being worse than they are now.   We need to have maximum allowable prices for emergency services where patients don’t have the ability to price-shop.    Hard to know who can do this besides the government!   Governments of virtually every other developed country set prices – or prices are negotiated by provider representatives and apply to all providers.  We’re the only country with no price controls at all – and we have the highest prices around.

2)      This sows further doubt about the ability of patient/consumer “skin in the game”  to lower prices.   Consumer price sensitivity can lower prices for highly elective commodity services like Lasik surgery – but this certainly doesn’t work for surgeons who remove gallbladders.  Giving more and more Americans high deductible health plans will lower utilization – which is already among the lowest of developing countries in most areas.  However, our main problem is a cost per unit problem, and high deductible health plans are highly unlikely to lower price enough to make health care affordable.