Even for the Rube Goldberg machine that is the U.S. healthcare system, few policy predicaments are as vexing as surprise medical bills. After leaving the emergency room, nearly 1 in 7 patients across the United States receive a bill from their provider in the mail days or even weeks after they have been discharged. These recovering patients went to an in-network facility confident that their insurer would pay their expenses, only to find out that their attending physicians were out-of-network (an unfortunate side effect of Obamacare narrowing insurance networks).
Patients deserve a comprehensive system that protects them against surprise bills while respecting the principles of private enterprise. Louisiana Republican Sen. Bill Cassidy’s “arbitration” proposal does just that, allowing patients across the country to rest easy after a potentially harrowing ER ordeal.
Free-market-minded members of Congress, such as Cassidy, have been at the forefront of the surprise billing debate, proposing a nationwide arbitration system that would independently resolve disputes without the government dictating prices. This system, implemented by New York State in 2015, has providers and insurers submitting competing claims to an online portal, and an independent third-party umpire deciding whose claim is more reasonable depending on the circumstances. This approach stands in stark contrast to other proposals which envision Washington bureaucrats dictating prices across the entire country.
Cassidy’s proposal and the New York system has still faced skepticism from some conservative groups, who deem arbitration to be a government wolf in free-market fleece. American Enterprise Institute scholars David Hyman and Benedic N. Ippolito opine that “arbitration is just rate-setting in another guise — and the arbitrator faces the same challenges of any rate setter. Even the most knowledgeable rate setter would find it difficult to come up with a ‘missing price’ that closely approximates the true market price.”
Granted, arbitration is a less-than-ideal system that falls far short of the radical reform needed to establish a true free market in healthcare. But since the “original sin” of government intervention in the healthcare sector seems unavoidable in the short term, policymakers must be pragmatic in protecting patients by backing solutions that rely as much as possible on market forces.
Arbitration accomplishes this by taking as inputs two competing “prices” that the insurer and provider, respectively, believe should be the prevailing rate of reimbursement. It’s difficult to get to that missing price from two conflicting rate claims, but at least in the case of the Cassidy/New York model, the independent arbiter can consider multiple factors when deciding what the outcome should be.
It is true, as the AEI scholars point out, that New York has a benchmark rate in state guidance that arbiters could look to as a guide. But this is but one of many factors that arbiters consider when weighing the claims of providers versus insurers. Arbiters are also asked to consider the individual circumstances and the complexity of the case, patient characteristics, the experience of the physician, and the physician’s previous out-of-network prices. This process is a clear indication of due diligence in determining reimbursement, far from a “one size fits all” approach inherent in government rate-setting.
An arbiter can even ask the insurer and doctor to work out a settlement if the rival claims are too far apart. These multi-tiered considerations make for a largely even-keeled process, and studies show provider and insurer support for the system. This flexibility and wholesale consideration of the circumstances at-hand are way different than the government coming in and setting a rate that a bureaucrat believes is reasonable.
The problem is that bureaucrats are often years (if not decades) removed from meaningful private-sector experience, making them inept at understanding market forces. That’s why rural Medicare reimbursement rates are so skewed. And, because federal officials and lawmakers act at a turtle-like speed, narrow price-fixing considerations won’t be changing anytime soon.
Contrast this with arbitration, where the examiners actually have up-to-date experience in relevant specialties and can make decisions based on changing market considerations rather than one or two benchmark percentages. And if an arbitration entity royally screws up, the organization can be decertified, with rival entities available to pick up the slack. But if the government messes up, don’t expect heads to roll anytime soon.
Arbitration is hardly a purist free-market system. But it is a significant step toward letting market forces into a system that has avoided pricing, negotiation, and competition for decades. After making healthcare so maddeningly complex for everybody involved, the least policymakers could do is allow arbitration to turn things around.
Ross Marchand is the director of policy for the Taxpayers Protection Alliance.
