Insurance companies largely won their fight in Congress last year to gain the ability to set the prices that they pay doctors. Will doctors have a say? No. Patients? No.
The insurance companies and an arbiter will have the last word. At least, that is, if the Biden administration goes along with also writing the regulations in a way that fully benefits insurance companies. A political game that played out over the past few years has been the fight over surprise medical bills. However, the game wasn’t the normal black and white of politics as usual. The players agreed that patients shouldn’t have to face these surprise bills.
The argument between the insurance industry, which is currently realizing record profits, and doctors, who are on the front lines facing COVID-19, was over either letting the insurance companies set the prices or letting the two battle it out in an arbitration process. The end result, passed as a part of the end-of-year omnibus, was an amalgamation of the two ideas. Disputed bills from providers can go to an arbitration process, but the arbiter is directed to consider the median in-network rate.
The problem?
With the direction to consider the rate set by insurance companies, the market is almost guaranteed to move in that direction. The insurance industry is happy to explain that this is good for the economy. But there are some catches.
A regulation that gives a private industry the ability to set prices is a bad idea. Second, a regulation that takes away the rights of private actors (providers) to set their own prices is a bad idea. By definition, insurance providers currently pay providers both more and less than the median. Therefore, when doctors who are paid more than the median try to renew their contracts, the insurance companies will have no reason to renew those contracts. The median will thus fall.
This is a government-induced payment death spiral and the easily forecast outcome of outsourced price setting.
Fortunately, this death spiral hasn’t been implemented yet. One often overlooked part of the legislative process is that after a bill has been voted on and signed into law by the president, it still has a long journey before being implemented. The bill has to be translated by the administration into regulations. Those regulations need to be finalized. It is a process, a lengthy process. And where there is a process with money at stake, there will be cronies: Just follow the smell of Gucci loafers.
The question now is what “median in-network” means. For instance, Kansas City straddles state lines. The Washington, D.C., metro area is in three states. Are the boundaries blindly drawn at state lines? Are the boundaries drawn across state lines? How about places where little to no healthcare exists? Is quality, technology, investment, and access considered?
Any one of these decisions can dramatically affect healthcare in general. Where do doctors set up new practices? Do they continue investing in new equipment? Do they restrict the number of patients that they see? Do they restrict the number of days that they work? Do practices hire doctors with less training if they will be paid the same, regardless of the doctor?
Our government shouldn’t be making these decisions at all. And, if they are going to make them, they shouldn’t listen to the industry (insurers) that the policy enables to set the market rates. However, that is the position that we are in, and the Biden administration is currently in the pilot chair of our healthcare future.
Hopefully, the administration considers the full implications of their decisions instead of just taking the easy way out while pleasing their donors, instead of thinking about creating a functional healthcare market.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is the president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.
