The Usual and Customary Controversy--Who's Cheating Whom?
New York AG Andrew Cuomo recently announced an investigation into how insurers pay for out-of-network services. He charged that consumers were being "defrauded" by insurers who were "manipulating reimbursement rates."
Cuomo used the example of a charge for an office visit of $200 that the insurer cut back to $77--the insurer claimed the lower amount was reasonable and the maximum that should be paid.
In a recent editorial, the New York Times asked, "Have health insurers been systematically cheating patients and doctors of fair reimbursement for medical services?"
That is a good question.
So, I conducted an in depth investigation of my own. I pulled our family's recent insurance company EOBs.
I found one charge for an office visit where the physician billed our insurer $190--which our Blue Cross PPO cut back to the in-network allowable charge of $84.17. Under the PPO contract, the doc accepted the $84.17 as payment in full.
Then there was the Quest Diagnostics charge for my annual physical lab test of $67.71 that the PPO cut back to $11.55--which the provider accepted as payment in full. There was another lab test, as part of my annual physical, that had a "list price" of $223 that was cut back to $24.50 because of the network discount--which the lab also accepted as payment in full.
In fact, all of my annual physical lab tests were billed for a total of $477.81--which my PPO reduced to $62.70--a savings of $415.11. The lab accepted the $62.70 as payment in full.
So what does Cuomo do, he de facto calls a $200 physician charge as reasonable and the insurer's claim that the physician charge really ought to be $77 as "fraudulent."
I will suggest that the New York AG, and his crack investigative staff, as well as the New York Times editorial board, pull their own insurance company explanation of benefit (EOB) forms and get a dose of reality!
13 comments:
As you point out the facts make his case difficult to prove anonymous
Clearly the insurers have been cheating the docs.
Let's do a logical proof.
We know that in most areas of the country 1 insurer has over 40% of the business, and in many areas over 70%. Economists call this oligopsony or monopsony.
Will a monopsony:
1. Pay above market price because it is run by such nice guys with hearts of gold?
2. By a random quirk of the universe, pay exactly a market price?
or
3. Use consolidated market power to pay lower than a market price?
I think we all know the answer is 3.
Monopsony is every bit as dangerous and insidious as monopoly.
The way to determine the truth of the matter is equal consolidation among buyer and seller. If one medical vendor has 70% of the sellers under 1 roof and one insurer does 70% of the buying, then what is the price?
Ask again at 40/40, 10/10, and 1/1 to find the truth.
An excellent point. I understand that Cuomo may be frustrated with the complexities of the health care billing process, but simply trying to get more $$ from the insurers is not the answer. It will only drive up costs while leaving the opacities of the current system in place.
In response to monopsony, we don't know if the $200 is a fair price because the physicians have a monopsony over the consumers who don't even know what the true price of their service is. Would they be willing to pay $200 per office visit or would they rather go to a retail clinic and pay $42. Until there is pricing transparency from the provider I'll take a negotiated lower in-network rate from my Health Plan.
Having worked in both a physician practice and for a number of managed care organizations, I will attest that both must maintain a profit margin to survive. Physicians establish charges using a variety of methodologies, and the savvy ones know to set their rates at a level to ensure no managed care contract can apply the "lesser of" clause to its payments. The practice I worked for even allowed its collection staff carte blanche in offering discounts of 40% to its self-pay patients! Is it fair to say that this practice's "usual & customary charge" truly reflects fair market value then?
Maybe I am not reading this correctly, however all the example cited above were for in essence in-network transcations. It is when the patient goes out-ofnet, outside the PPO that these issues apply or when some goes to some provider in a different state.
Following on from the apt observation by "Maybe I am not reading this correctly" ....
Perhaps AG Cuomo should look at whether care is predominantly deleivered on an in-network basis, and if so, wouldn’t those (discounted) contracted by providers represent the ‘market price’ for these services? Viewed in that way, it is the patients who choose to go out-of-network who become subject to the completely unrestricted balance billing practices of the sainted providers, yes?
How about no one really pays $200 and by far the most pay about $80.
So:
1. Why does Cuomo defend the guys charging $200 and go after the guys paying $80?
2. Just how would you characterize someone who charges the unsuspecting the $200 when all the insiders know the standard payment is $80?
>ROBERT LASZEWSKI said...
How about no one really pays $200 and by far the most pay about $80.
Gee, Bob, didn't you read that bit about Monopsony? Insurers with market dominance become price setters, not price takers.
Would you feel it was equally fair if all the docs got together and made the price $1000? I bet not.
>1. Why does Cuomo defend the guys charging $200 and go after the guys paying $80?
Because they are not acting as a monopsony or monopoly?
>2. Just how would you characterize someone who charges the unsuspecting the $200 when all the insiders know the standard payment is $80?
STANDARD does not equal fair price or market price.
We cannot know the market price until consolidation on both sides of the transaction are similar.
And yes, I wholly support the transparency movement.
Lets have plans with defined benefits, docs who post their prices, and consumers who comparison shop. Then we will know the market price.
>1. Why does Cuomo defend the guys charging $200 and go after the guys paying $80?
Gosh, I thought it was a free country. I thought if I had my own business I could set my prices however I liked.
If not, I want, no...demand, that Cadillac and Coach and Ruth's Chris and Saks lower their prices.
How dare they charge more than the "standard" price.
Last week I suggested that doctors post the price of their top 200 most common procedures. Someone was kind enough to respond that most doctors probably only use 50 procedure codes for the majority of their services. Gee, I would be happy to compare the prices of 50 procedures, IF I COULD.
The percent of claims paid for out-of-network services is only about 4% of total claims. To me, that suggests 96% of paid charges are "acceptable" to providers. Therefore, the retail price (UC) is $80, not $200 or $1,000.
My point is, if the medical community is REQUIRED to list their charges, competition will run its course and UC will find its equilibrium.
The AG should worry about the REAL cost of care, because apparently it is not remotely close to the billed charges on your EOB.
>The percent of claims paid for out-of-network services is only about 4% of total claims. To me, that suggests 96% of paid charges are "acceptable" to providers. Therefore, the retail price (UC) is $80, not $200 or $1,000.
WRONG.
Let us say you sell gasoline. You and about 100 other gas "providers". Suddenly, there is a single "managed gasoline" payer in town that becomes the sole buyer of gasoline.
This single buyer informs you that the price of gas is now $0.25 per gallon, and declares that price "usual and customary".
Now, you already have 1000 gallons of inventory, and it is expensive to ship.
You can either go out of business in an actual firesale, or sell your gas at $0.25, or form a counter cartel with the other gas stations.
But if you sell your gas at $0.25, even though we can all see that that isn't a fair market price, but rather a monopsony price, does that mean that $0.25 is the REAL price of gas, the market price?
I don't think so.
The gas example is silly. There is no one forcing them to do business with the single payer. Come to think of it, that scenerio would work in the proposals of HRC and BHO. I think I will steal it.
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