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California’s AB72 was a law passed with the best of intentions.
On the face of it, it’s a great law that does good things for patients.
AB72 was designed to address a practice called balance billing for out-of-network providers. Imagine you go into the hospital to have your gallbladder removed. Beforehand, you made sure that the hospital where the surgery takes place is contracted with your insurance company.
You have your surgery, see your expected charges on your bill from the hospital, and everything’s going great.
Then, you get a separate bill for your surgeon. But this one is billed at a much higher out-of-network rate. It turns out that while your hospital was an in-network facility, your surgeon was an out-of-network provider.
Suddenly, you’re on the hook for a much higher charge than you expected.
The same thing could happen with any other provider involved with your care that may be out-of-network for your insurance, but working in an in-network facility.
Not great, right? And it’s the issue that AB72 was designed to fix. Basically, AB72 says that if an out-of-network provider is involved with your care at an in-network facility (the hospital or facility covered by your insurance), the out-of-network provider (aka the surgeon in our example) is supposed to be paid a rate close to the in-network provider’s rate (fair market value).
Jerry Brown signed it into law in September of 2016, and it started to go into effect in July of 2017.
A win for patients, right?
On the face of it, yes. In the long term, not without some significant changes.
Here’s the problem with AB72: It drastically shifts the balance of power in favor of insurance companies.
Medical billing is extraordinarily complex. Let’s look at a small, straightforward slice of it. Insurance companies negotiate the rate they’ll pay to in-network providers for each service or procedure they perform. Patients that have Medicare are normally subsidized by higher commercial contracted rates that help offset these lower contracts, and insurance companies can now use grey areas in the law to pay the out of network provider an artificially lower rate at their discretion.
So let’s go back to our hypothetical surgeon, and imagine that he’s trying to negotiate with ACME Health Insurance Co. to become an in-network provider before the passage of AB72.
The surgeon and the insurance company would look at average rates for the region, the surgeon’s skill and outcomes, and then go back and forth a bit, finally settling on a negotiated fee schedule that’s fair to both the surgeon and the insurance company (fair market value).
But here’s what’s happened after the passage of AB72: Insurance companies realized that they didn’t have to negotiate with out-of-network providers any longer.
Don’t want to come in-network at the rates we’re offering? Tough, we’ll just pay you the artificially low rates set by AB72.
Up until now, this is all hypothetical. But let me talk with you about what’s happening in the real world, and why it matters to patients.
I’m an anesthesiologist, with a group of over 100 anesthesiologists who provide care for some of the largest hospitals, surgery centers and health systems in Southern California. We treat thousands of Californians every year. We are in-network providers with contracts with every major insurance carrier in the state (and have been for our 60-plus year history).
Shortly after AB72 went into effect, one of the largest insurance carriers in the state announced that they’d like to renegotiate our group’s contract.
Not a problem! We started discussions with the carrier, and explained that our group had continued to provide excellent care and was well-liked by patients, fellow providers and our partner institutions.
The carrier agreed completely and then asked us to cut our negotiated rates by 40%.
It is, of course, essentially impossible for us to comply with that request. We’re not providing 40% less value than we were last year. Our expenses haven’t dropped by 40%. The carrier hasn’t dropped their premiums by 40% (in fact, on average, they’re up by about 5% from last year).
So, we said no. And they said, “Great, you’re now out-of-network providers and we can just pay you the artificially low rates set by AB72.”
Currently, two of California’s largest insurance providers have used the same tactic, and I’m sure they won’t be the last.
Why should patients care? Because it makes it awfully hard for anyone to attract and retain qualified physicians when the deck is stacked against them in California by the unintended consequences of AB72.
There is currently a shortage of anesthesiologists in this country. There was a shortfall of about 3,800 in 2011, and it’s estimated that by 2020, that shortfall will reach 12,500.
Every time an anesthesiologist completes their training, essentially, 50 states are competing for them to come take care of their population.
If AB72 makes it so that anesthesiologists can’t fairly negotiate with insurance companies in California, how many of those new graduates are likely to come to our state?
I love California, but would you take a 40% pay cut to come live here?
The unintended consequence of AB72 is that it gives insurers all the power in their negotiations with physicians, and makes California a far less appealing place for many types of healthcare providers to practice medicine. It also punishes independent groups and physicians that don’t have the broader negotiating power of larger healthcare institutions.
AB72 was designed to protect patients from unexpected medical bills. Without immediate, necessary revisions, the bill’s ultimate result will be that Californians lose access to the healthcare professionals they need to stay healthy.
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This content is sponsored by Allied Anesthesia Medical Group.
Photo: Shutterstock