More Evidence that Virginia’s Healthcare System Is Broken

Surprise bills for medical care that Virginians expected insurance to cover are on the rise, a General Assembly healthcare panel was told yesterday. (The Daily News has the story here.)

Typically, the unexpected charges occur when patients are billed from outside their insurance company’s network. A person might go to a doctor who orders a test from a lab that has no agreement with the insurance company. Or a someone might go to an emergency room and get a bill from an anesthesiologist or pathologist outside the network. Or an emergency-room patient might wind up spending the night at an out-of-network hospital.

Another problem is the absurdly inflated prices attached to services for which insurance companies negotiate steep discounts. If a patient goes out-of-network, they get stuck with the inflated price. In one example cited in the hearing a Blue Cross Blue Shield member on the Virginia Peninsula was charged $3,687 for urinalysis tests over three months that allegedly could have done at Rite Aid for $50.

“There’s no excuse for these kinds of charges for something somebody else is making money with at $50. Basically, it’s fraud,” snapped state Sen. Frank Wagner, R-Virginia Beach.

Bacon’s bottom line: Well, labeling the charges “fraud” is unhelpful hyperbole — although I can understand the sentiment. Providers aren’t acting out of some nefarious desire to stick it to their patients. They are trapped in a fundamentally flawed system with two core components.

First, providers charge prices for services that bear no relationship to the cost of providing the services; they do so as part of their annual dance with insurers, which negotiate discounts as part of their value proposition to members. Over the years, the prices have become untethered from reality. Anyone stuck paying the list prices is totally and utterly hosed.

Second, insurers have found that they can negotiate steeper discounts by creating exclusive provider networks. Hospitals, doctors and others are willing to offer steeper discounts for policies that steer patients to them. In a marketplace with multiple insurers and multiple providers, the relationships can get very complex and confusing. Checking to see who is in-network and out-of-network can be problematic if the need for treatment is urgent, as it typically is in an emergency room.

The danger I see is that the General Assembly might create some arbitrary consumer protection that generates unintended consequences in which the new set of problems is even worse than the original set. Before taking hasty, ill-considered action, legislators need to attack the root of the problem — the insane disparity between list prices and negotiated prices. That’s where the system has broken down, and that’s what needs to be fixed.

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5 responses to “More Evidence that Virginia’s Healthcare System Is Broken”

  1. This post is a welcome sign that BR has finally got beyond anti-Obamacare jingoism and is beginning to pay attention to how to fix the damned system whatever you call it. There are real people out there, including some of us, who depend on our federalized, privately-managed, State-regulated health payment system and on our federalized, privately-owned-and-operated, State regulated, health care delivery and facilities-certification system for — guess what? our health!

    Of course, transparency and the elimination of hidden cross subsidies is a sine qua non here, whatever the payment and delivery system. Who do these insurance companies think they are fooling when they start with a price for a health procedure inflated 1000% and “negotiate that down” by 1/2 — that’s still 500% of what the service itself is worth. We all know that most of that overcharge is in fact going to take care of health services provided to the indigent and the free-health-clinic that is the typical emergency room. The minimal starting point for a cure is to identify that cost subsidy separately as the “tax” it really is — how can we know what that is costing the rest of us if the health care providers hide it from us? They hide it, I suppose, because mixing these together prevents us from examining what the health care providers are really charging us for services, and from seeing how ineffective the insurance companies actually are at negotiating for cost savings for us, the ultimate consumers.

    This is the debate we should be having: how can our State legislators mandate the separation of these costs so that each one can be examined in isolation and consumer pressure brought to bear? Certainly the health care industry has no incentive to volunteer a solution. Neither does the insurance industry. It’s an appropriate role for government to mandate what the private sector has no incentive to price correctly.

  2. Steve Haner Avatar
    Steve Haner

    Gee, Jim – Larry hasn’t piped up with this but I will. Welcome to the free market! Specialists in particular are often averse to accepting the lower reimbursements offered by various insurance providers, but a hospital has to have anesthesiologists or radiologists working in conjunction with their emergency departments. As I recall it was the radiologist who surprised me with a bill after an emergency visit. Should he have been forced by law to sign an agreement with Anthem or Cigna or whatever?

    The General Assembly is very familiar with these issues, which come up regularly as the docs, hospitals and insurance companies bump up against each other over related legislation. These are classic and often unpleasant fights (more bill numbers never reported!) There is also the issue of balance billing, where the provider accepts the insurance payment and then bills the patient for more.

    Senator Wagner, who used to own a medium sized business, has the point of view common to others who provide their employees with insurance (often self-funded) and then get a call from those employees who’ve gotten a surprise bill. You would be the first to recognize and rail about the problem when the patient doesn’t pay close attention, asks no questions about coverage or costs, blindly signs every notice put in front of them, but simply expects it to be covered with manna from heaven or whatnot.

    I don’t know what the answer is, but it is endemic and Virginia alone can’t fix it. The Affordable Care Act (Obamacare) might not have been a solution but it in many ways was aimed directly at this problem. Part of the answer is to force more transparency, I really believe that.

  3. LarrytheG Avatar

    off the road for today as we head back …

    It’s NOT the “free market” at work – Steve. NO health insurance “market” on the planet earth works the way that ours does.

    What country – industrialized or 3rd world has “networks”?

    Why are there “networks” to start with that basically function as “gotchas” for those who need significant medical care and find out that all those “extras” folks involved in their care are NOT in “their” network? What “free market” principles are in play here?

    Once again – I must point out that people who have employer-provided not only have subsidized insurance but they have guaranteed coverage of pre-existing conditions – NOT because of the insurance companies of the employer but because US LAW imposes that requirement on ANY insurance company that provides employer-provided insurance. That very same insurance company is NOT required to cover pre-existing conditions for those who purchase their own insurance in the “market” – NOR do they get to buy that insurance without the money that buys it – being taxed first – 3 times – FICA, Federal and State – something those with employer-provided do not have to pay.

    So what we have right now is no way, shape or form – a “free market” but instead a two-tier system where the Feds step in and guarantee insurance AND do not tax the money to purchase it – for one group of people and no such subsidies and protections are provided for the “other” group.

    In simple concept – the reason we have “networks” if that the Feds REQUIRE the insurance companies that provide employer insurance to cover all pre-existing conditions and the networks is their way of mitigating that cost by essentially clawing back some of the money that they’d be spending for “coverage”.

    If you REALLY want to see a REAL “free market” in action – take away the guaranteed coverage of pre-existing conditions for employer-provided insurance AND take away the tax-free benefit and instead tax that money like other income – and you’ll then see a REAL – free market – where the insurance companies would deny coverage to some folks all-together and charge according to age and pre-existing conditions.

    Those who say they want a “free market” in health insurance are living in LA LA Land. They have no clue what that really would mean if we actually did get the govt out of health insurance and let the “market” ….. “work”.

    1. LG, you said: “That very same insurance company is NOT required to cover pre-existing conditions for those who purchase their own insurance in the “market” – NOR do they get to buy that insurance without the money that buys it – being taxed first – 3 times – FICA, Federal and State – something those with employer-provided do not have to pay.” Not true. Re pre-existing conditions: all insurance complying with Obamacare and sold through the Obamacare markets must cover these, at least currently. Re post-tax three times over: it’s easy enough for an individual to set up an HSA to cover the premiums with pre-tax dollars. Certainly there are Republicans out there trying to undermine these options, the pre-existing conditions requirement especially — but they ain’t dead yet.

  4. LarrytheG Avatar

    Re: ” Not true. Re pre-existing conditions: all insurance complying with Obamacare and sold through the Obamacare markets must cover these, at least currently.”

    TRUE – but Obamacare is systematically being taken apart INCLUDING the pre-existing protections and MANY who do have EP – believe and state that Obamacare is a subsidized Federal Govt program that they do oppose on the basis that it’s wrong for the Govt to provide it in the first place.!

    Talk to those who have EP and get their view on Obamacare and whether it is justified or not. Many of them feel like they “earned” their EP whereas people who work where EP is not offered – do not “earn” it because they did not get a job at a company that offers EP. There is precious little support for Ocare among those who have EP and that’s why the GOP is able to undermine it and make it harder and harder for people to get and afford. Trump and company have said they want to get rid of the pre-existing mandate and let insurance companies deny coverage for the sick and older….

    Re: HSAs – are limited in how much and what they can pay for and usually require a high-deductible catastrophic policy. The policy you can buy varies in price according to age and pre-existing conditions – UNLIKE EP which the govt mandates to be not only offered to all employees regardless of age or health BUT ALSO at the SAME premium price.

    Those who say we need “free market” principles in health care – are not usually talking about EP. They want to keep EP but use the “free market” for those who don’t have EP.

    The point here is that EP is NOT the “free market” in any way , shape nor form and for that matter – neither is Ocare nor other things like HSA – as long as they require coverage for everyone without denial or higher premiums for age or health;

    My point is that whatever the Govt is going to do – or not do with regard to health insurance – it’s should be equitable to all citizens across the board – not a discriminatory system where those who have EP get protections that those without EP can’t get and tax-free/tax-advantaged benefits for EP that those without it can’t get.

    We need one set of rules for everyone – whatever protections the govt provides – everyone can get them; whatever tax advantages the govt provides – everyone can get them.

    And if the govt DOES do ANY of those things – including mandating coverage for pre-existing – it’s not the “free market” and it never will be a free market and those who argue that we need to make it more free market-LIKE so it will brings costs down or in this case not need “networks” are ignoring the tremendous impact that the govt has already on health insurance – to the degree that it’s not free market at all.

    “Networks” are not free-market. They are distortions that are introduced when the govt subsidizes health insurance.

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