Imagine if you bought an airline ticket to fly from San Francisco to Chicago and, after the flight, you received another, extra, bill from the co-pilot for what he claims is a fair price for his services flying the plane.  He is unsatisfied with the airline's pay, and would like you and your fellow passengers to make up the difference: Thank you very much!

Needless to say, you would be appalled.  Nevertheless, this is the situation that patients in California (and many other states) face in the hospital: the hospital itself, and some of the doctors who treat them, are contracted with their health plan, but others are not.  Patients are entirely, and reasonably, igorant of this.  Out-of-network doctors still bill the health plan, but they are not obliged to limit their fees to the contracted rate.  So, they bill patients for the balance.

Two measures seek to address this, according to today's Los Angeles Times.  The Department of Managed Health Care has just proposed regulations to stop the practice, after years of frustrating negotiations between health plans and doctors.  State Senate President pro tem Don Perata, has a bill, SB 981, that would stop the practice, but also command health plans to pay the doctors' the full rate.

Both approaches are obviously flawed.  In the first instance, as noted in the article, some doctors might choose to stop practicing in those hospitals where they do not have a contract, too, thereby reducing patient choice.  And why should they be forced into contractual terms to which they have not agreed?  In the second instance, however, the doctors are allowed to charge whatever they want, and the health plans are forced to pay.  Senator Perata probably does not understand this (few politicians do) but premium-collecting health plans don't actually pay any of the cost of health care. Only the beneficiaries pay, and our premiums will spiral out of control if SB 981 passes.

Both approaches fail to understand why this happens in health care and nowhere else: the medieval guild that is organized medicine.

First is the laws preventing so-called "corporate practice of medicine", which is actually restraint of trade with a more opaque name.  "Corporate practice of medicine", in this instance, prevents hospitals from employing doctors directly and thereby negotiating a comprehensive contract with health plans.  California has the strictest version of this type of restraint of trade, as measured in the U.S. Index of Health Ownership.

Second is this unique exemption that health care providers have from the civil code that governs all other transactions: doctors can send people bills claiming "usual and customary charges" and create a liability for the patient where there was no contract.  The first time a court tells a doctor that he is owed nothing, because there was no contract, practice will change pretty quickly!