Unbalanced Billing in California: No Easy Answer

One area of health care where hospitals and doctors face off against health plans, without any satisfactory resolution, is providers’ “balance billing” patients who present at out-of-network emergency rooms. Because the hospital is not in the patient’s health plans’ network, the hospital and/or ER doctor stick the patient with a huge bill, for which the health plan only partially pays. I wrote about this a couple of months ago, pointing out that is a specific case of the more general malformation of American hospital prices.

But it still keeps ticking along, fueling needless hostility. Not surprisingly, the health plans want it banned, and the hospitals and physicians want it allowed. Although Gov. Schwarzenegger ordered a ban in July 2006, the state regulatory agency has not yet imposed effective regulations. That’s about to change: the regulator is fed up with the two sides’ failure to compromise, and has decided simply to ban the practice.

All in all, I lean more towards the health plans on this one. After all, you can’t just allow hospitals and doctors to make up whatever fees they want to charge a patient in an emergency situation. If the regulator forbad health plans from discounting out-of-network claims, it would reduce the incentive for any hospital to include its ER in any health plan’s network.

On the other hand, an emergent patient cannot always get to an in-network ER, and the providers do deserve to get paid, while the emergent patient is in no shape to determine what price he is prepared to pay.

So, it seems we are in a Catch-22: the law must allow either the health plan, or the providers, or the regulator itself to fix prices, and we are stuck with market failure.

Or are we? How about this for an answer: binding arbitration, which has been used successfully in labor-management disputes. The interested parties could agree to appoint panels of independent, expert, arbitrators who give straight and simple up or down votes on out-of-network ER claims.

I anticipate that the prices would end up being pretty close to “market clearing” prices very quickly, and it would minimize the interference of the state regulator.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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