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Happy Thanksgiving from DocSpot!

We're grateful for new partnerships this year and for new colleagues.

Kaiser Health News reported on some backlash against legislation passed last December against surprise medical bills. The legislation protected patients from unexpected bills, and left unresolved disputes between insurers and providers to be resolved by arbitration. It appears that Health and Human Services (HHS) recently released guidance on how arbitration would work, and many providers are unhappy. Apparently, the starting figure that might anchor the discussion is "the median rate the insurer pays in-network providers for similar services in the area." Although physicians can point out factors that might raise the arbitrated amount, the starting number seems to be what insurers would want in their ideal world: in-network prices. If out-of-network prices are essentially equivalent to in-network prices, insurers have much less incentive to offer higher prices to attract providers to join its networks. Not only that, insurers have an even stronger incentive to lower the amounts offered to its network, since that would affect both in-network and out-of-network prices.

A couple of ideas that probably would have been more fair would be to either require insurers to sign up some large percentage of relevant providers in the area (e.g. 50%) or to use median prices across all insurer-provider combinations in the area. Both of these approaches would suffer some distortions if one side had too much market power in the area. For example, if a provider group had 60% of the relevant providers in that area, they could almost dictate whatever price they want. Inversely, if an insurer sold 80% of the relevant policies in that area, they could dictate fairly low prices. Getting health pricing policy right can be difficult.

Kaiser Health News published an article about a researcher finding that private companies are charging Medicare Advantage too much. Medicare Advantage is an innovation that The Centers for Medicare & Medicaid Services (CMS) has been trying out where it pays private insurance companies to insure the care of individuals. In theory, if the private insurers manage the cost of individuals' care more efficiently than Medicare, the private insurers can keep the savings. However, if the private insurers are less efficient, they could lose money. However, some patients are sicker than others, and will therefore need more services. CMS tries to adjust for this by allowing the private insurers to report a risk score, which affects the reimbursement for such patients. Although CMS spells out guidelines for calculating the risk score, the researcher featured in the article believes that private insurers are reporting patients to be sicker than they actually are, costing CMS more than $106 billion from 2010 through 2019.

It's not difficult to imagine that allowing the private insurers to determine the patient risk score is a recipe for higher risk scores (given that the private insurers will get paid more). CMS apparently handles this through audits, but perhaps the frequency and magnitude of the audits are not adequate. It seems like CMS should also be able to study patients that have left Medicare and joined Medicare Advantage to see if a disproportionate number of them end up with a higher risk score compared to patients that have remained on Medicare.

In any case, it seems beneficial for society that CMS has released the relevant data. It remains to be seen whether this research will prompt meaningful change.

Kaiser Health News reported some general statistics about Medicare's Hospital Readmissions Reductions Program (HRRP), which was a program meant to curb unnecessary hospital readmissions by collecting statistics and rewarding top performers while penalizing underperforming hospitals. Hospitals could lose up to a maximum of 3% of their Medicare reimbursements, which can be rather significant given that the typical hospital operates on thin margins. Some good news is that hospital readmissions have declined over the years.

One figure that sounds rather alarming is that 1,288 hospitals out of the eligible 3,139 hospitals have been punished each of the 10 years of the program. In other words, 41% of the eligible hospitals in this program have never changed their processes enough to avoid the penalty. The high percentage raises the question as to whether the financial penalties should be stronger, or whether some hospitals could benefit from new leadership, or potentially, whether there is something wrong with the rating criteria.

Kaiser Health News published an article where the author detailed her experiences with health care in two different states. In Maryland, the cost of her consultation with a specialist was between $350 to $400 while the same type of appointment in New York was $1,775 (about four times as much). The article recounted some of the author's research into the discrepancy.

The background that the article provided is that Maryland set rates for various procedures in the 1970's, and appears to have contained costs better than other states. Apparently, the reimbursement scheme has given hospitals added incentives to encourage active management of patient health so that fewer patients end up in the hospital.

The article also commented that this type of reimbursement structure would be difficult to pull off in other states, in part because of the strong financial position of various hospitals. When Maryland implemented its system, it seems that hospitals experienced a feast-or-famine environment, leading hospitals to be willing to give up some upside gain in exchange for some guaranteed payments. Now, provider networks in other states that do very well financially and can withstand a large degree of uncertainty have much less incentive to limit their downside risk. Increases in health insurance premiums continue to outpace inflation, and at some point, it seems like something will change -- it's just unclear when and how.