California surprise billing law takes spotlight in federal fight

In the battle over what Congress should do to end surprise medical bills, both sides of the debate are pointing to California’s experience—and drawing different conclusions.

A law enacted in September 2016 put a cap on out-of-network charges, tied either to the median in-network contracted rates with insurers or 125% of Medicare—whichever is higher. Two major congressional health committees have approved a similar measure to protect people with employer insurance, except that they excluded any Medicare reference rate.

Analysts say the California law is too new to draw firm conclusions on its impact, but that hasn’t stopped rival camps from trying.

The California Medical Association targeted Anthem, the state’s largest insurer outside of the Kaiser system, arguing that insurers are now making contract negotiations harder with a “take it or leave it” attitude.

“Most of these physicians will no longer be able to contract under these unfair terms,” the CMA said, claiming that this year, unlike prior years, Anthem veered from “relatively minor” changes in the fee schedule payments and deeply slashed rates for some hospital-based physicians.

“This is a direct result of California’s surprise billing law because this insurer has never imposed such large payment reductions and to hospital-based physicians who are largely the target of the surprise billing law,” the CMA said.

The group claimed its members reported significant cuts in specialty services: 20% for obstetric gynecology, 45% for anesthesiology for women’s labor and delivery epidurals, 19% for radiology, and 20% to 50% for pathologists.

“If these hospital-based physicians cannot afford to absorb these substantial payment cuts from their largest payer they will be forced out of the insurance company’s network,” the CMA said.

But Michael Bowman, a spokesperson for Anthem in California, disputed this, saying that the fee schedule changes did not touch California anesthesiologists or OBGYNs. He also said the rate adjustments had nothing to do with the surprise billing legislation and that they applied to “just three large metro areas to reflect changes in these local markets.”

Anthem also increased rates for many others, including behavioral health and primary care, he added. The CMA did not respond by deadline to a request for more details on the data.

The California Department of Insurance declined to confirm either claim, citing the confidentiality of private insurance rates.

In a letter to the Senate health committee, the CMA also blasted California’s dispute resolution process, which isn’t mandatory for emergency services. Specialty physician groups have all asked for the “baseball” style arbitration process established in New York.

The CMA said the last non-emergency payment dispute took six months and the judge didn’t address the physician’s documentation. The association also questioned the insurer’s proprietary database used to determine the in-network rates.

“The database is a nontransparent black box controlled by the insurance company and there is no independent verification of the rates,” the CMA alleged.

On the question about networks, California Hospital Association has heard anecdotally that they are narrowing, and that anesthesiologists in particular have had difficulty contracting with insurers since implementation of the state law. But Jan Emerson-Shea, vice president of external affairs for CHA, said the association didn’t have specific data yet to show this.

Blue Shield of California, on the other hand, said its number of in-network physicians actually rose by 5%, and that in-network doctors for acute-care hospitals increased by 6%. The number of unique anesthesiologists in Blue Shield contracts increased nearly 7%.

An analysis provided by Blue Shield, compiled by the insurer from its contracted physicians and hospitals, showed that the top billed codes for radiology rose on average by 7%; by 3.2% for pathology and by 4% for anesthesia.

Modern Healthcare could not independently verify these numbers.

Then there are the studies.

Rand Corp. in early August published analysis in the American Journal of Managed Care after interviews with 28 stakeholders conducted six to 12 months after the law’s implementation.

Using the insurer-reported rate as the out-of-network standard has “incentivized payers to lower or cancel contracts” higher than that standard, the study’s analyst wrote.

“One hospital-based interviewee expressed fear that over time ‘health plans could selectively terminate hospital-based physician contracts for those receiving the higher reimbursement level … bringing the average rate down’,” the analyst added.

In interviews, specialty physicians like anesthesiologists complained of “unprecedented decreases” in the rates insurers offered them. The analyst suggested that to mitigate this trend, the California insurance department could step in and use historical rates to calculate the benchmark rate.

Yet for economists who support using a benchmark, Rand’s analysis didn’t come as a surprise or prove harm in the benchmark.

“It was just highlighting how it changed negotiating dynamics for a few practices, which makes sense if those practices were ones getting paid above-average rates before the California law,” said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy. “For these few anecdotal cases, it doesn’t even specify whether a new contract at lower rates was agreed to (my assumption) or the practice actually went out-of-network.”

America’s Health Insurance Plans also published a recent survey using its own data from California plans: numbers were reported by 11 insurers that cover 96% of people in the state’s fully insured commercial market—excluding the Kaiser Permanente insurance and hospital system. Again, the rates could not be independently verified.

According to AHIP, the overall number of in-network physicians went up by 16% from 2017 to 2019. Specialty physician contract rates all rose too, although the rate of contracts with pathologists went up just 1%.

AHIP also said the contracting rate for emergency doctors and general surgeons went up by 10%, 18% for anesthesiology and 26% for diagnostic radiology.

Adler is one of the experts who thinks it’s too soon to draw decisive conclusions for the data. However, he said, given California’s benchmark he expects average contracted rates won’t change much, while some previously lower-paid groups could get increases and the higher-paid some cuts.

This is the effect leading congressional proponents of the surprise billing legislation hope to see with their federal legislation.

“Obviously, the debate is over money so—like what’s new around here?” House Energy and Commerce health subcommittee Chair Anna Eshoo (D-Calif.) said on July 17, when the panel approved its benchmark proposal with a limited arbitration option. “So, as I’ve said previously, if doctors are charging inflated rates, then they’re going to come down. If insurers aren’t negotiating with doctors fairly, now we have a hammer to bring them to the table. If insurers save money from our bill, we’re tracking those savings to make sure they’re passed on to patients in the form of lower premiums. I think the real winners in this are who we intended it to be and that’s the patients.”