California Offers A Lesson In Why 'Medicare For All' Would Be So Difficult

Hospitals won a big round in the fight over surprise billing legislation. And it's just a hint of what they can do.

A recent legislative fight in California is a near-perfect illustration of why advocates of ambitious health care reform schemes like “Medicare for All” face such a daunting political task.

The battle was over how to protect patients from surprise medical bills when they unwittingly get care from a doctor or hospital that isn’t part of their insurance networks.

The most common sources of surprise bills include emergency rooms and ambulances, because patients with urgent medical needs frequently don’t have the time or wherewithal to find network providers. When surprise bills come from physicians, it’s frequently an anesthesiologist or radiologist who is on hospital staff but doesn’t have a contract with the patient’s insurer.

The charges frequently go into five figures, causing real hardship and even financial ruin. And there’s no good reason for it. Studies have shown repeatedly that the high prices these out-of-network providers charge are a byproduct of their unusual leverage over patients, not the actual cost of care.

“The evidence strongly suggests that these types of [providers] are already paid far above market rates,” said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy. “I do not think this is a form of leverage they should be able to have.”

For the past year, in response to blockbuster media coverage from Vox, Kaiser Health News and local outlets like the San Francisco Chronicle, both state and federal lawmakers have been trying to pass legislation to curb or end these billing practices. Among the states moving most aggressively has been California, which has strong progressive leanings and a history of using the government to make health care more accessible.

It would be difficult to think of a state better positioned to tackle this problem, just as it would be difficult to think of an industry practice more in need of government intervention. But California’s effort has now stalled, thanks to opposition from the providers of medical care.

And therein lies a cautionary tale that any would-be reformer of health care policy should hear.

What Happened In California

California already has some surprise billing legislation on the books, as well as binding court precedents that regulate certain billing practices. But those laws and decisions leave some big gaps. Some of the rules now in place don’t apply to people who have insurance through large employers. Others don’t apply to some classes of hospital emergency services.

Among those who have paid the price, literally, are patients who ended up at Zuckerberg San Francisco General, the city’s only top-tier trauma center hospital, which has not been a part of any private insurance network. An investigation by journalist Sarah Kliff, then of Vox and now of The New York Times, found the hospital was sometimes billing more than 12 times what Medicare charges for services ― and then demanding patients pay the balance when their insurers refused to do so.

One woman owed $20,000 for scans and setting of a broken arm after a bike accident; another owed $10,000 for treatment of debilitating migraines. Both had insurance; both were in no position to refuse treatment at the time they got it.

Those stories got the attention of lawmakers, who put together legislation that would take two key steps. First, it would prohibit providers from seeking those extra payments directly from patients. Then, it would instruct insurers to pay providers a set amount, based on what the providers would normally get from insurers, with an option for the providers to petition for additional payments if they thought the amount was too low.

It is the same approach California’s existing legislation takes for the limited groups of people it already covers and, broadly speaking, it is the same approach now under consideration at the federal level, where legislation to end surprise bills has slowly generated bipartisan support in both chambers of Congress. Even President Donald Trump has said he wants to do something about the problem, which means the proposals are likely to become law if they make it to his desk.

But, as the California story shows, that is a huge “if.”

Providers, especially hospitals, have gone to war over the state’s billing proposal. They insist they are all in favor of protecting patients from surprise bills. The problem, they say, is the remedy. The California bill would, in effect, force out-of-network providers to accept some form of Medicare or in-network reimbursement rates, or some blend of them. That would be less than the providers can charge now, obviously, and it would also set a precedent ― namely, allowing the government to dictate their fees.

Doctors and hospitals have a lot of clout in Sacramento, as they do in most state capitals. As Anthony Wright, executive director of the consumer advocacy group Health Access, quipped to HuffPost, “We have 450 hospitals in California and we suspect that each of those CEOs has the personal cellphone of the assembly member from the district.”

Supporters managed to get the bill through the State Assembly but two weeks ago its co-sponsors, Assemblymember David Chiu and Sen. Scott Wiener, tabled the measure (meaning they will hold it over until 2020) just as the Senate was preparing to take it up.

They didn’t mince words about why. “This bill curtails a practice that generates billions of dollars of profits for hospitals, and lobbyists and CEOs for the most profitable hospitals in California have made it abundantly clear they will protect profits over patients,” Chiu and Wiener said. “That level of moneyed opposition proved insurmountable at this time.”

What It Means For Bigger Health Care Reforms

Chiu and Wiener may succeed in their effort to pass legislation in 2020, just as sponsors of federal legislation may yet get a bill through Congress. But the warning signs for broader health care reforms are impossible to miss.

So far, the debate in the Democratic primaries over Medicare for All and various alternatives has focused mostly on whether private insurance should continue to play a role. But many of the options now under discussion, including those that would create large but optional government insurance plans, call for the government to get more directly involved in regulating payments to the health care industry.

The new approach to pricing would affect drug companies and insurers, who are unpopular and easy to attack. But the approach would also affect doctors and hospitals, who are a lot more popular and a lot harder to attack.

Medicare for All would regulate these prices directly, because the new, government-run insurance plan would insure everybody and it would simply dictate what providers get. “Medicare for America,” which would create a new government program but make enrollment voluntary for people whose employers offer coverage, would do the same thing indirectly, by limiting what doctors who are not in network can charge customers.

These kinds of controls on spending exist in every other country in the world. It’s the single biggest reason that their national health systems, regardless of whether they allow for some private insurance, allow them to spend so much less on medical care than the U.S. does.

Providers recognize this and have fought intensely to keep such controls out of the U.S. health system and that is what they are doing over surprise billing legislation. As bipartisan bills have moved through Congress, providers have pushed for amendments that would mean they could still command high prices, one way or another.

Last month, in congressional testimony, Tom Nickels, executive vice president of the American Hospital Association, said his group felt there was “no difference” between the kind of price regulation in surprising bill legislation and Medicare for All.

“In the grand scheme of things, this isn’t that big a hit to them,” said Adler. “I do think they care about the slippery slope.”

Industry doesn’t always win, of course. The existing California law, which passed in 2017, is proof of that. Wright remembers it as a “knock-down, drag-out fight” that involved both rallying the public and then making just enough compromises to win over, or at least soften, some of the opposition. It took three years, in a pattern that has played out over and over again in California.

“When we have passed legislation opposed by parts of the industry ― whether doctors, hospitals or drug companies ― it has usually taken multiple years, public education and outrage around a clear injustice in health pricing, stories of people being negatively impacted and finally getting parts of the industry to recognize a need to change,” Wright said.

It will likely take the same kind of strategy, one part energizing supporters and one part cutting deals, to pass legislation now, whether it’s as sweeping as Medicare for All or as targeted as surprising billing laws. And it will probably take some patience too.

“If I didn’t believe it was possible, I wouldn’t be doing it after 18 years,” Wright said. “But it is tough.”