Exposing the Tangled Webs of Insurance Networks

Published April 27, 2017

Nothing could be more confusing than fees charged by hospitals and doctors. There are many reasons why hospitals would like to keep it that way.

I remember sitting in a hospital staff meeting and hearing about negotiations to merge two hospitals that were about a mile apart. The argument was that bigger is better, and a merger would put the hospitals in a greater “bargaining position” to get higher fees. I remember thinking that monopolies are not a good thing for the consumers, and that competition drives prices down. But this was not about patients, who are the real consumers. It was about the ability to strong-arm higher fees from the largest payers, insurance companies and government programs. Patients were just pawns to be moved around by powerful interests. Something seemed awry in our Houses of Mercy.

One big reason that patients are paying more for medical care is Preferred Provider Organization Networks (PPOs). Patients assume that choosing an “in-network” doctor will put them in VIP status, getting higher quality and better rates. However, the opposite is often true. Physicians join PPOs to get a better payment rate—definitely more than they charge cash-paying patients. If patients have high-deductible insurance and have to pay the final bill anyway, they are guaranteed to pay more than they would have without the insurance. Some value for those high premiums!

PPOs often pay their doctors two to three times what Medicare pays, but it still looks like a significant discount on the explanation of benefits because the Chargemaster or sticker price for services is inflated astronomically.

So why would insurance companies want the premiums to go up? Easy—they get to keep more money. In a real competitive market, patients would shy away from more costly plans, but if they all seem to rise in tandem, consumer choice simply means choosing which logo should go on the insurance card. This is what happened when ObamaCare insisted on telling insurance companies what they had to cover—from mammograms to colonoscopies to sex-change operations. And since they couldn’t charge more for offering better quality, the obvious incentive was to offer less, say by excluding the best cancer centers from the network.

Then, in the name of cost savings, the Affordable Care Act created entities called “Accountable Care Organizations.” In the ACO, the payment comes in at the top and trickles down to patient care. Theoretically, when there are cost savings, everyone in the ACO shares, but who knows if that really happens? Who decides where the costs savings lie? And if too much is spent, doctors get paid less.

Hospitals have been buying physician practices largely because of an odd quirk in the Medicare and Medicaid programs. For some reason, hospitals can get triple or quadruple the amount for the services of the same doctor in the exact same location than the doctor would get by billing Medicare directly. So when the doctor sells his practice to the hospital, the hospital and he can actually earn more. But patients may get less, and Medicare will reach insolvency sooner.

Physicians in insurance networks are monitored to see that they only refer to other in-network physicians. Referring out is called “leakage.” So a referring physician must ask himself: “Do I refer to the physician with the most experience and expertise, or to someone I might not even know as long as he is on the list?”

In this convoluted system, half of all “health care workers” are administrators, and hospital executives command multi-million dollar salaries. Medicaid consumes one-third to one-half of the average State budget.

“What a tangled web we weave, when first we practice to deceive.” Never has that famous Walter Scott quote been more true than when it comes to medical pricing.

Health Insurance Networks are the problem, not the solution. They create complexity while obscuring the money trail. The best way for a patient to escape this healthcare swamp is to find a local independent physician who is in no networks and who will charge a reasonable fee, directing you to pharmacies, labs, and radiology groups that will do the same.

And no, single payer health care would NOT be better.