This is the second blog of our Surprise Billing Series. This article will look at California’s Assembly Bill No. 72 which added sections to the California Health and Safety Code and to the California Insurance Code. This bill was one of the first to limit surprise billing and mandate a minimum re-payment amount from insurers for affected out-of-network services and as such has served as a case study for surprise billing legislation.
On September 23, 2016, the California Legislature passed Assembly Bill 72 (“the Law”). The Law applies to Health Care Service Plans regulated by the California Department of Managed Health Care (“DMHC”) and health insurers regulated by the California Department of Insurance (“CDI”) who have issued, amended, or renewed plans or policies after July 1, 2017. The Law has allowed other states across the US, as well as the Federal government, to observe how a change in handling surprise billing could affect patients and health care providers.
California focused on reimbursement guidelines and only imposed surprise bill restrictions on out-of-network individual health professionals. The Law applies to surprise bills for “covered services from a contracting health facility at which, or as a result of which, the enrollee receives services provided by a noncontracting individual health professional.”
The Law established a unique approach to the reimbursement rate for surprise bills. The Law requires plans and insurers to reimburse medical care providers the greater of the average contracted rate for that service, or 125 percent of the Medicare payment for the same service in that geographic region. The Law required each Health Plan or insurer in California to provide to DMHC or CDI the average contract rate they plan to use and data on the average contracted rates for services delivered by out-of-network individual health professionals at in-network facilities. The Law also requires Health Plans and insurers in California to limit beneficiary cost exposure for surprise bills to the copay, coinsurance, and deductible amounts provided for in-network providers. This beneficiary protection places the obligation to resolve any disagreement on a reimbursement amount for surprise bills firmly on the providers, plans, and insurers.
For out-of-network medical providers who used to benefit from surprise billing or who would gain leverage in negotiations with insurers from the ability to do so, it was theorized that this payment standard approach would decrease the value of being out-of-network, which would eventually lead to increased network participation. America’s Health Insurance Plans (“AHIP”) released analysis of the Law in August 2019 stating that there has in fact been an increase in the number of physicians in commercial insurance networks. AHIP’s report showed an average of 16% increase in the number of in-network physicians across all specialties, and varying amounts of increase from hospital-based specialists—the providers most impacted by the state’s surprise billing policy. The increase of in-network physicians doesn’t necessarily mean an increase in access to care if these physicians only practice part-time or are not practicing in rural and underserved areas where patients in the Health Plans are living.
Some have been pleased with these results, while others have not. The California Medical Association (“CMA”) recently published a public letter urging federal lawmakers who are considering a similar surprise billing law to avoid California’s payment standard approach. CMA claims that the Law resulted in narrower networks and adversely affects patients’ access to in-network care, stating: “Under California’s surprise billing law (AB 72, 2017), insurance company physician networks are diminishing, patient access to in-network physicians is declining, patient access to emergency physicians and on-call physician specialists is in jeopardy, patient deductibles for out-of-network care are increasing, and patient complaints about access to care have increased by almost 50%.” However, the CMA did not provide any empirical research to support these claims.
Even in the limited amount of time that experts have had to analyze the effects of the Law, it does seem to successfully protect patients from surprise medical bills. It also appears that setting an out-of-network payment standard based on average commercial rates has altered the dynamic between physicians and payers. Payers seem to have been given the upper hand as they have an incentive to lower or cancel contracts with providers whose rates are higher than the average rate payers are required to pay by the Law in attempts to keep OON prices down. It will take more time before the picture becomes clearer, but these changes seem to indicate that decreased leverage for physicians will lead to further provider consolidation. As more states and the federal government begin to consider a change to their surprise billing laws, as will be discussed in the final blog in this series, California will continue to be a case study for the positive and negative effects of this type of legislation on the health care market.