Insurance companies as countervailing forces

The Incidental Economist’s Nicholas Bagley has a good set of comments on the New York Times great article on drive-by doctoring for massive out of network charges. First he looks at the current legal dynamics of contracts of adhesion for individuals and providers.  There is probably a theoretical course of corrective action for massive billing objections, the practical course of action is that it is usually cheaper for the individual to get extorted.

One of those terms is typically that the patient agrees to pay for all medically necessary care in connection with her treatment….As with any take-it-or-leave-it contract full of boilerplate terms—what’s called a “contract of adhesion”—the courts won’t enforce a treatment contract to the extent that it deviates from a signer’s reasonable expectations…just imagine how hard it would be to win such a case. The plaintiff would have to prove either that it wasn’t medically necessary to call in the drive-by physician or that the physician’s fees were so out of line as to be unreasonable. That, in turn, would require expert testimony and intensive discovery—and all for the unlikely prospect, after a delay of several years, of convincing a judge to supersede a physician’s professional judgment.

Doctors are one of the two or three most trusted professions in the country. Lawyers are slightly more popular than cockroaches and Congress. A doctor saying that his smart, intelligent colleague Dr. Smith was the BEST CHOICE at $100,000 for an afternoon’s worth of work for Mr. Doe’s surgery will sway far more juries than lawyers and experts arguing over what is appropriate care.   This is especially true when any claim that reaches the court room is a one-off event without vast statistical profiling.

Now the alternative as Mr. Bagley advances is for laws like New York’s reasonable expectations law:

New York’s law puts insurers on the hook for covering the patient’s out-of-network charges, which are then passed along to the rest of us in the form of inflated premiums. Disputes between insurers and out-of-network providers will be resolved in arbitration, and let’s hope that arbitrators won’t let providers get away with charging exorbitant fees. It’s possible, however, that New York’s law will just shift the costs of drive-by doctoring from patients to insurers.

I think this type of law is far more likely to reduce drive by assistant doctoring than individual litigation for a very simple reason. I know my company’s legal department. They are absolute assholes at softball. They also enjoy big, complex, multi-year litigation. They have spent twice as much on a case than they recovered/avoided in pay-outs to make a point. A suit to avoid outrageous charges is right up their alley.

In a Galbraithian sense, an insurance company acts as a countervailing pressure against concentrated medical power and the legal department is the sledgehammer in this function. An insurance company can look at statistical measures of patient quality and outcomes and show that keeping care in network at reasonable rates is no worse or significantly better than getting an out of network assistant surgeon. They can engage in extensive pre-trial discovery. More importantly, they can kick out of the networks abusers of assistant surgeon/drive by doctor assignments. It won’t stop it, but it will trim the outliers.

15 replies
  1. 1
    CONGRATULATIONS! says:

    My profession requires not infrequent contact and work with lawyers. You slander cockroaches.

    And it floors me that companies which supposedly put profit uber alles would pay a legal department to cost them money and not insignificant amounts, either, and somehow that expense is 100% OK, but paying a tenth of that amount spent on legal bills for better salaries or health insurance is a dreadful burden to be avoided at all costs.

  2. 2
    cmorenc says:

    @Richard Mayhew:

    I know my company’s legal department. They are absolute assholes at softball.

    You should try to play the board game “Monopoly” with a bunch of lawyers, especially young lawyers still trying to show off their chops at being shrewd cutthroats at striking deals that fuck other people over.

  3. 3
    Richard Mayhew says:

    @cmorenc: Try refereeing the local bar association soccer league…

    It took them about a year to realize that I was prosecutor, defense counsel, probabtion officer, cop, judge, bailiff and court reporter. Once that understanding was gained and shared among all relevant parties, we’re in good shape now.

  4. 4
    NonyNony says:

    @cmorenc:

    Holy crap – I think you’ve just described one of the Circles of Hell.

  5. 5
    NonyNony says:

    @CONGRATULATIONS!:

    And it floors me that companies which supposedly put profit uber alles would pay a legal department to cost them money and not insignificant amounts, either, and somehow that expense is 100% OK, but paying a tenth of that amount spent on legal bills for better salaries or health insurance is a dreadful burden to be avoided at all costs.

    A million dollar legal case that saves you $10 million in the long run is a sound investment. Make an example of a few doctors and show them as a class that they aren’t going to get away with referring people to buddies who charge too much for out-of-network procedures and you stand to save a lot of money down the road in the long run.

    On the other hand – paying out more money to employees nets you no obvious benefits that can be explained to your typical Chief Executive type. So it just looks like money flushed down the toilet to them.

  6. 6
    grape_crush says:

    Doctors are one of the two or three most trusted professions in the country.

    As a person with family member who works in close proximity to doctors, I’m not one of those trusting people. For the most part, I trust them when it comes to them doing their actual job of practicing medicine. Not so much when it comes to running a business.

    It’s the strong tendency towards having a large ego, see…same thing that drives (some of) them to be good at their job is the same thing that drives (some of) them to maximize their profits.

  7. 7
    CONGRATULATIONS! says:

    A million dollar legal case that saves you $10 million in the long run is a sound investment.

    @NonyNony: True, but that’s not the kind of case Mr. Mayhew or I are talking about. I frequently see just the opposite – a ten million dollar case that nets about a half-million in settlement. And I see that shit all the time. Just corporate dick-swinging is all it is. It is literally a drain on the bottom line and can’t be justified by any economic means, but somehow cases with this cost/reward ration get brought all the damn time.

  8. 8
    NonyNony says:

    @CONGRATULATIONS!:

    But again – don’t confuse the final settlement with the “message sent” to other people. That’s usually what those kinds of lawsuits are about – trying to “make an example” of a few people so that other people don’t try the same thing.

    But I will agree – there is also a LOT of corporate dick-swinging ego involved in a number of stupid lawsuits that companies bring against each other.

    ETA: To make an analogy – it’s like when some petty criminal owes a debt to the mob boss that he isn’t paying. The mob boss might well just have the guy whacked and thrown in the river to “send a message” to the other guys who owe him money. Sure it means that he’ll never get that money back from the guy he had whacked, but it makes it more likely that nobody else will try to screw him. Same principle, except when you do it with lawyers instead of crowbars it’s all legal-like.

  9. 9
    jl says:

    @NonyNony: I agree with you. Corporate money suits are very aware and attentive to expected costs of litigation, and use past settlements to model the risks that they will face something similar. I think it is an important factor in patent law, why patent holders try to set up patent thickets and are willing to go to court to set examples. It plays an important role in threshold pricing by patent holders.

    Edit: though the ex-mobster loan shark enforcer in the old Daily Show said knee capping or a mild maiming by throwing down the stairs was a better way to set an example. The deadbeat was still alive and able to pay the bill and people could see him limping down the street on a regular basis.

  10. 10
    C.V. Danes says:

    This is just a part of the game of monetizing illness. We’re not patients. We’re profit centers.

  11. 11
    StringOnAStick says:

    @grape_crush: The same is true of dentists. I’ve temped in dental offices for years, and some of the money grubbing crap I’ve seen is beyond outrageous.

  12. 12
    docg says:

    Physicians insurance contracts should be the same as I had as a mental health private practitoner: You take just what the insurance company pays. No co-pays, no added charges. Period. When you make a deal with the devil, don’t expect angels to save you.

  13. 13
    mclaren says:

    After explaining exactly why the ACA doesn’t work, Mayhew once again lies to us to claim that some external fix (in this case, a new law, which presumably must be passed by every state separately, then enforced by every state separately, assuming it’s possible for states to overcome the massive lobbying by wealthy doctors and hospitals and medical devicemakers and imaging clinics) will repair the fatally broken ACA.

    The ACA doesn’t work and can’t work because the ACA contains no cost controls built in.

    It’s hilarious and wildly ironic that Mayhew yaps about the “underpants gnomes” method of doing things in his next article, when the entire ACA represents a perfect example of the fallacy of the “underpants gnome” theory of cost control in American health care.

    The underpants gnome method of cost control in U.S. health is:

    [1] Pass a vague insanely complex piece of legislation that forces sick people to pay for private for-profit health insurance;

    [2] ?????

    [3] Health care reform!

    Obviously that’s not going to work. A six-year-old child could see that it’s not going to work. No matter how many provisos and bureaucratic rules and nitpicking requirements you tack onto your excessively complex legislation, doctors (who aren’t stupid) will always just figure some end run around those provisos and rules and nitpicking minutia.

  14. 14
    Fred Fnord says:

    @mclaren: You know, all we see when you post is ‘blah blah blah I hate the people whose lives have already been saved by Obamacare and I wish they would all die blah blah blah’.

    Anyway.

    The ‘drive-by’ approach is really annoying: I found myself taken to the ER and admitted to the hospital a few months ago, and although the hospital and ER were in-network, the physicians’ group that they used as hospitallers or rounds physicians or whatever they’re called were not, and they didn’t inform me of this. Bam, another $1000 in fees. And even if I weren’t under the influence of morphine for most of my visit it would not have occurred to me to ask if the doctor was out-of-network, and I wouldn’t have known what to do if I did find out: refuse to see him? Try to get them to move me to another hospital?

    Their response when I called in about it was “yes, that’s a real shame, please pay up and shut up”. But when I appealed, they screwed up and thought that the doctor bills in question were from the ER, and therefore required to be paid, and they paid them. So I only got covered because of a mistake.

    Oh, Anthem, you are such a class act.

  15. 15
    Richard Mayhew says:

    @mclaren: Ok, please explain why healthcare costs as a portion of GDP have stabilized, please explain why healthcare costs per capita for Medicaid and Medicare recipients have stabilized once adjusted for case mix. Your theory that a complex law can’t control costs is having issues running into reality.

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