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This is a follow-up to some discussion about surprise billing and the new federal law that’s going into effect in months. There have been many state laws that have been in development over recent years. That’s a backdrop where we’ve had this patchwork of different things going on. Now, we have a federal law coming into play. 

Determine the legal interplay

One thing to pay attention to is that the federal law strangely does reference state law, which is, it talks about usual and customary and those kinds of aspects. But if some components to the state law reference some of these things, you get this weird interplay between the two of them. That’s not so much about data as it is about interpreting laws, which is very similar in some other ways to try to solve business rules and create effectively some rule set that says, “Under this condition, do this. Under this condition, do this.”

The only problem with laws is, if it’s not always obvious, you can’t just say, “Okay! Well, what should we do that makes sense?” Suppose, it then gets kicked over to a court. Often, who adjudicates these kinds of things and sets a case law. There are some similarities in terms of interpreting those things and creating rules from them because you want to forecast and figure out what’s going to happen to your business. Adjudicating surprise bills is a big part of many healthcare business segments, whether it’s emergency or anesthesia, some aspects of radiology, and more.

About reimbursement

I didn’t want to comment on an aspect of the data and metrics used for the arbitration. Why? Well, that determines how you receive reimbursement. Once upon a time, it was usual and customary if you were out-of-network. We had some discussion about what is usual and customary and so on. I want to return to the concept origin of receiving payment. I also want to focus on how much and whether in-network, out-of-network.

The original concept of being “in-network” means that you receive a higher volume as a provider. In exchange for the contract, you also get a lower rate and a higher volume. That generally makes sense in terms of contracting in the ordinary world. I wanted to say like in the real world. Healthcare has this fantasy-like structure sometimes where you’d swear you were in a dystopian novel. So that made sense. You had a fixed rate that you charged. Thus, you took a lower rate when you took a contract because you were getting higher volumes. Further, you offered a lower price in exchange for a higher volume. Of course, all that went out the window.

Game theory

Increasingly, what happened was, providers started to, if they were out-of-network, charge higher and higher and higher fee schedules to maximize their reimbursement for a combination of reasons. Game theory is really about anticipating the movements of others and what that impact is going to be upon you. It’s kind of like plotting out logical steps and scenarios and paths. It frequently falls under the heading of economics because, financial systems manage it.

Back to providers increasingly charging higher and higher fee schedules over time for a couple of reasons. One is that payers were still paying a percentage of the fee schedule or a portion of the charge. That made sense. Another reason is if you do not receive payment entirely by the insurance company. Or, you had a more considerable amount that you could charge to the patient or negotiate or even use that as a club to work on the patient to get the insurance company to give you higher reimbursement.

What has happened is, insurance companies have increasingly paid less and less out-of-network, and providers have charged more and more out-of-network. So, the gap between them or the delta gets larger and larger. So you have these ridiculous scenarios where somebody’s charging $10,000, and the insurance company’s paying $350. That’s a massive gap.

Hit it out of the park

There’s something known as baseball-style negotiation (this comes back to that game theory), which is in the reimbursement now when you get paid out-of-network. So, if you’re going to go into arbitration, most of the time, what you want to do is, if you’re going to have to negotiate, you want to put the post as far out there as possible so that you get something that you want. If you’re going to collect $1,000, you start with $2,000 or $3,000 or $5,000 because you know you’re going to have to come down. If you want to get $1,000, you can’t start at $1,000 because you’re going to end up getting $500 or $300 or something like that.

Now that you have these scenarios, where these arbitrations are going on, that has pushed providers to go even further. In some respects, it’s forced the insurance companies to go even lower, which has caused baseball-style negotiation in introducing a negotiating tactic in arbitration. 

Choose the less extreme path of surprise billing

What that means is, the arbitrator essentially has to choose one of the suggested payments, meaning if the provider has a $10,000 fee schedule and the insurance company pays $350, the arbitrator is going to go and say, “Okay, you want $10,000, you want $350. I’m not going to pick a number in between, like 2,000. I’m going to pick one of the two. I must pick from a binary scenario where I pick one or the other.” Therefore, this has caused a fascinating scenario in game theory. You no longer want to put the revolutionary method out there because the more extreme you are, the less likely you’re going to be chosen.

Let’s say $1,000 is reasonable. If you charge $20,000 and the insurance company says $500, you’re going to get $500 because the arbitrator will pick $500. If, however, you are closer to reasonable, if reasonable is, say, $2,000, and you say you want $3,000, and the insurance company is offering $300, the arbitrator is going to select yours now. 

So it’s forcing both providers and insurers to come closer together finally, and it should further this. As this law goes into effect and all these arbitrations start to move in this direction, it should push the parties closer together, which is a brilliant tactic from a game theory standpoint. I think this is phenomenal. I’m a big fan of game theory and scenarios, things like that, and I think this is impressive.

Finally

Check out baseball-style negotiations for surprise billing and think about, “Do I still want to be charging 10 times Medicare or 20 times Medicare, or should I these days be at one and a quarter, one and a half, one and three quarters, something like that, when the insurance company is reimbursing me at a fraction of that?”