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Physicians Sue California Over ‘Unconstitutional’ Price-Capping Law

December 13, 2016

The law will cap prices for medical providers at insurer network rates even if they are not part of insurer networks.

The medical-provider freedom advocacy group Association of American Physicians and Surgeons (AAPS) is suing California for allegedly violating the state’s constitution and U.S. Constitution by creating a law capping the reimbursement rates out-of-network providers may charge health insurers.

The law essentially requires providers to accept payment rates set by insurance companies with which they don’t have contracts. It caps reimbursement amounts health insurers must pay out-of-network providers who serve patients at in-network facilities.

Prices will be capped at whichever is greater: the average rate in-network providers in the region charge for the same or similar services or 125 percent of what Medicare pays for such services.

The legislation, Assembly Bill 72, was passed almost unanimously by the state legislature and signed into law on September 23, 2016, by Gov. Jerry Brown (D) with an effective date of July 1, 2017.

During the legislative process, the bill earned endorsements from several labor unions and large insurance companies, such as Anthem Blue Cross and Blue Shield of California, Courthouse News Service reported in October 2016.

AAPS filed a complaint against the law in a federal court in California on October 13, 2016, stating the law “violates the U.S. and California Constitutions in at least three ways.”

Multiple Counts of Unconstitutionality

The complaint states AB 72 deprives physicians of due process of law by binding them to contracts to which they have not agreed and requiring them to settle disputes over prices by arbitration instead of in court.

The complaint also says the law violates the Takings Clause in the California and U.S. Constitutions by letting insurers deprive physicians of just compensation for their services.

In addition, AB 72 violates each constitution’s Equal Protection Clause by causing a “disparate impact on minority patients,” as the price caps drive doctors to “withdraw services from predominantly minority communities,” the complaint states.

Accuses Wage, Price Fixing

Andy Schlafly, general counsel for AAPS, says the law unfairly fixes wages and forces physicians to abide by contracts without their consent.

“Our lawsuit sets forth strong constitutional arguments against AB 72 and against attempts by private health insurance companies to be granted power by the state to impose wage and price controls on the market,” Schlafly said. “Health insurance companies should not be authorized to set reimbursement rates for physicians who are not under contract with the insurance companies.”

The law will reduce patient access to providers, Schlafly says.

“AB 72 is bad public policy in addition to being unconstitutional.” Schlafly said. “This new law will adversely affect the ability of patients to obtain care.”

Capping out-of-network providers’ rates will reduce their ability to serve California’s neediest patients pro bono, Schlafly says.

“This new law will cause shortages in the availability of medical care, particularly in areas that depend heavily on charity care,” Schlafly said. “Physicians will no longer be able to afford to provide charity care as health insurance companies drive down reimbursement rates for insured patients.”

‘Crony Capitalism’

Dr. Gerard Gianoli, an AAPS member and president of the Ear and Balance Institute in Covington, Louisiana, says insurers backed AB 72 to enable them to profit at providers’ expense.

“California’s Assembly Bill 72 represents the worst form of crony capitalism, by instituting price controls set by a private corporation with every incentive to drive out of business the very people they will be setting prices for,” Gianoli said. “Not only does this bill impose price controls on small, independent physicians, it sets the large private insurance companies as the czars who set the prices.”

The law is a gimmick to eliminate out-of-network providers from the market, leaving only providers in the insurance company’s network, Gianoli says.

“The insurance companies have used the government, via lobbyists, as a wedge to limit patients’ options outside of their plan,” Gianoli said. “AB 72 gives the private insurance companies the leverage to essentially force private doctors to sign up with the insurance plans or drive them out of business.”

No Transparency Requirement

The law does nothing to increase patients’ awareness of the cost of their medical care, Gianoli says.

“In typical government fashion, rather than demand price transparency of all caregivers so that prices can be agreed upon by patient and provider in advance, the California state government has preserved a system where charges are still hidden from patients until months after the fact,” Gianoli said.

Insurers guided lawmakers into a ploy to keep medical costs high and largely hidden, Gianoli says.

“It would have been simpler to pass a law demanding caregivers post prices in advance to avert surprise bills, but I suspect this would not have been acceptable to the insurance companies, who can still preserve the secrecy of their reimbursement schemes,” Gianoli said.

‘Medical Liberties Squelched’

A blunt instrument to prevent surprise medical bills, AB 72 will limit patients’ choice of providers, Gianoli says.

“In order to stop the rare event of the surprise bill when a patient uses an out-of-network provider in an emergency situation, the California state government will destroy the option for California patients to use out-of-network doctors for the other 99 percent of the time when there is no surprise bill,” Gianoli said.

Eliminating out-of-network providers will enrich insurers by entrapping patients, Gianoli says.

“While this will be met with great cheer by the insurance companies, the California citizenry has just seen their medical liberties squelched,” Gianoli said.

Michael McGrady (mcgrady@mcgradypolicyresearch.org) writes from Colorado Springs, Colorado.

Internet Info:

Matthew Glans, “Health Care Price Transparency,” Research & Commentary, The Heartland Institute, March 11, 2016: https://www.heartland.org/publications-resources/publications/research--commentary-health-care-price-transparency

Image via Thinkstock

Article Tags
Health Care Law
Author
Michael McGrady writes from Colorado Springs, Colorado.
mmcgrady@uccs.edu