Perverse Incentives Drive Patient Costs for Out-of-Network Care
April 16, 2024
The recent New York Times investigation into the practices of MultiPlan, a little-known data analytics firm that works with major health insurers to determine reimbursements for out-of-network medical claims, highlights the dangers of perverse incentives that emphasize profits over the welfare of patients.
The Times investigation revealed several alarming findings:
- Patients hit with unexpectedly large bills sometimes forgo care or cease long-term treatment while experiencing unfair appeals processes.
- MultiPlan’s recommended payments not only push back against known overbillers but can also squeeze smaller physician and ancillary practices.
- Insurers pitch MultiPlan to employers to control costs, but the fees can be onerous and unpredictable, funneling savings away from self-insured employees.
- According to MultiPlan documents made public by a federal judge, insurers can influence MultiPlan’s purportedly independent payment recommendations. That generally means paying even less to providers and making more in fees.
- Former employees at MultiPlan described a numbers-driven culture that encouraged locking in unreasonably low payments and tied their bonuses to the reductions.
- Regulators rarely intervene, and the administration of employer-funded health plans is mostly exempt from state regulations (ERISA Act of 1974). Enforcement primarily falls to an agency within the federal Department of Labor, which has one investigator for every 8,800 health plans.
Patient Victims
The story of Mary Reinbold Jerome, a woman from Yonkers, N.Y., who was diagnosed with ovarian cancer and received treatment at an out-of-network hospital, is a stark example of the real-world consequences of these practices. Despite having insurance, Jerome was billed tens of thousands of dollars for her treatment. Her complaint to the state attorney general’s office helped prompt an industrywide investigation, which found that insurers were using a subsidiary of UnitedHealth called Ingenix to lower their payments and shift costs to patients unfairly.
While the investigation led to settlements and reforms, the Times found that MultiPlan has emerged as a dominant player in the years since, using similar tactics to benefit insurers and private equity firms at the expense of patients and providers. The incentive structure is clear: the lower the reimbursement, the higher the fees for MultiPlan and the insurers.
Impact of Private Equity
The growing influence of private equity in the healthcare sector significantly contributes to prioritizing profits over patient care. Over the past decade, private equity firms have increasingly invested in healthcare organizations, including hospitals, physician practices, insurers, and ancillary services. These firms typically aim to maximize returns for their investors within a relatively short timeframe, often by implementing cost-cutting measures and leveraging economies of scale. These firms also burden their companies with massive debt that limits their ability to provide proper staffing, upgrade infrastructure, and expand essential services.
While private equity involvement can sometimes lead to increased efficiency and improved access to capital, it can also create perverse incentives that prioritize short-term financial gains over the long-term well-being of patients and the stability of healthcare providers. The MultiPlan case is just one example of how private equity-backed firms can exploit the healthcare system for profit with little regard for the consequences patients and providers face.
This profit-driven approach to healthcare reimbursements is simply unacceptable. Patients who purchase health insurance should not be burdened with excessive payments because they seek care outside the usual provider network. Charges for out-of-network care need to be strongly regulated, including a cap on out-of-pocket patient payments.
Perverse Financial Incentives
Moreover, the financial incentives for companies like MultiPlan and health insurers to artificially lower reimbursements must be removed. There should be limitations on the dollar amount these firms can obtain from the so-called “savings” generated by their practices. The current system encourages them to lowball recommended reimbursements to increase their profits, with little regard for their impact on patients and providers.
As a physician, I believe that proper patient care should always take precedence over profits. The increasing involvement of private equity firms in the healthcare sector, with their singular focus on maximizing returns, is a worrying trend that demands closer scrutiny and regulation.
It is time for policymakers to act and implement stronger regulations for companies that provide healthcare reimbursement services, especially those that are for-profit firms. The incentives are too strong for these companies to emphasize profits over patient care, and the consequences for patients and the healthcare system are too severe to ignore.
The story of Mary Reinbold Jerome and the countless other patients who have been hit with unexpected bills and forced to make difficult choices about their care should serve as a wake-up call. We must work together to create a fairer, more transparent healthcare reimbursement system that prioritizes patient well-being over corporate profits. Only then can we ensure that all patients have access to the care they need without fearing financial ruin.
Source: Insurers Reap Hidden Fees by Slashing Payments. You May Get the Bill, NY Times, April 7, 2024
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