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Have you ever wondered about the bill you get from the doctor’s office? Why did that visit just cost $135.75? And why is my insurance only paying $89.45? But the bill says the fee is “contractually reduced” to $110.91, so I only have to pay $21.46. But then I paid a $20 copay, so now I only owe $1.46. Seems like I you got a great deal, huh?

Isn’t this American healthcare system wonderful?

The providers are free to set their charges wherever they choose. It’s a free marketplace. But if providers want to work with insurance companies, they have to negotiate the “contractual” allowable rate with that insurance company, thus the reduced rate. The insurance company is fighting for you, aren’t they? But the more they pay to providers, and the more they collect in premiums, the more they grow their company. But the lower their rates, the more people sign up with them. Keep in mind, it’s usually an employer who makes the decision which insurance company to contract with for their employees. It’s not a simple marketplace.

About half the insured lives in Idaho have government insurance, either Medicare or Medicaid. The rates they pay to providers isn’t really negotiated. Medicare sets their rates annually through a very complex process that does accept input from doctors and hospitals. Then providers can either decide to “participate” with Medicare and accept their reduced “allowable” charges, and then whatever payments are offered. Providers face the difficult choice: participate and accept the reduced rate or try to collect on your own from the patient.

Idaho Medicaid bases most of what they pay on Medicare rates. But many Medicaid services (obstetrics, newborn care) have no Medicare rates. So, then Idaho Medicaid has to set its own rates. And it turns out they are not doing this very well.

I respect any legislator that asks a difficult question publicly. Most of the time I tried to do this in private, not wanting to embarrass state agencies. But Senator Abby Lee asked this question, and the painful answer is available for you to read. She got the Office of Performance Evaluation (OPE) to answer: “How does Idaho Medicaid set its provider rates?” You can read the study. It’s public, without a FOIA request on the legislative website under “performance evaluations”.

Like all OPE studies, it’s fair and honest. It’s a testament to the Idaho legislature that they keep this painfully candid group around and ask for their input. Honestly, much of the recommendations they provide go unheeded. But the legislature hasn’t abolished their input, though they could with the stroke of a JFAC budget.

The Idaho Medicaid budget has been pared to bare bones over the last twenty years. It turns out there is almost no capacity in this organization to analyze and alter payments based on some meaningful rationale. The Division of Medicaid has consistently asked for the smallest budget it could afford, and the legislature has often undercut their requests.

I will admit to some responsibility in this. Some ten years ago I helped write the DHW and Medicaid budgets when I served on JFAC. I cut them to the bones. Maybe this was short sighted. I don’t remember any requests for an analysis of rates. Maybe they knew my knife was sharp.

But setting rates can influence behavior, and that’s how we can change some of our costly practices.

I remember when a Washington insurance company said they would pay the same for obstetric care whether the baby was born vaginally or by C-section. They wanted no financial incentive to the doctor to give up on a natural delivery and take the woman to the operating room.

Thank you to Senator Lee for asking this question. I hope my acknowledgement (from an Idaho Democrat) doesn’t hurt you in your Republican Primary.

We can all do better. Let us do so.

About ddxdx

A Family physician, former county coroner and former Idaho State Senator
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