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The Medical Cost Reduction Act of 2017

Yves here. This October post from the site New Laws for America hasn’t gotten the attention it deserves. Fighting forsingle payer should not preclude advocating other ideas for bringing the medical- industrial complex to heel; in fact, they should be seen as complementary. Forcing the health care rentiers to fight a multi-front war has higher odds of success than relying on one option.

Due to the length of the post, author Bob Hertz didn’t unpack some of his ideas fully. For instance, he calls for the creation of “Health Courts” which appear to be modeled on small claims courts. Hertz says, “….he patient will notneed an attorney.” In fact, as most readers know, parties to a suit can plead their own case in court, but judges take a dim view of that. Presumably what Hertz meant was that judges would expect most plaintiffs to be representing themselves and therefore procedure would be less strict than in most courts. Similarly, he calls for a national fee schedule for emergency procedures. One would presumably need some sort of local cost adjustment.

By Bob Hertz. Originally published at New Laws for America FOUR NEW LAWS TO MAKE HEALTH CARE CHEAPER

Law #1 – Establish A National Fee Schedule for Emergency Procedures For unscheduled hospital admissions and surgeries, patients cannot realistically “consent” to provider charges.

The documents that patients must sign to “pay whatever is charged” or to “ pay whatever your insurance does notcover” are what legal scholars call ‘procedurally unconscionable.’ The patient must agree to the terms of the providers. The only way to receive desperately-needed care is to accept whatever charges are assessed. The patient is simply assumed to have provided informed consent to any procedure, and to any fee from any provider. This is not normal commercial practice…..instead it is naked force. And it must change,with the following new rules:

• In emergencies, the charges to an uninsured or ‘out of-network’ patient must not exceed 150% of the lowestbasic charge in the Medicare fee schedule. (i.e., no upcoding) • Hospitals can no longer use their “chargemaster” rates to bill the uninsured.

• Doctors called in for emergencies cannot charge 800% of Medicare, as they often do today.

Any provider who tries to bill above the allowed rates, for patients who are clearly unable to provide informed consent, will be considered guilty of consumer fraud. Not only will their bills be uncollectible, they could be charged criminallyin the most egregious cases.

For a long time now, the operating principle in health care has been “the more you bill, the more you make.” We want anew system where a provider can be harmed by raising prices.


Hospitals can keep their chargemasters for insurance negotiations, or to collect on Medicare ‘outliers”

– but no patient can be billed that way ever again. Connecticut has largely imposed this rule for the uninsured, but that isone small state in a very large nation. Hospitals will claim mightily that they cannot get along on the Medicare fee schedule, or close to it . . . But frankly, manyAmerican hospitals are overbuilt, over-staffed, over-equipped and overpaid.

However, safety-net hospitals should still receive federal aid for emergency care. The emergency room is in part a publicservice, i.e. part of our infrastructure – and taxpayer funding must play a role.

For example, EMTALA regulations require hospitals to stabilize any patient, regardless of payment – but EMTALAhas never had any funding! Hospitals are even required to try and collect from patients, before getting federal help for bad debts. This is all dishonest: If we demand that hospitals provide a public service at less than full charges, then wemust compensate the hospitals.

If it costs $20 billion more per year in new federal funding to maintain our emergency care system, this is acceptable. It is better for all taxpayers to bear some amount in taxes, versus single patients being charged astronomical amounts.Most other countries do not expect hospitals to survive on user fees alone.

Ambulances should be paid for through taxes immediately. Fire departments are often providing the service already; therefore, the taxes we pay for fire departments should increase.These new limits on ER charges will not lower the costof health care by themselves. But they will remove the monstrous insult of chargemaster billing.

Laws #2 and #3 – Bring Down High Drug Prices Law #2 –Remove All Bans on Imports

If a drug has been approved by other first-world nations, this would constitute automatic approval by the FDA.

Consumers could then purchase any drug from a foreign nation, at the foreign nation’s price.

In 2012, Congress authorized US Customs to destroy any drugs obtained from Canadian pharmacies. The ostensible reason was to protect the public from dangerous counterfeit drugs. However, for the entire previous decade, during which millions of prescriptions were filled, not a single case of an American being harmed was ever reported.

Sample OECD prices for drugs:

The pricing of specialty drugs is a daily outrage. The hepatitis drug Sovaldi was developed in part with grants from the National Institutes of Health. The current seller (Gilead) set the price for Sovaldi at $100 a pill, even though the cost to manufacture 84 pills is less than $100. Gilead made back its entire initial investment in less than a year, and now is focused on reducing its U.S. taxes by $10 billion through yet another “corporateinversion.”

The only way we will ever have lower drug prices is for the payers to be able to say no, and walk to a near substitute.

In many cases, the Canadian or English drugs are the same pills as the ‘American-made’ drugs, produced overseas in plants that have been inspected by the FDA. The only difference is that some of those drugs are shipped to countries with lower prices, and others are sent to the United States for price gouging.

Of course the drug makers will try all their legal tricks: paying off the competition, making a slight change in a drug to start a new patent, or even parking their patent with an Indian tribe to avoid American court challenges. We must be surethat all of these fail.

Law #3 – Eliminate FDA Approval of New Generic Medications

The price gouging around Epipen would have ended quickly, if new versions of genetic drugs did not require anapproval process. We should let reputable drug companies produce whatever generic drugs they want.

Companies must be prevented from ‘stealing’ popular and effective drugs that have been in the public domain foryears, and then claiming them as private property until their competitors can slog through

FDA approval. By the time the FDA gives anyone else permission to compete, the price gougers will have made theirfortune and can move on to their next scheme. Here is a quick solution –Get rid of FDA approval on generics! If an office products company like Staples tried to charge $50 for a box of paper clips, a competitor would have a price of$1 on the street in a week. But not in the drug industry! Thanks to the FDA, Staples would be protected for years even though no patent is involved. Competitors would be bogged down for years in litigation, or in waiting for the FDA to prove that no one could cut theirfinger on a non-Staples clip.

All this would be happening while Staples spends millions of dollars lobbying Congress, and some people would dowithout paper clips altogether unless they had really good insurance.

We do not need the FDA to take over two years reviewing competitive generic drugs, when the original version has been on the market for years and pose zero danger to anyone. Here is one area where deregulation is definitely the answer.

Law #4 – Establish Health Courts, Where Patients Can Challenge Medical Bills

Anyone who believes they have been overcharged will have access to specialized Health Courts, where they canreceive a hearing on their grievance. The courts will be staffed by physicians and judges. All court costs will be paid by the federal government – probably about $500 million a year – and the patient will not need an attorney.

The courts will have authority to reduce medical bills. Here are thetypes of bills that can be challenged:

• Double charges for anesthesiology (by the nurse-anesthetist and the anesthesiologist). • Separate hospital bills for medical supplies such as oxygen and cardiac monitors (that are part of standardequipment in any ICU). • Extra billings for ‘facility fees’ (where a doctor charges extra because his office is considered part of a hospital) – where an echocardiogram that cost $350 one year then costs $1600 after the doctor’s practice was purchased. • Padded bills for basic lab tests – i.e. $350 for a blood profile that can be purchased for $31 in any free-standingprivate lab. (Often the doctor’s testing machine will be paid for in less than a year of normal usage, andeverything after that is pure profit.) • Outlandish charges for diagnostics – i.e. $5000 for an echocardiogram that costs $350 to cash buyers, and forwhich Medicare reimburses $275, or $4000 for an MRI that costs $200 in Japan. • $50,000 in charges for an air ambulance trip that only costs $7,000. • $4,000 for a drug infusion that costs $750 in Italy or Britain. • $35,000 for an artificial knee, that costs about $700 to produce in labor and materials. • $12,000 for a colonoscopy, just because it is done in an academic medical center.

Please note: Apatient can go to Health Court even if they are insured.

For example, if your insurer approved $5000 for an echocardiogram, and this left you with a bill for $4000 after your deductible and coinsurance, you may still have a grievance.

We need such courts, because traditional lawsuits are not adequate. A $5,000 surprise bill may be financially significantto a patient, but it is not enough for a private attorney to take the case, and not large enough for the state attorney generalto pursue. There is no shortage of case law to assist the plaintiffs, including the doctrines of: • Unconscionable pricing • Lack of mutual assent • Fraudulent non-disclosure • Undue influence • Unfair trade practices

This is not to say that patients will win every single case in health courts. Sometimes the cost of a procedure is in fact explained to the patient in advance, and is in fact reasonable in light of the resources required. The main target of the courts is blatant price-gouging, with no added medical benefits, which is imposed on patientswho have no opportunity to select otherwise. “Charging what the market will bear” is not an acceptable principle for medicine. Entire areas of health care are dominated by unfair trade practices. State legislatures or Congress can enact general standards for what constitutes a reasonable range of charges. All relevant information can be considered by the Health Court, including payments made by public and private payers – Medicaid,Medicare, and other insurers. Once a complaint gets to Health Court: • All bill collections are suspended while a patient is waiting for a hearing. Sending a disputed bill to acollection agency would be an unfair trade practice, with real legal consequences. • The results of all hearings will be published. This in itself will give providers a strong incentive to avoid HealthCourt, by restraining their charges upfront. Any ‘Gag orders’ that prohibit the disclosure of insurance payment rates will be unenforceable.

CMS shall publish its full schedule of Medicare rates, to further assist patients in analyzing prices and getting ready forHealth Court.

There have already been a small number of patient victories in the courts – see the following citations.

Collins, Paul. “Judge rules against hospital in bill dispute.” Martinsville Bulletin 26 Apr 2016.Mundy, Jane. “AttorneyFiles ER Overcharges-Action Lawsuit.” Lawyers and 29 Oct 2013. Rice, Sabriya. “Lawsuit claims freestanding emergency room operator scams patients.” Dallas News 11 Jan 2017.

We just need many more victories!


Thanks to these laws, it will be easier to survive without private health insurance. And not a moment too soon! In the ACA’s individual insurance market, many policies are already financially worthless.

For example: If a 60-year old man is in decent health, why should he buy a policy that costs $950 a month and has a$4,000 deductible? If he is unsubsidized, he will pay over $11,000 a year for basically nothing unless he is hospitalized, and even then hemust pay another $4,000 before any benefits kick in. How much uninsured health care could he buy for $15,000 a year? He can buy a blood count for $31, an X-ray for $47, and an MRI for $275 from consumer-direct providers in most cities. With the new drug prices described above, he can pay for most of his prescriptions out of pocket.

At the Surgery Center of Oklahoma, he can purchase: • Arthroscopic knee surgery –$5,300 • Rotator cuff repair – $8,260 • Leg fracture repair – $6,375 • Inguinal hernia – $2,010 • Hysterectomy – $8,000 (for his spouse) • Tonsillectomy – $3.050 (for his child) • Carpal tunnel release – $2,750

There is still a role for catastrophic insurance, however. Almost no one has the cash to pay for bypass surgery, advanced cancer, septic shock, respiratory failure, or major injuries. Complex surgeries and long rehabilitations are not reallyquotable. This catastrophic insurance should cost less than our current qualified plans – but still, there will be some who do not buyit.

The answer might be an extra income tax, which enables the purchase of Medicare Part A. (This would replace theoriginal ACA penalty for not having conventional health insurance.)

In practice, the person who refuses to buy private health insurance will pay a small amount of extra federal income tax. In exchange, they will be protected against large hospital bills by Medicare Part A. The hospitals will get paid also. Ifthe average uninsured person pays about $1,000 a year in taxes, this should cover the new benefit. Part A covers hospital room and board, and after a $1,360 deductible and no coinsurance, at least for 60 days of inpatient care. Part A does not cover doctor’s charges, so the persons who stay uninsured will still have some exposure.


Many aspects of health care are only expensive due to monopoly rents – especially drugs, minor surgeries, and outpatientcare. We must chop away at these areas.

But “chopping away” does not just mean high-deductible health insurance, where vulnerable patients have “more skin inthe game.”

This can be a cruel form of cost control. It relies on the patient to deny themselves care; also, it expects the patient to‘shop around’ in a manner that can harm the doctor-patient relationship.

(Besides, the citizens of Canada, Germany, France, Sweden, and Japan have almost no ‘skin in the game’ by ourstandards–but those countries somehow control health costs.)

The struggle to make health care cheaper must feature some degree of old –fashioned government force, such as:

• Strict regulations on hospital billing

• International competition for drug companies

• Punishing price-gougers both legally, and through bad publicity, in health courts The fight againstmedical price-gouging will be endless, but it also needs to start tomorrow!

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