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By Glenn Melnick, Special to CalMatters

Gov. Gavin Newsom’s call in his State of the State speech to restrain health care costs in California is rooted in some eye popping numbers.  The cost of healthcare for a family of four reached $28,000 in 2018. If nothing is done, it will soon be $30,000 and more. This is clearly unsustainable.

The governor has filed a request with the federal government for approval to completely redesign California’s health system. Even if approved, which is highly unlikely, this would take many years. We cannot wait. The governor can take the lead on two issues right now.

First, we need to limit how much hospitals and doctors can charge patients and their health plans for out-of-network emergency care.

When a medical emergency hits, public health laws instruct patients and ambulances to go the nearest emergency room, even if the hospital is not on the patient’s preferred in-network list. And the rules say health plans must pay the bill. This assures timely access to needed care.

But here’s the problem: there is no limit on how much hospitals can charge for out-of-network emergency care. This pricing power gives the hospitals a huge edge on health plans when it comes time to negotiate contracts.

Hospitals know they can refuse to join a network and can make up for the lost volume by charging more when the insured patients end up in their emergency rooms. A $500 emergency room visit under a contract can become a $5,000 billed charge to an out-of-network patient and his or her health plan.

To avoid these excessive emergency room charges and keep hospitals in their networks, health insurance companies must knuckle under to hospital demands for higher reimbursements across the board.  

Patients can also be directly exposed to these inflated emergency charges when a hospital is out-of-network via high co pays and deductibles and in some cases balance billing by the hospital.

We need legislation that reduces hospitals’ emergency room leverage by capping out-of-network emergency room charges.  A bill introduced by Assemblyman David Chiu and his co-author Sen. Scott Wiener, both San Francisco Democrats, is a good start.  

We also need to rein in the growing economic power of large health care enterprises in California. More Californians receive their care from doctors who are part of mega-systems. These systems promise better, lower priced care but in fact mainly deliver higher prices.  

The systems are now so big that no health plan can sell insurance in many parts of California without including at least some of the system’s members in their preferred in-network lists.

Once this happens, these systems then demand that health plans include their entire system on the list and at higher prices. One such system is currently being sued by the California Atty. Gen. Xavier Becerra for this practice. But legislation is needed to address this problem at the system level.

Californians use less care now that 10 years ago, but we are paying much more every year. According to state Health Planning and Development data, the average price per day paid by health plans to hospitals grew to $7,376 in 2017 from $2,500 in 2002, driving health insurance premiums and out of pocket costs higher and higher.

Gov. Newsom should promote legislation to curtail the power of health care mega systems and outlaw all-or-none contracting practices. This would produce immediate savings in the billions to California health care consumers, resulting in reduced out of pocket costs and lower health insurance costs and higher take home pay.

And passage of both of these incremental changes would make expansion of coverage, another of the governor’s goals, much less expensive. If we wait for Washington’s approval for single payer, we could be up to $40,000 in annual health costs per family before we know it.


Glenn Melnick is a professor of public policy at the University of Southern California and a researcher at its Leonard D. Schaeffer Center for Health Policy & Economics, [email protected] He wrote this commentary for CALmatters.