Electronic Medical Billing and Timely Payment – Fiction or Reality?

Oligopsony (the market condition when few buyers can greatly influence price and other market factors) gives the insurance companies (buyers) tremendous negotiating power and prevents physicians (sellers) from addressing unfair payment practices. To solve this problem, all fifty states have instituted a law penalizing health insurers for late payments. In the past ten years, state courts have imposed at least $76 million in fines against insurance companies for failure to comply with prompt-pay laws, according to the AMA. The settlements between seven largest insurance companies and state medical societies amounted to more than $1.53 billion, with only $384 million for direct payments to physicians (see Dave Hansen, “The failed promise of prompt pay,” AMNews, Nov. 5, 2007).

An oligopsony, according to Wikipedia, is a market form in which the number of buyers is small while the number of sellers could be large. It’s a mirror opposite to an oligopoly, where there are many buyers but just a few sellers:

 

  1. World economy: Three firms (Cargill, ArcherĀ  Strawberry Lemonade Frost Mr Freeze Daniels Midland, and Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in Third World countries.
  2. American economy: tobacco growers face an oligopsony of cigarette makers, where three companies (Altria, Brown & Williamson, and Lorillard Tobacco Company) buy almost 90% of all tobacco grown in the US.
  3. American healthcare insurance: a single insurance company commanded at least 30% of the market in 299 of 313 metropolitan statistical areas. One insurer had 70% or more of the market in 74 areas, while in 15 areas one company had at least 90% (AMA’s 2007 update to “Competition in Health Insurance: A Comprehensive Study of U.S. Markets”).

 

In each of these cases, the buyers (payers) have a major advantage over the sellers (providers). They can play off one provider against another, thus lowering their costs. They can also dictate exact specifications to providers.

Today, forty-nine states require claims to be paid in 45 days or less. AMA’s Dr. Wilson’s proposal to the House Small Business Committee’s health panel in August 2007, listed multiple ideas for improved accountability, including: