It’s been over three years since we first implemented Cost Plus with many of our clients. The results have been good, with health care costs finally under control for these self-funded clients of ours. But, in the beginning, not knowing how the plans really worked, and the theory behind them, it was a tough learning process for some employees used to the old True & Tried PPO system of health care financing.
Below is a redacted letter we wrote to one client in regards to an employee who could not understand why she was having to navigate through the American health care system without the guidance of a PPO network handbook. For the first time, she began to question health care costs:
Ive read the letter from Mrs. XXXX and have reviewed the bills you sent us. This is a perfect illustration of what is wrong with our health care delivery system and with consumer perceptions / expectations.
For the first time, it appears that the consumer is questioning her medical care bills. This is a good thing. Before, consumers were used to simply paying their co-pay/deductible/co-insurance and the insurance company would take care of the rest. And therein lies the problem. What the consumer did not know, or even care about, was what the provider was charging for services. Employers and employees were content to assume that the PPO networks had successfully negotiated significant “discounts” on their behalf. But, what we have found through two years of study and investigation, PPO networks have become nothing but a smokescreen that allow providers to inflate their fees. PPO networks directly contribute to continued escalating medical costs.
One example of price gouging by a provider can be found on one of the claims you sent to us. A tissue exam by a pathologist was billed at $2,827.31. Yet, Medicare would have paid this provider only $97.69. That is a +3000% markup from what the Federal Government would have paid under the Medicare program.
In looking at the other bills, I find markups of anywhere from 250% to over 800% of Medicare. Yet, locally in Bexar County, we have negotiated rates on your behalf of 115%-125% of Medicare with hundreds of physicians. They are quite happy with the arrangement with some even going as far as applauding what your company is trying to accomplish.
In our quest to learn about PPO metholologies, we found that every PPO network we investigated negotiated dissimilar contracts with providers. For example, Dr. Smith may have negotiated a better contract than Dr. Jones down the street in the same specialty. Consumers did not care or even know about this – all they knew is that both physicians were “in-network” and all they had to pay to visit the more expensive Dr. Smith was $20 where they could have gone to see Dr. Jones who was less expensive, for the same $20 copayment. None of this makes any economic sense, yet we have continued to perpetrate this inefficient and costly system we call health insurance.
A good example of this can be found on two claims for the same proceudre code (36415). One vendor billed $12 and your plan paid $3. The other vendor billed $21 and your plan paid $3. This shows that vendors bill different amounts for the same exact procedure. Under a PPO plan, the consumer does not know this. And, they dont care because “insurance will take care of this for me.” Providers can markup their charges to any level they choose.
Your employees have a choice of which providers they can see. Employees will need to become more engaged in their health care costs and make prudent business decisions that are best for them. My suggestion to Mrs. XXXX is to engage here physician in a dialog relating to costs. This is a cash plan, not an insurance plan – we are not employing an insurance company – we are marshalling money from your company and from the employees to fund a medical care plan that will pay providers a fair and reasonable fee for services.
In the past the only time a consumer complained about their insurance was when the rates went up every year. And they mostly blamed insurance companies for this. They were right but do not know why they were right.
On Monday I am going to set aside time to call the providers to see if we can get them to agree to reduce their fees on these particular claims. Of course, they do not have to agree to anything and can charge any amount they choose to charge. This is a free market.
From A Carrier Rep:
Bill. Great article. Curious, does cost-plus generate monthly reports that show billed charges/allowed charges to final claims paid? Also do they show billed to negotiated charges on their EOBs. I applaud their approach for greater transparency. Releasing this information would only demonstrate this transparency. Your thoughts?
From a Health Care Auditing Firm:
Bill, you nailed it again!
From A Ft. Worth Dentist:
Nice job, Bill.
Editor’s Note: I started in the insurance industy in 1973, selling health insurance. At that time there was no such thing as PPO’s, or even HMO’s. We sold indemnity plans. $20 per day hospital room, surgical schedule, no out-patient Rx, no major medical either. Then in 1975 the company I worked for came out with something new; Major Medical. The cost to add Major Medical of $250,000 to the indemnity plan was only $2-$3 more to the monthly premium. Still no PPO’s or HMO’s. That came later. Balance billing issues were few and far between. In fact, extremely rare. Consumers understood that they were ultimately responsible for their health care, not someone else.
But the two generations since then know nothing else but PPO’s – even hospital people believe that only “True Insurance” must be a contractual relationship, anything else is “not insurance.” The Entitlement Mentality was not pervasive in 1973 but it is now.
What happened?