“An industry insider shared an example that I’ll anonymize. An analysis was done for a school district and one of the things looked at was where lab tests were done. This school district had nearly 1,500 metabolic profiles in the measurement period and paid well over $200,000 when they should have only paid under $10,000. Direct contracting/cash prices averaged 96% less in their market. That’s an average of $150 a test for what should be a $7 test.”
Are PPO Networks the Worst Negotiators in the World?
Published on January 5, 2017
Executive Producer at The Big Heist (Super Size Me + The Big Short for healthcare)
The same medical tests range in price 66x from one facility to another costing employers, employee and schools millions
Previously, Lois Rudick Hall contributed a piece entitled, You Paid $45,000 for a Co-Worker’s Minor Procedure. What to do? Some might think these are outliers; however they are actually closer to the norm. Insurance companies use as a selling point that their buying power gives them a pricing advantage for employers. The evidence suggests otherwise making one wonder if they’re seriously trying to negotiate. With examples like this and turning a blind eye towards fraud, insurance companies are acting rationally (but against their customers’ interests) as David Goldhill so clearly pointed out in his book, Catastrophic Care. That is, having costs continue to skyrocket is in the insurance companies’ interests. In contrast, we’ve seen relatively small manufacturers solve the pricing failure problem by applying the same care to healthcare that they do to any large purchase.
An industry insider shared an example that I’ll anonymize. An analysis was done for a school district and one of the things looked at was where lab tests were done. This school district had nearly 1,500 metabolic profiles in the measurement period and paid well over $200,000 when they should have only paid under $10,000. Direct contracting/cash prices averaged 96% less in their market. That’s an average of $150 a test for what should be a $7 test. That was only looking at 25% of the patients.
No doubt, the teachers who have seen more healthcare cost burden pushed onto them would be interested to know that in a world of ongoing education cuts they were unnecessarily burning close to $1 million a year on just one lab test. Fortunately, there are some school districts and teacher unions who’ve put their students and teachers’ interests above an under-performing healthcare system. Sadly, most districts are unnecessarily redistributing money from students and teachers to the healthcare system.
Below are reimbursement comparisons for two outpatient lab services. The hospitals being compared were all participating providers. Geographic location was not a determinant of cost. Size of facility and whether the hospital was a community hospital or tertiary facility didn’t seem to matter either; neither did whether the facility was part of a multi-hospital group. In other words, since the claims administrator/PPO network was spending other people’s money, they were happy to wildly overpay for the price-gouging hospitals. Like in the case of turning a blind eye to fraud, insurance companies who are also claims administrators are motivated to facilitate anything that provides upward premium pressure via schemes like this.
Most know that health systems charge extreme fees for out-of-network claims. However, many have the mistaken belief that PPOs provide some “insurance” against price-gouging by health systems. In reality, PPOs are one of the key contributors to the 20-year long middle class economic depression that people are progressively waking up to that underlies the recent election. I wrote about that after the Michigan primaries that drove Bernie/Trump victories in Healthcare Drives Middle Class Economic Depression & Trump/Sanders Campaign Success. NPR’s whiff outlined in that piece was emblematic of pinning blame on non-healthcare factors when, as the Dartmouth economist pointed out, wage suppression is overwhelmingly healthcare-caused (not trade-caused).
Routine Venipuncture Reimbursement
Medicare reimbursement: $3.00
Lowest cost in-plan hospital: $3.10
Highest cost in-plan hospital: $113.40
That’s a 37x price variance.
Comprehensive Metabolic Panel
- Medicare reimbursement: $13.45 – $14.97
- Lowest cost in-plan hospital: $13.44
- Highest cost in-plan hospital: $897.00
That’s a 66x price variance.
Lois also did analyses for CBC (payment range $13.70 – $154) and Basic Metabolic Panel (payment range $16.80 – $312). If the client had paid 3x Medicare to hospitals (an extremely generous rate), their savings that year would have been $6.9 million for just these lab tests. That is money that could have gone into the employees’ or employers’ pockets. Instead, it went to an industry that hasn’t seen a productivity gain in 20 years and uses technology as an excuse for prices to go up and productivity to go down — making healthcare unique in the U.S. economy.
Lois’ firm also compared 3 infusion drugs provided on an OP basis. The drugs (Remicade, Neulasta & Avastin) represented a third of the client’s total 1-year spend on outpatient infusion drugs, and the payment disparity was equally striking. For simplicity’s sake, I’ll just share the comparison in payment for Neulasta, since the dose for this drug is almost always 1 unit.
Medicare reimbursement range: $2,628 – $2,799
Lowest cost in-plan hospital: $950.00
Highest cost in-plan hospital: $14,317.00
These are the sorts of dereliction of ERISA fiduciary that has class action attorneys calling around to my benefits expert friends right now as they do their research to ready cases against employers. If past cases are any guide, they’ll enjoin other deep pockets such as their claims administrators and their benefits consultancies. Whether they are knowledgeable or not of these wild price variances, the reasonable man test would suggest claims administrators and benefits consultancies should be aware of this situation – the information is readily known by anyone paying attention. Ignorance isn’t a defense in a lawsuit. As the reality hits public company boards and CEOs (for employers) – that they have personal financial liability according to some of the most prominent corporate/ERISA lawyers in the country on these matters – I expect the impact to be massive on the entire healthcare industry.
Dave Chase is the Managing Director of the Quad Aim Fund, Executive Producer of The Big Heist (the first fiercely non-partisan satirical film to address healthcare), co-founder of the Health Rosetta Institute (a LEED-like organization for healthcare) and author of the forthcoming book, “CEO’s Guide to Restoring the American Dream – How to deliver world class healthcare to your employees at half the cost.” His recent TED talk was entitled “Healthcare stole the American Dream — here’s how to take it back.“
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