Hospital PPO Pricing Exposed in South Texas

topsecretLarge employers of the Lower Rio Grande Valley have relied on third party intermediaries to negotiate pricing with local hospitals for over 35 years. Now, for the first time, some Valley school districts are learning the truth about the value of PPO discounts and they don’t like what they see…….

By Bill Rusteberg

TPA “A” recently provided our office a claim analysis on Valley hospital pricing. The “Valley” refers to the Lower Rio Grande Valley in Texas bordering Mexico. The report encompassed approximately 60 hospital claims (in-patient and out-patient) on their book of business located there

Summary Report Findings

Average in-patient PPO discount = 42.59%

Average out-patient PPO discounts = 41.28%


Average billed charge in-patient = 487.78% of Medicare

Average billed charge out-patient = 626.15% of Medicare


Average PPO allowed in-patient = 289.05% of Medicare

Average PPO allowed out-patient = 367.65% of Medicare


A more recent claim analysis by another TPA (TPA “B”) on hospital claims in the same geographic area collaborates TPA “A’s” findings.

Most plan sponsors have no idea the true level of value PPO networks provide. That’s because managed care contracts are proprietary and secret. Only health caregivers and their partner third party intermediaries know the truth.


Car Salesmen & Hospital Administrators Employ Similar Strategies

What plan sponsors clearly understand is they are getting discounts off billed charges much like a car dealership does for clueless clients. When shown claims are heavily discounted the “value” of managed care contracts is thus reinforced to unsuspecting and trusting consumers.

Large employers of the Lower Rio Grande Valley have relied on third party intermediaries to negotiate pricing with local hospitals for over 35 years. The larger employers are public school districts. Funding taxpayer dollars through managed care contracts whose provider pricing is never disclosed makes no sense. How can a public taxing entity enter into a contract expending public monies without knowing what prices are to be paid?

To further befuddle the reader here, plan sponsors pay managed care networks to access pricing they cannot see nor audit. These network fees may be disclosed and some may not. The later are fees taken from the discounts such as 9.6% of savings disclosed during discovery in a recent lawsuit filed by a Valley school district against their plan administrator. Disclosed access fees may be as high as $12 pepm or more, which will add up fast with larger groups. A $7 pepm PPO access fee on one school district in the Valley we are familiar with amounts to over $400,000 per year. Perhaps there is a smarter way to spend +$400,000 especially this year as the Texas legislature addresses school financing?

Now, for the first time, some Valley school districts are learning the truth about the value of PPO discounts and they don’t like what they see.

Some are taking action. Several school districts have embarked on reference based pricing strategies, paying 120% of Medicare to all providers instead of the average PPO allowed (in the study above) of 290-370% of Medicare.

These school districts have come to realize health care costs are directly related to what we agree to pay and should not be based on what third party intermediaries secretly negotiate with their provider partners.

For others health care costs continue to escalate with no end in sight. Their financial backs are against the wall. Cost shifting to plan participants in the form of higher deductibles seems to be a universal solution. But that strategy has backfired. As deductibles get higher and higher, hospitals increase their rates to cover bad debt. This produces a continuing, never ending cycle of rising costs.

Smart plan sponsors are, for the first time, realizing The best way to reduce health care spend is to pay providers less.

It’s that simple.


Related Blog Post: South Texas Health System Defends 920% Price Markup




Michael (Mike) DendyCEO/Vice Chairman AMPS Inc.19h

Another great and informative post from RiskManagers. We find the same percentages to be true pretty much coast to coast. As abusive as the S. Texas hospital’s gross billed charges are, they are actually low compared to a lot of the country where we often see GBCs at 600% of Medicare or higher. Of course, the PPOs employers are paying $15 pe/pm to access are providing a 50% discount. Every employer and broker in America should demand to know this data for your own group(s).

Gary Becker

Great article! Employers have a fiduciary responsibility to understand how their health plan assets are being spent. The secret is out!

John Augustine

A very wise man once told me “To pay less for healthcare, you have to pay less for healthcare”. This is a great article and a sign of things to come.

Todd Peterson

Great article on the out of control healthcare costs


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