The Fallacy of PPO Re-Pricing Exercise

Each time I see a Request for Proposals put out by insurance consultants requiring a PPO Re-Pricing Exercise in an effort to determine which network has the best discounts the temptation to reach out to Jose Cuervo is tough to ignore. 

Notice I used the term “discounts” and not pricing. No matter, it’s not important. What is important is  PPO Re-Pricing exercises are based on fraud, deception and selective logic.

Several years ago I was retained by a law firm whose client lost a bid due to the results of a PPO Re-Pricing exercise. The consultant managing the RFP process declared the best discounts were through another network. I was retained to review the work product of the consultant. It was easy to prove the analysis was fatally flawed, deceptive and untrue. Consultants who practice this fraud should be ready for challenges because they will come. Of course they will cite proprietary work product and attempt to avoid disclosure of their methodology with “trust me, I know what I’m doing!”

Not only will the consultant face the problem of challenges, he will have forever painted himself in a corner on future assignments. If XYZ PPO network is the best one for Employer A, it should be the best one for Employer B too. Therefore on every subsequent assignment we know which vendor the consultant will recommend. After all, he can’t admit he was wrong the first time.

The following article does not touch on this per se but it does give the reader some insight on THE PROBLEM WITH CONTRACTED PROVIDER DISCOUNTS.

Molly Mulebriar

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The Problem with Contracted Provider Discounts

Posted by HPS on 05/06/2019

As you know, a provider network’s job is to negotiate rates with providers throughout the network, so that the insurer, employer and patient pay less for each visit or procedure. Often, these negotiated rates are contracted in terms of discounts—ABC Provider will give all members of XYZ network 40% off of fees for care from that provider.

Wisconsin, we have a (few) problems

A false sense of savings

40% may sound like a great deal, but the contract doesn’t usually specify what the original cost of a visit or procedure is—and sometimes 40% off of one provider’s fee is still a higher price than 20% off of a different provider’s fee for the exact same service. Also, a provider could bump up the price of its services or tack on additional costs without violating the contract. But when you look at the bill, you’ll still see the 40% off and it will feel like money saved.


Inaccurate comparisons

Another problem arises when comparisons are based on overall network discount. This problem is three-fold:

  1. Networks can calculate savings rates differently
  2. A network can have a higher average discount if it uses more high cost/high discount providers
  3. Some networks exclude high value/low discount providers
Average billed charge comparison for major joint replacement
Facility Name Average Charge Discount        Total Allowed Amount
Peer Facility #1 $53,982.00 33.0% $36,167.94
Peer Facility #2 $65,854.00 40.0% $39,512.40
Peer Facility #3 $27,500.00 0.0% $27,500.00
In this sample comparison, comparing just based on discount wouldn’t give you an accurate picture of the lowest cost option.


No transparency or predictability

It’s notoriously difficult for consumers to “shop around” when it comes to healthcare costs. Because the discount doesn’t tell you the actual price, there is no transparency or predictability of the true costs until the bill is received.

No inflation protection

Beware of a contracted discount that offers no inflation protection for the employer or consumer. A provider is well within its rights to increase prices year over year, regardless of the discount. A contracted discount should cap the amount a provider can raise their rates.

The better cost savings approach

The more effective way to control costs is for networks to negotiate lower fixed costs for each visit or procedure a provider offers. This is the only way to provide true savings for employers and consumers, as well as accurate comparisons, transparency and inflation protection.

HPS + NOVO

HPS wants to change the narrative in healthcare today, to deliver savings and simplicity to employers and consumers. (Not familiar with HPS? We offer the most comprehensive, independent provider network in Eastern Wisconsin as well as our exceptionally simple one-statement billing experience for patients.)

Here are a few ways we’re helping employers and consumers take control of their healthcare:

  • 70% of our total claim dollars are via a negotiated fixed fee
  • 97% of all our provider contracts have inflation protection built in

Plus, we are partnered with NOVO Health to offer bundled payments for common procedures like lumbar fusions and knee replacements, saving employers and patients thousands of dollars and delivering predictability and peace of mind.

 

Want to learn more about HPS’ network, billing experience or partnership with NOVO? Contact our Client Engagement Team anytime at client@hps.md.

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