Are PPO’s Saving Money, Or Costing Employers More?


A Medical Bill Review audit of a large, 4,500 life employer group performed in 2016 exposes the truth about PPO “discounts.”

In a recent audit study, a self-funded employer who like many others, has historically relied upon PPO networks to negotiate pricing with medical care givers, was aghast to learn their PPO discounts were not so good after all.

PPO agreements are by nature secretive contracts between medical providers and third party intermediaries. Employers access these agreements as third party beneficiaries only and have no idea as to the pricing they have agreed to pay using commingled funds (employer and employee funds). All they are told is “Rest assured you are getting a good deal, tremendous discounts you would not get otherwise!”

So how good are PPO contracts? How can we determine and quantify pricing? Are employers really saving money accessing these agreements or spending more by squandering plan assets through egregious provider agreements they can’t see?

It has been our experience that when you can’t see a contract you are probably paying more than you should.

In this instance that certainly seems the case:

Audit Results – Facility Claims Only

Average Billed Charge                                               554% of Medicare

Average PPO Allowed Charge                                 337% of Medicare

Average pricing, benchmarked against Medicare allowable, hospital specific under the PPO:

HOSPITAL A                                                                   244% of Medicare PPO Allowable

HOSPITAL B                                                                 307% of Medicare PPO Allowable

HOSPITAL C                                                                 156% of Medicare PPO Allowable

HOSPITAL D                                                                 710% of Medicare PPO Allowable

HOSPITAL E                                                                  383% of Medicare PPO Allowable

HOSPITAL F                                                                  558% of Medicare  PPO Allowable

In comparison, a 900 life self-funded employer in the same geographic area, has been on a Reference Based Pricing model for the past five (5) years with remarkably different results. This employer reimburses medical providers 100-120% of Medicare and has consistently beaten medical trend.

This employer, and many others, have learned Reference Based Pricing is a proven method in reducing health care costs. Many have used the savings to improving benefits for valued employees. See Beating Medical Trend – Managed Care vs Reference Based Pricing

Plan sponsors still using PPO networks should take note. Action is needed to fulfill fiduciary duties. A good starting point to determine the best pricing is to conduct medical bill review audits. The results should spur corrective action by responsible plan sponsors and inaction by those who are not.

Decisions based on evidence make sense.

riskmanagers-logo is a specialty company in the benefits market that, while not an insurance company, works directly with health entities, medical providers, and businesses to identify and develop cost effective benefits packages, emphasizing transparency and fairness in direct reimbursement compensation methods.

The shared vision of and clients who retain our services is to establish and maintain a comprehensive employee health and welfare plan, identify cost areas that may be improved without cost shifting to any significant degree, and ensure a superior and sustained partnership with a claim administrator responsive to members needs on a level consistent with prudent business practices.

Plan costs, in all areas including fixed expenses and claims are open for review on a continuing basis. Cost effective plan administration and equitable benefit payment to providers are paramount to fulfilling our mutual fiduciary duties. As we proactively monitor and manage an entire benefit program we are open to any suggestions members may make or the dynamic health benefit market may warrant in order to accomplish these goals.

Duty of loyalty to our clients, transparency and accountability are essential to the foundation of our services. To that end, we expect our clients to realize a substantial savings based upon the services that we will deliver.

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