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.
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