Market Intelligence – Cost Plus Insurance/Reference Based Pricing Fees In Today’s Market
By William Rusteberg
“This is a competitive market. The difference in fees can be substantial. For example, a fee based on a percentage of billed charges can be significantly higher than a percentage applied to an allowed amount. The allowed amount equals what the Plan Document stipulates upon which a claim is paid…….Plans paying 12% of billed charges could save 50% or more utilizing a fee structure based on allowed amounts instead.” (http://blog.riskmanagers.us/?p=11250)
Non-PPO plans using Medicare benchmark pricing and/or cost-to-charge ratios utilize four main components (Cost Plus Components) to provide:
- Claim re-pricing
- Balance billing protection/assistance
- Legal liability indemnity
See: How Some Cost Plus Plans Are Structured – http://blog.riskmanagers.us/?p=11264
Fees associated with these services are either based on a percentage of billed charges, percentage of savings, percentage of allowed amount, PEPM fee, or a combination of these methods.
Below are the range of fee structures we have encountered in the market recently:
Fees Based On Billed Charges
% Of Billed With Legal 8-12%
% Of Billed W/O Legal 7-10%
TPA/Broker Commissions 25-30%
An example of fees based on Charge Master Rates can be found here – page 5 (http://blog.riskmanagers.us/?p=12772)
Fees Based On Percentage of Savings
% Of Savings With Legal 9-35%
Of Savings W/O Legal 7-30%
TPA/Broker Commissions 25-27%
Fees Based On A Percentage Of Allowed Amount
% Of Allowed Amount With Legal 5-15%
% Of Allowed Amount Without Legal 5-12%
TPA/Broker Commissions 0-27%
Fees Based On PEPM Basis
PEPM With Legal $18-$23
PEPM W/O Legal $7-$18
TPA/Broker Commissions 0-27%
Fees may be capped either on an aggregate or on a per claim basis.
Several third party administrators provide audit/re-pricing and balance billing protection/assistance in-house while others outsource these functions.
We have identified over fifteen (15) TPA’s active in this market although we suspect there are more. Cost Plus / Medicare benchmarking is fast becoming a dominate market trend.
This is a competitive market. ( http://blog.riskmanagers.us/?p=11457) The difference in fees can be substantial. For example, a fee based on a percentage of billed charges can be significantly higher than a percentage applied to an allowed amount. The allowed amount equals what the Plan Document stipulates upon which a claim is paid.
Significant Fee Disparities Are Found In The Market
Example of Differing Fee Structure
Fee based on 12% of Billed Charges for $100,000 = $12,000
Fee based on 12% of Allowed Amount ($25,000) = $ 3,000 (Same $100,000 claim re-priced to 120% of Medicare)
Fee based on 25% of Savings = $18,750
Plans paying 12% of billed charges could save 50% or more in fees utilizing a fee structure based on allowed amounts. It makes more business sense to pay a fee based on allowed amounts rather than based on billed charges which are arbitrarily set by providers and have no relationship to cost. However, third party intermediaries depend on hospital charge masters to earn asubstantial fees – tying fees to charge master rates is not in the best interests of a plan fiduciary – See http://blog.riskmanagers.us/?p=11527o
A growing trend among Cost Plus Insurance groups is a movement away from providing balance bill protection and legal representation for plan participants. Reference based pricing is proving to be a value based proposition that puts the patient and provider directly in charge of health care decisions, both medical and financial. See http://blog.riskmanagers.us/?p=11943
Editor’s Note: Fees are all over the board. It would be wise to consider competitive options as Cost Plus Insurance continues to mature in the market. For additional information on Cost Plus Insurance, visit www.costplusinsurance.com or write RiskManager@Riskmanagers.us
“It’s in your best interests to be aware of quality options” – Homer G. Farnsworth, M.D.