Brownsville ISD – Does Consultant’s PPO Claim Analysis Belies Truth? Will BISD Save $5,000,000?

Any devoted reader of this weblog will understand how we feel about Preferred Provider Organizations (PPO) and the value they bring to medical plan payers. All PPO’s, both rental networks and proprietary networks, will tell you that their discounts are the best. Yet none will show your their contracts with physicians and hospitals as they are “confidental and proprietary.” So, is there another way to prove that one network has deeper discounts than another?  Yes, say many insurance consultants, “let’s re-price a couple of claims through different PPO networks – we will certainly be able to distinguish the best discounts from the worst discounts.” This makes sense, or does it?

In prior postings we have attempted to show the reader that a claim re-pricing exercise is not an accurate method to determine a correlation between various networks. In fact, the process lends itself to fraud, whether intentional or not.

In the Brownsville Independent School District case, a large 7,500 employee South Texas employer, the PPO network discounts issue has been the driving factor in the district’s recent decision to change from the HealthSmart PPO network back to the Texas True Choice PPO network (effective October 1, 2009).  As a reminder to the reader, Texas True Choice was the district’s PPO provider prior to Healthsmart.

The district’s insurance consultant recently stated at a school board meeting that a change from HealthSmart to Texas True Choice, “assuming the same exact claims occur next year, will save the district anywhere from $4.5 million to $5 million next year.” That is a very bold statement indeed. Can the consultant back this up with solid evidence, or was a sample claim re-pricing method used to come up with this astounding figure.  Why would the local provider community willingly forgo $5 million in lost profits?

In February, 2007, at the time the Brownsville Independent School District was using the Texas True Choice PPO network, the district hired MedReview, LLC, a medical claim audit specialist firm with offices in Denver, Chicago, Philadelphia, Scottsdale, AZ and Thomasville, GA, to audit the district’s group medical claims.  ( ) MedReview audited claims paid between October 1, 2004 and September 30, 2006, a period of time during which all claims were subject to the Texas True Choice PPO network discounts.

The objectives of the medical claims audit included, among five catagories, analyze “actual discounts produced by the provider network (Texas True Choice).” – Page 1 of the MedReview Report as submitted to the Board of Trustees.

“The audit covered all claims incurred during the period October 1, 2004 through September 30, 2006. For this period, Mutual of Omaha (acting at third party administrator of the plan – Texas True Choice was the PPO network) provided an electronic claims file which contained a total of 148,323 claims with total paid amounts of $54,579,542.” (page 4). ………….”A number of claims were identified that had been re-priced, or discounted, incorrectly by Mutual of Omaha which resulted in claim overpayments of $561,803.35.”

In addressing provider network discounts, MedReview wrote “During the audit period, the Texas True Choice network delivered an average discount of 34.2% on professional claims, 45.5% on facility claims, and 41.0% on all claims. Please note these calculations are based on all claims and all providers. It is not uncommon for provider networks to inflate their average discounts by excluding some types of providers that historically, give very small discounts, i.e, children’s hospitals.”

So, if MedReview’s analysis is correct, how do these “discounts” compare to HealthSmart’s discounts? Is there a $4.5-$5 million difference between the two?

Do the HealthSmart discounts for the twelve month period ending June 30, 2009 match or exceed the discounts achieved by Texas True Choice as reported by MedReview? Did 7 premature births skew the numbers? Was that taken into account by the consultant? Did the consultant re-price 100% of the claims as recommended by MedReview, or did the consultant re-price only a few selected claims?

In our opinion, after exhaustive analysis of various PPO networks over the past two years, as well as obtaining actual PPO contracts, both physician and hospital from various PPO networks, (we have a Blue Cross Hospital Contract, for example) it is our stand that PPO network discounts do not vary by much. With all hospitals joining almost all networks, there is little incentive to give one network a much better deal than another.  truth-about-ppo-discounts

The MedReview report is eye opening. It has good information which the Brownsville Independent School District would be wise to use in managing their health care costs. For example, the report shows that one physcian had 10,540 claims from BISD employees. The next highest physician regarding number of claims was 2,928. A review of physician #1’s claims as compared to his competitior’s charges would be most interesting to a bonafide risk manager. The most utilized hospital was Columbia Valley RMC. with a total of 2,625 claims as compared to Valley Baptist with 2,405 claims.

The Brownsville Independent School District should eliminate their participation in any PPO network and negotiate contracts direct with interested providers. Tyler Independent School District did just that four years ago and have cut their claim costs by 40-50% while maintaining superior benefits – much better benefits than those in place for employees of the Brownsville Independent School District. (

Most are not aware that physicians and hospitals will, and do, compete for business. Yet, we all still continue to rely on third parties to negotiate “discounts” on our behalf as third party beneficiaries of PPO contracts. Of course, we really dont know how good a job the PPO’s have done on our behalf in negotiating “good deals” for us. The “Trust Me” factor may be costing us money.  bill-miller-forbes

Editor’s Note: For a copy of the MedReview Audit Report, email

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