Cost Plus Sparks Industry Commentary

a1234“There is a growing interest in our industry around reducing / negotiating Provider Billed Claims based on some percentage of Medicare, Cost to Charge Ratios, Percentile of U&C or a combination of them. I have thorourghly examined all aspects of this model and have my own thoughts, but would like to hear how the industry is either accepting or rejecting these concepts and why. “– Principal, Benefit Captive Re

There is a growing interest in our industry around reducing / negotiating Provider Billed Claims based on some percentage of Medicare, Cost to Charge Ratios, Percentile of U&C or a combination of them. I have thorourghly examined all aspects of this model and have my own thoughts, but would like to hear how the industry is either accepting or rejecting these concepts and why.
I will restrain from expressing my opinion until I have seen others comment one way or the other. But I would like to get an idea from others on what they feel the growth of this niche will be, where and when it can or should be used etc…

Comments

  • Michael

    Michael Puestow

    CEO at Atlas Health Systems

    Tim, you bring up an interesting subject. Having run a PPO and a TPA, the how providers and facilities were reimbursed has always been, shall we say, intriguing. With new companies like ELAP and AMPS and the ability to crunch enormous amounts of data, there is a buzz around “cost plus”. You have to really define what purpose you would be using these programs, for OON, for bill audit or for the really adventurist, as a replacement for a PPO network. The bottom line for all is what is “defensible”, what will bring the least amount of pushback with the best gains.

    For OON, having worked with National Care Network’s “cost plus” Data iSight, they truly are the “father” of this model and, personally, I feel they are the best at crunching all of the data, with proper benchmarks.

    For me, what I found most fascinating is that all of the companies, while not using “Medicare plus a percentage” as a core component in the model, they all seem to be in the 170% of Medicare range. If you then work the numbers, that they are saving 48%-55%+ off billed charges, you are in the BUCA average discount range. So, if you are thinking about going “naked” without a network and using one of these companies, you might be better off renting the CIGNA or Aetna network, pay a higher access fee, but be able to sleep at night, not worrying about litigation, claims on hold and employees being hounded by creditors for a bill not paid.

    Michael

  • Omar

    Omar Perez

    Vice President – Alternative Risk and Affinity Programs at Leavitt Central Coast Insurance Services

    I’m not going to pretend to read Tim’s mind, but I think that similar to the evolution of unblunding services or Medical Provider Networks in P&C , “Cost Plus” Claims Reimbursement Programs will flourish in our industry sector. The outrageous cost discrepancies among providers for the same procedure comes to mind as an obstacle to managing risk and a driver for a game changer.
    I think Michael brings out excellent points that need to be addressed for Cost Plus to be effective and marketable; so before I run around “naked” on my own, I would enlist the assistance of legal partner that can effectively deal with balance billing and the like, and of a sensible stop loss underwriter or develop my own funding scheme so my clients can sleep at night.

  • Donald McCullyDonald

    Donald McCully

    Alternative Risk Transfer – Vice President

    We can all do the math and see the value on the reinsurance side of the equation. What is effect on Employee while accessing medical services. Will the Medical Provider, not seeing a PPO network card in the hand of the Employee, want payment in full at point of service. If yes, could this cause an employee to seek less medical attention than they deserve/require. The value of the legal support is inherently obvious. It does not offset the negative feedback in the employee’s place of business if the employee cannot fill their tank or pay the childcare provider due to a medical bill that is in process of being discounted.

    We all deal with enough objections. This one that is even harder to explain than collateral, so I am hoping someone has dealt with this and might share their experience.

  • Sherri TetachukSherri

    Sherri Tetachuk

    Account Executive at DCC, Inc.

    Well, I can certainly provide feedback from the dialysis sector and dialysis is one of the those areas in healthcare that fall right up there on the cost Richter scale of outrageous! While the ideal approach would be the provider negotiating competitive rates for these types of services, unfortunately that just doesn’t happen. Even if it does, through PPO contracts (like CIGNA or Aetna) they are regional at best and you can’t rely on those contracts to bring long-term savings. Honestly, that is what the provider’s want you to do so your health plan looses the ability to alternatively reimburse on claims that are heavily inflated and lock you into discounts that erode over time. I think there can be a healthy balance but the days are over when you can just rely on your PPO’s to mitigate 80% of your costs. I wouldn’t sleep at night knowing what I thought I had in a discount suddenly isn’t what I planned for AND now I don’t have any recourse. It is critical to review what are your top 5 cost drivers; be proactive and work with all stakeholders involved to strategize properly on how to manage those costs. Alternative reimbursements like U&R have been around for decades and if applied appropriately provides the “least amount of push back with the best gains”, as Mr. Puestow describes above. The key component is that you retain the right consultants and counsel to guide you through this process as it is complex, but it doesn’t have to be if you get the right help. Cost-plus reimbursement has been getting some traction but it is hardly simple as I have heard some folks describe it to be. It comes with very heavy lifting, experienced legal counsel in this area to guide you properly, and you better have solid justification and reasoned principle on how you come up with your percentages and don’t be fooled by not receiving heavy push back from the providers. It is just a matter of time and you better be prepared to respond to those appeals in accordance with the new IRO standards. I live in this world as a Consultant specializing in dialysis and Chronic Kidney Disease (CKD) cost management. I am happy to provide more details as needed.

    Brent H. likes this

  • Kevin SchlotmanKevin

    Kevin Schlotman

    VP Benovation; Director at Society of Professional Benefit Administrators (SPBA)

    Reference based / Cost+ plans are gaining steam – they are the same place stop loss group captives were about three years ago. Their affects can be catastrophic if all stakeholders are not enthusiastically on-board and committed to changing the billing transparency game. I know of a school district that moved to this type of plan 1/1, and was back on a PPO plan by 3/1. Why? Hospitals stopped “accepting” the ID Card / transfer of benefits at the point of service. They flexed their muscles, and the Plan Sponsor caved in. People showed up with their kids and were told that they didn’t have insurance or that it wasn’t accepted, despite ( as pointed out above) the reimbursements under these plans are routinely within a few % points of BUCA.

    Is it right that healthcare providers played on people’s emotions to maintain the opaque status quo fee for service billing model? Nope. Are they going to fight and cry foul every time? Absolutely.

    So if the reimbursement rates are at (or near) BUCA – why are hospitals so vehemently against these plans? They rely on the PPO contracts to protect them (and their revenue). Most PPO contracts (including CIGNA, I do not directly have knowledge relative to Aetna) PROHIBIT the Plan from auditing ANY bill. That’s right – you can’t check the bill. You must pay, pay quickly and chase any errors after the fact. This is where the Cost+/reference based reimbursement plans dramatically out perform the PPO networks. And this is why the hospitals want to prevent their acceptance.

    If you don’t believe the no audit provision (which I found hard to swallow until I read the contracts) search on-line for: State of CA v. Multiplan. In short, the allegation is that the PPO network (Multiplan) promoted and aided in billing fraud by contractually preventing hospital bill audits in exchange for a preferred discount status. Now ask yourself this: Who is the network’s real client in this situation?

    Omar P.Donald McCully and 3 others like this

  • Mark CesaranoMark

    Mark Cesarano

    Account Executive at M.F. Irvine Companies, LLC

    I have heard of this model being considered to help control out of network costs. However, having high out of network costs is usually the result of (1) a poor in-network provider network and/or (2) not enough differential between in-network and out-of-network benefits.

    I think not using an in-network provider network could present a few problems with employees. Besides what Donald mention, there could be the impression that employees would not think the plan is a quality plan because it does not have a network attached to it.

  • Jimmy BurkeJimmy

    Jimmy Burke

    Senior Vice President Alliant Insurance Services , Inc.

    Bringing up something as critical to a patient as dialysis, the problem has and is and will continue to be that these services are not billed based on actual cost to provide them, but on some Richter scale of how much can provider get away with., i..e . medications for seizures with Epilepsy patients, all this has caused our soon to be Socialist government to step in as big BRO. and really dictate to all of us. Shameful and all created by greedy big insurance companies, and liberal politicians who are on GOVernment med plan, GOVernment pensions, blah, blah, b;ah, both groups who are overjoyed at big gov stepping in..So, all this talk about “cost plus” must first start at who is pricing or determining “cost”…Unlike anything else we buy , cars, houses, golf clubs, medical insurance and claims are a shell game and medical billing is a huge industry that feeds off all of us at 1 c (a penny per claim) per claim., etc..I hope that at the end of the day our country survives this conversion., because how we are ever going to get the guy at the red light asking me for a quarter this morning (INSURED) baffles me, at 500.00 per month.The hospital and funeral business are the two industries who will get ‘theirs”..Funeral companies are networks and Insurance companies are same….In network out of network will fade away..???

  • Tim JohnsonTim

    Tim Johnson

    Principal, Benefit Captive Re

    The attached article from the NY Times shows us just how screwed up the Provider billing practices really are and unless WE, do something about, all the Wellness in the world is not going to slow down the rising cost of claims. As a colleague of mine once said “You can do 10,000 jumping jacks a day to get healthy but those can all be thrown out the door when a Provider bills you 1000% above their cost to treat you”.
    How do you like your Wellness Program now?
    Unless WE, and that is all of us, decide to do something about it, Claims Costs are never going to get under control.
    You can define WE anyway you want to, but I define it as anyone that wants to truely make a difference. This obstacle is viewed by most as just to Large to do anything about it, but GIANT moves forward are usually taken with LITTLE steps.
    If you do nothing, you can enjoy the ride as long as it takes for your clients to find the solution from someone else. Which is usually a very short trip.

    http://www.nytimes.com/2013/05/08/business/hospital-billing-varies-wildly-us-data-shows.html?pagewanted=all&_r=0&pagewanted=print

    Sherri Tetachuk likes this

  • Derek MooreDerek

    Derek Moore

    Vice President, Business Development at MagnaCare

    Cost plus pricing makes all the sense in the world…..in fact, why even have provider networks? The real world problem with it is the politics. Ask your local Congressman or Senator who AHIP or NAHU is and, if he/she knows, how important they are to the political process. Then ask him/her how important the hospital and physician lobbies are comparatively and you’ll get your answer why it will never work.

    Donald McCully likes this

  • Henry SantosHenry

    Henry Santos

    Vice President at AmWINS Group Benefits

    I enjoyed reading everyone’s comments. They’re well-written and make many valid points! Although the cost plus payment terms may be perfectly defensible under ERISA guidelines and a self-funded employers fiduciary responsibility to protect plan assets, the challenge is future access! “Fool me once shame on you” but eventually the providers will not “accept” the plans members or require them to pay in full at POS as stated by Kevin S. and Donald M. respectively. I, like Sherri T., can provide feedback and advice on dialysis claims as they pertain to self-funded clients. I saved my Transit Management client $270K ABOVE what their rental PPO network would have. In addition to the hard dollar savings they also saved money on their stop loss renewal. The biggest issue with ESRD claims is there are only 2 main providers (Fresenius & DaVita) which create an oligopoly! Their earnings on the stock market prove they’re price gouging. Dialysis claims can range between $35K to $50K per month! Unlike many other catastrophic claims they recur EVERY month until the patient receives a transplant or expires. The truth is Fresenius and DaVita charge private sector employers 500% to 750% more than they charge CMS (Centers for Medicare and Medicaid). The secret to my clients success was having data similar to NCN (National Care Network) which outlines each providers cost as they’ve submitted them to CMS. The re-pricing methodology used is defensible in court and dialysis providers typically accept them BECAUSE they don’t want to lost that ongoing revenue stream!

    Sherri Tetachuk likes this

  • Michael

    Michael Puestow

    CEO at Atlas Health Systems

    Henry, everyone has problems in dealing with the gouging of the main dialysis vendors. You may want to look at Anci-Care out of Dallas. I have been very pleased with their dialysis network, which shaves major points of the price of dialysis.

    Michael

  • Henry SantosHenry

    Henry Santos

    Vice President at AmWINS Group Benefits

    Thanks for the Intel Michael!

  • Derek MooreDerek

    Derek Moore

    Vice President, Business Development at MagnaCare

    In the NYC market, this approach doesnt work. The hospitals in particular do not accept what they consider illegimate and arbitrary payments and are aggressively balance billing the members . Sounds wonderful in concept but doesn’t work in practice.

    MARYELLEN H.Donald McCully like this

  • Gerry BlaumGerry

    Gerry Blaum

    Saving Money for Self-funded Employer Health Plans Invest $7,500, save $500,000, Guraranteed!!

    If you look at the costs reported to Medicare by hospitals, as required on an annual basis, and then talk to the folks at MultiPlan I-Sight, the 170% of cost model, quoted above, saves as much as 50% when compared to BUCA payments after discounts. As you can verify by talking to I-Sight their model is to reimburse at 250% or more of cost for claims and they get very little pushback because at that incredible rate the providers are getting about what they are used to being paid by BUCA and PPO’s. If the Medicare cost reports are accurate, and it is in the interests of the hospital that they be accurate, how in the world can anyone justify what is actually being paid. The real problem is that the employers are helpless, unless they band together to use the power of their combined premium they will always be at the mercy of the providers and the carriers.

    Omar P.Donald McCully and 1 other like this

  • Michael  (Mike) DendyMichael (Mike)

    Michael (Mike) Dendy

    CEO/President AMPS Inc.

    Cost Plus or Reference Based Reimbursements work now and will continue to work. Employers’ cost of health insurance is 50% higher than it should and could be and CP or RBR is the only way savings can be achieved.

    PPOs cost employers money and are unnecessary. It is foolish to think that a doctor or hospital won’t take your money without buying through such a co-op. Yes, there will be belligerent hospitals that one must avoid but that is the case in pretty much every industry.

    Hospitals make money on Medicare reimbursement regardless of what they suggest publically and thus is a worthy benchmark in most cases. Medicare utilizes cost plus in its reimbursements and is based on the hospitals’ own reported CTC data. Many hospitals in rural markets have a payer mix of 85% or 90% Medicare and Medicaid. It would not be possible for these hospitals to remain operational if Medicare were unprofitable.

    When being completely honest, a hospital executive will tell you that 140% of Medicare is a very fair reimbursement level especially if they can collect all the money. Part of the problem that hospitals have with the large carriers is that although their PPOs mask the very high rates charged by the hospitals they only collect about $0.83 on the dollar owed. This is because the big carriers have cost shifted away from the employer to the employee via higher deductibles and co-pays and oft times the employee does pay their share. Eliminating some of this burden for the hospital puts them in a much more negotiable position.

    Nothing great or significant comes without effort and there are hurdles to cross for an employer and their employees to gain the 50% positive variance available by altering the management of their healthcare plan. Each employer has to determine if the savings is worth the efforts or not. The early adapters are doing so now and are paving the way for the rest of the industry.

    Jeffrey Diekema, CEBS, LICJohn Powers like this

  • John PowersJohn

    John Powers

    Healthcare Cost Management Expert

    “Cost Plus” or “Reference Based Reimbursement” programs are working are working in NY and have been for at least the last two years. I didn’t believe it either. Can’t work, won’t work. That’s what I argued until I was blue in the face. Even after I was presented evidence to the contrary I still said, “This makes no sense”…. I did finally see the light and formed my own conclusion. “Reference Based Reimbursement programs don’t work…. for everyone, but they do work.” For those who have hit their tipping point, the reward is cutting hospital and facility claim charges in half. Yes, in half. No more getting a 50% discount only to pay 350% of medicare AFTER the discount. e. I don’t think these programs work, . It’s like we learned back in grade school, a hypothesis that has been tested over and over again eventually becomes a fact. The fact (supported by evidence) is that Reference Based Reimbursement programs do work in the NY metro area and other places around the country.

  • Tim JohnsonTim

    Tim Johnson

    Principal, Benefit Captive Re

    Thanks to everyone for commenting, I appreciate all of your perspectives.
    Derek, I don’t want to seem like I am picking on you, but you are exactly the kind of person that has to open their minds up and understand that anything worth having is worth working for. To say “Can’t work in NY”, I read that the day you wrote it and was about to comment on it but didn’t. I hoped that someone else, thank you Mr. Powers, would. I have business all round NY and the system works. You just have to be good at working it and relating to the Providers. I haven’t found one yet that likes working with the PPO’s and all the administrative issues that they cause. As long as they know you are going to pay them, they are all in!
    There are, in my opinion so take it for what it’s worth, really only 2 issues that will inhibit the growth, 1. Fiduciary Liability assumed by TPA’s/Brokers and others unless they outsource those functions, 2. Balance Billing of the Patients.
    There are current solutions to those issues in the market place and work very well. Some are foregoing the additional costs of those programs but regret it as the HR noise and litigation issues are just overwhelming.
    Again, guys, thank you for responding this is the future and we need to embrace it and swim in the Blue Ocean waters… I couldn’t help myself with the reference….

    Jeffrey Diekema, CEBS, LIC likes this

  • Donald McCullyDonald

    Donald McCully

    Alternative Risk Transfer – Vice President

    Is a logical progression for successful implementation of these ‘cost plus programs’ to create a private network using the cooperating providers to remove litigation related to Fiduciary Liability or Balance Billing or denial of service exposure(s)?

  • Tim JohnsonTim

    Tim Johnson

    Principal, Benefit Captive Re

    That’s a great question Don, and Yes, that would eliminate both of the issues and that is a very good way to go if you have the knowledge and expertise to develop and execute those Agreements. There are ALOT of items that have to be covered. We have been doing some of these for a while and they are not easily completed. The only draw back to these if you are a broker, a majority of your business needs to be in that general area or a large enough pool of clients to make it worth while. Large brokers have Contingency arrangements with PPO’s/Carriers so they don’t want to lose that income. Regional Brokers may not have enough business locally to have the stroke to pull off such a contract or the expertise.
    Great question though Don and the trend is moving that direction but it is starting with the use of the 3rd Pty advocate initially then working into that one-off contract with a Provider once they know you are there to work with them not against. I have solutions for all of these issues Don if you ever feel the need for some assistance. Thanks for asking…

  • Donald McCullyDonald

    Donald McCully

    Alternative Risk Transfer – Vice President

    I access several private networks in our stop loss group captive programs currently. We have great success as claims costs are lower. Avoiding the legal issues you identified and the lower claims costs allow us to sleep better, while the employer and TPA enjoy all the obvious benefits.

  • Tim JohnsonTim

    Tim Johnson

    Principal, Benefit Captive Re

    That’s great, as long as they allow you to Audit the bills and adjust accordingly with the agreements to NOT BALANCE BILL, you are way ahead of the game. If you are simply taking their Billed amount and repricing for discount, little is gained. By Audit I also mean reviewing for necessity and accuracy. 20-25% on average of Billed Claim dollars are errors. If you don’t catch those, it doesn’t matter how big of discount you are getting you are still over paying.
    There is a lot to this and it isn’t just “Repricing to a percent of Medicare” I have seen a few try that but all of them have failed miserably. And yet, we as the Brokerage community keep doing it over and over because we prefer to sell Price over Quality. When will we learn?
    Not saying you do Don, just making a comment.

  • Donald McCullyDonald

    Donald McCully

    Alternative Risk Transfer – Vice President

    I am talking about a private network set up on the principles of medicare cost plus pricing. Large PPO’s do not check the credentials of their participating providers regularly nor allow for the level of cooperation you espouse. Private Provider Network versus what most folks access, All Provider Networks.

  • Derek MooreDerek

    Derek Moore

    Vice President, Business Development at MagnaCare

    Some of The key hospitals in this market aren’t even accepting public exchange plans because they’re worried about patients flocking to high deductible plans which they won’t be able to collect. How’s that for community spirit and social mission? We are in the trenches every single day battling them and find it incredibly hard to believe that they’ll allow a non contracted plan to pay them a reference based price well below what the major payers get (us included since we have about 11% commercial market share here).

    Our other view of reference based programs is that we could easily do it ourselves. We can easily price claims to a % of Medicare and also have access to other data sources that cost little to nothing. Why would we pay a vendor? The business model makes very little sense to us.

  • Tim JohnsonTim

    Tim Johnson

    Principal, Benefit Captive Re

    So Derek, as you start to learn more about how this works and what the hurdles are to get over, you will quickly learn that “EASILY” price claims at a % of Medicare is not EASY. How would you do that, do you know how many lines of services come on a Claim to make up the total bill? Who has the expertise to do this at your firm, how would you get the claims from the TPA to “that person”, are you willing to be a licensed TPA, do you know how to NOT be a Fiduciary so you do not violate ERISA? Really, access to the RIGHT data source costs little, huh, I should let my Controller and Auditors know this. Maybe the one where you have to manually look up EACH line item. Let me know how long that takes. Also, are you going to be the one taking the calls from the Provider telling you that they won’t accept your payment? Who is going to draft your Letters of NOABD’s? Who will handle the Appeals? Will you even offer the Providers an option for an Appeal that meets ERISA requirements? Who will take all the calls from the EE’s when they get Balance Billed, will you offer legal defense? How to you handle the client when he gets sued by his EE’s because they got balance billed and it ruined their credit and they say their employer didn’t tell the EE how the NEW health program works. Their labor attorney will enjoy that conversation.
    Have at it Derek, you are right it is easy…

  • Donald McCullyDonald

    Donald McCully

    Alternative Risk Transfer – Vice President

    Tim, check out Derek’s firm. They are a TPA and PPO network with over 1,000,000 employee lives. He is one of the most creative folks I have met behind some of the largest, most successful initiatives at Magnacare. NY and NJ based, their network is statewide but strongest from exit 6 on the Turnpike to the Boroughs.

  • Derek MooreDerek

    Derek Moore

    Vice President, Business Development at MagnaCare

    We are a fully licensed TPA processing claims for over 400,000 covered lives and know what we’re doing relative to claim pricing. We have a whole team of actuaries that are amazing with data and have employed this strategy on our own for specific hospitals. All your points at the bottom of your comment are exactly why we’re very cautious about using this approach because it’s very controversial and noisy and takes the right ASO client with guts to confront the hospitals. But trust me that we know how to easily price claims to a % of Medicare or other public data benchmark……very easily in fact with little to no cost beyond the actuary’s time.

  • Tim JohnsonTim

    Tim Johnson

    Principal, Benefit Captive Re

    As a TPA you are correct, I assumed you were a broker. As a TPA I am surprised that you feel this process won’t work in your area. It is working in your area. To be cautious as a TPA you would be correct. You are flirting around with being a Fiduciary and at a minimum, if you have to negotiate off of the SPD, you would put yourself into a position of being a Fiduciary and all the other issues as you just agreed with, you don’t want to mess with. Courts also found that there is a conflict of interest problem for you as the TPA. For all those reasons, that is why you would use an outside entity, 3rd Pty, to manage those functions. Not only are we a Program Manager/MGU and 3rd Pty Advocate, but we are also a Broker. If you offer both options, With Balance Bill defense and Co-Fiduciary responsibilities or Without and just pricing claims at a Percent of Medicare, All of our clients have chosen the Protection you get with a 3rd Pty assuming those responsibilities. Carriers don’t care, they won’t be held responsible if the EE gets balanced billed and everyone gets sued. It is the TPA and Employer and EE that will have to pay that price.

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