Discussion on Cost Plus Claims Reimbursement Programs

Tim Johnson

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…

Editor’s Note: We received this from one of our readers: Most of these guys miss the point.  An employer can pay what their plan design designates they pay.  The employee can be protected as a part of the plan in the great majority of cases.  When the employee can’t be protected it is unlikely that they will have the money to make additional payments anyway and if they manage the process correctly can basically stall collections processes indefinitely.   Hospitals are political lighting rods and have to be really careful whom they chase and how aggressively they chase as scrutiny is not on their side. 

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                    “Cost Plus” Claims Reimbursement programs

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 nniche        will be…………………………..

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.

  •                                             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 McCully                                            Donald

    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 Tetachuk                                            Sherri

    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 Schlotman                                            Kevin

    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 M. and 2 others like this

  • Mark Cesarano                                            Mark

    Mark Cesarano

    Health & Welfare Professional Seeking New Opportunity

    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 Burke                                            Jimmy

    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 Johnson                                            Tim

    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.

    Sherri Tetachuk likes this

  • Derek Moore                                            Derek

    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 M. likes this

  • Henry Santos                                            Henry

    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.

  • Henry Santos                                            Henry

    Henry Santos

    Vice President at AmWINS Group Benefits

    Thanks for the Intel Michael!

  • Derek Moore                                            Derek

    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 M. like this

  • Gerry Blaum                                            Gerry

    Gerry Blaum

    President, Innovation Programs, LLC

    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 M. and 1 other like this

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