Do Hospitals Kick Back Undisclosed Fees to PPO Partners?

Recently a Texas based TPA negotiated a direct contract with a hospital, on behalf of one of their clients. Upon final review of the terms of the contract, the negotiator for the hospital said to the TPA representative,  “We pay PPO’s, so what do we need to build in for you in this contract?”

We have heard this before. But we have never been able to get our hands these hospital/PPO “side agreements.” These add-on  agreements are not part of the hospital/PPO contracts per se, but a separate side agreement no one would suspect even exists. At least that is our guess as we don’t know for sure what the truth is without documentation.

So, if I were a PPO network, I could probably say to the hospital negotiator, “Load in 5% of gross billed charges for me and adjust your Charge Master to make you whole. Our mutual clients will never know and will remain clueless.”

If I were to earn 5% of gross billed charges, it would not take too long before I could buy that island down in Belize with some quick cash.

Those PEPM PPO access fees of around $3.50 are just window dressing. The real money is never seen or accounted for. Or so it seems.

Editor’s Note: If any of our readers can verify hospital/PPO kickback schemes, and have copies of these agreements, we will become your new best friend.

From An Ohio TPA:

I don’t have copies but I know this was very common in Ohio, all the major ppo’s kept a % of charges. XXXXXX XXXXX still does, they disclose it though. The TPA actually does the withhold. XXX XXXX lets it known that if you rent their network you do not get full discounts, they retain a portion. If you purchase from them direct they pass on all the discounts…..supposedly

From A Plan Sponsor:

I had always understood that the way PPO’s made money was by extracting a discount off BC’s from providers, and then passing some, but not all of the difference to the payor.  The rest (maybe 50:50?) was retained by the PPO network as their fee.  Other arrangements, instead of splitting the discount, could be based on a PEPM rental basis.  That’s the way I had always understood the financial arrangements for independent networks.  But for wholly owned networks – like Humana, UHC, etc., that have built their own in-house NW’s, I’m thinking that works based on the initial discount that the MCC ‘guarantees’.  In other words, Humana, as an example, may ‘sell’ their services (either fully insured or just as a TPA) to an employer by guaranteeing a certain discount off BC’s, say 45%.  Then, if they’re able to extract a bigger discount from a provider, they’d keep 100% of the difference.

The fallacy, of course, in either of these models, is that they’re based on BC’s, which, as we know, can be anything the provider wants it to be.   But the further problem with the wholly owned NW’s is that the payor (employer in a self funded plan) isn’t getting the benefit of the real negotiated discount.

This whole system is about as transparent as mud at the bottom of a river – and that river is full of alligators (the NW’s)!!

From A Texas TPA:

Bill, this is from a BCBS contract:

In addition, Client hereby acknowledges that, as a part of PPOs contractual arrangement with

certain participating network providers, PPO and its Affiliates may receive compensation for

administrative services performed for the benefit of Participating Providers during the term of this

Agreement. Such fees may be in the form of direct payment by the Participating Provider to the PPO or in

the form of a differential in reimbursement amounts (the “Differential Model”). In a Differential Model

scenario, the reimbursement amount paid for a claim under this Agreement may not be identical to the

amount of compensation a Participating Provider receives or retains in connection with providing health

care services. Client acknowledges, subject to the requirements of applicable law, that reimbursement

amounts paid to Participating Providers under this Agreement may not be identical to the amount of compensation a Participating Provider receives or retains. Solely PPO and Participating Provider establish the applicable reimbursement amount in the Differential Model, and the compensation which PPO and Affiliates shall be paid, which shall be fair market value for services rendered. Neither Client nor any Customer of Client shall be entitled to any portion of such administrative fees paid by a Participating Provider.

From A Medical Provider:

MF’s.  They’re screwing the provider and the employer.

From A San Antonio Employer:

What is not transparent is alway’s easily corrupted.