Hospital Bill Reduced! Amazing Discount Negotiated by PPO Brings Joy To CFO

We just received a hospital bill incurred through a self-funded employee benefit plan located in the Lower Rio Grande Valley. The total billed charges were an amazing $264,665.00. The PPO allowed was $185,265.50, a wonderful savings of 30% off billed charges. This is great!

Or is it?

What did it cost the hospital to provide the services rendered? In looking at the CMS report filed by this hospital, their costs are of course lower. The difference is called a profit margin. We dont begrudge anyone from earning a profit do we? After all, nothing is ever free despite what you may hear sometimes.

And what about Medicare allowable for this claim? About 60% of this hospital’s admissions are Medicare recipients – it is assumed that 60% of admissions should generate a profit otherwise why accept Medicare patients – there is no law that requires the hospital to accept Medicare patients is there? Surprisingly, with the low reimbursement rates Medicare is accused of by many medical practicioners, in this case the hospital is actually making money off their Medicare book of business. And of course, in this claim the Medicare reimbursement would have been less than the billed amount.

So how does the PPO allowed of $185,000 compare to what Cost + 12% margin or Medicare allowed? Don’t tell the CFO this, but  he could have saved another $100,000 plus………………..he is smiling over his 30% PPO discount so why upset his day?

Editor’s Note: Stop loss insurance paid a portion of this claim. Unfortunately, if the Plan Sponsor had employed a common sense solution to his ever increasing health care costs, he would not have had the expense of a stop loss policy. If this is the only stop loss claim on this case for this year (remains to be seen), then the fixed cost to pay a portion of this particular claim would be about $350,000. In other words, not only pay more first dollar exposure (pre-stop loss retention level), this group will have paid a total of about $500,000 on a claim whose cost was less than $60,000.