Hospitals Avoid Commercial PPO Networks For Their Own Employees

Analysis Shows Hospitals Can Double Revenue From Their Own Employee Health Plans

“The study finds that hospitals employing this “direct contracting” model for their own employee health plans average about $2,500 in revenue per employee per year, compared to about $1,250 for those who employ the “outsourced PPO” model.”

SOURCE: CoreSource

LAKE FOREST, IL–(Marketwire – August 18, 2010) –  Hospitals and health systems can double revenue from their own employee health plans by implementing the right benefit strategies, according to research released today by CoreSource, one of the nation’s leading administrators of employee benefit plans for self-funded hospitals, health systems and other employers.

“When deciding how to offer medical benefits to their employees, hospitals and health systems embark on a complex process because they serve as both a health plan sponsor and a provider of healthcare services. For a hospital, offering an employee health plan and managing its costs require the institution to balance the need to grow patient volume and revenue with the need to control labor costs,” said Rob Corrigan, Vice President of Product Management and Planning, CoreSource.

A comprehensive analysis of the employee benefit strategies of nearly 70 CoreSource hospital and health system clients from across the country shows that a hospital using its domestic network of healthcare providers can increase its revenue, on average, by more than $1,200 per employee per year compared to a hospital that outsources its network to a commercial PPO contracting with all health system providers.

The study finds that hospitals employing this “direct contracting” model for their own employee health plans average about $2,500 in revenue per employee per year, compared to about $1,250 for those who employ the “outsourced PPO” model. The findings are contained in the CoreSource white paper, “Hospitals and Healthcare Systems: An Inside Look at Group Health Plan Strategies To Control Costs and Provide Access to Healthcare.”

According to the CoreSource study, hospitals generally use one of five benefit strategies when offering a self-funded PPO to their employees. The study also found that self-funded hospitals and health systems have, on average, six percent higher health benefit costs per employee than other CoreSource clients.

“The primary driver of the higher benefit costs for hospitals and health systems is their demographics,” Corrigan said. “Our analysis shows that hospitals and health systems typically employ more women, employees older than 40 and individuals with chronic conditions than other self-funded groups. These sectors of the population use healthcare services more often than other groups of individuals.”

The analysis also demonstrates how important employee compliance is for cost control. Compliance with preventive testing and disease management for employees of hospitals is better than for other self-funded employers, according to the research, while the average length of stay is 28 percent lower than other groups. “Without this level of compliance, it is fair to reason that hospital and health systems benefit plan costs would be even higher,” he said.

Understanding how different benefit strategies work is important for any hospital or healthcare system seeking to control costs and boost revenue, but it is critical for a hospital that wishes to become designated an Accountable Care Organization (ACO), a new payment and healthcare delivery system created by healthcare reform legislation.

“An ACO is designed to drive healthcare quality while stepping away from the traditional fee-for-service payment approach. A hospital using a domestic network or contracting directly with providers will have operational mechanisms in place that will help the institution make the transition. A hospital that outsources its network may not have the mechanisms readily available to make the shift easily,” Corrigan said.

Hospitals must look at their employee population, market conditions, reimbursement levels and relationships with physicians, and weigh many other factors before determining how to proceed with their benefit strategy. “Information gleaned from the analysis can help guide them in determining the right plan design for their institution,” Corrigan said. “Regardless of the strategy selected, a hospital must monitor cost and utilization trends so that it maintains the desired balance between competing financial objectives and positive relationships with employees, doctors and other stakeholders.” 

For more information on CoreSource and hospital and health system benefit administration, visit this website.

About CoreSource
CoreSource is one of the nation’s leading TPAs, delivering integrated, customized employee benefit solutions to self-funded employers. CoreSource utilizes cutting-edge products and services designed to facilitate effective cost-containment strategies. CoreSource is a subsidiary of Trustmark Mutual Holding Company and has nine sales and customer service offices across the country. Trustmark has assets of more than $1.7 billion and, through CoreSource and other subsidiaries, administers more than $2.5 billion in health and life benefits annually. For more information, visit

Cindy Gallaher
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