How Some Cost Plus Health Plans Are Structured

“Don’t bother doing something unless you are radically different from the competition. “

– Richard Branson

By William Rusteberg

This is a brief schematic of how Cost Plus Health Plans may be structured. Variations in the market are few, but this will give the reader a good idea of the concept – Cost Plus Components

1. Claim Process is a two part exercise: (a). claim is audited for duplicate charges, and sometimes for medical necessity. This usually results in savings as much as 20%. Over 90% of all hospital claims contain errors. Some audit firms routinely have physicians review each hospital bill while others outsource that function to other audit firms who employ clerks. Try to determine which audit firm is actually doing your audits as you may be surprised that the firm you thought was performing the audits is simply an Audit Broker. (b). claim is then repriced based on the allowable charges as outlined in the Plan Sponsor’s Plan Document. Depending on the audit / TPA firm you are using, this process can be manually intensive. It is important to determine what systems your TPA / audit firm is utilizing and the data base they are accessing.

Once the claim is paid, the provider is reminded that they have the right to appeal the claim within certain time parameters. It is important to know that once a provider accepts an Assignment of Benefits, they have legally stepped into the “shoes” of the Plan Document. In other words, the Plan Document now “rules.” After four years of experience in Cost Plus Health Plans, we find that less than 9% of claims are appealed, and of those very few adversely impact the Plan Sponsor.

2. Liability Exposure is composed of two risks: (a). balance billing occurs when the provider is paid less than what is billed and attempts to colllect the difference from the patient. Once the patient is balanced billed, an attorney is inserted between the patient and the provider. From that point forward, the provider must deal with the attorney of record. The bill is thus contested, and as long as the bill is contested the provider is prohibited by law from reporting to credit agencies and third party collection agencies. No negotiations for reduced bills are attempted by the patient’s attorney. (b). if the provider files a lawsuit, it will be against the patient, not necessarily the Plan Sponsor. While the Plan Sponsor is not liable for any additional payments above what the Plan Document stipulates (The plan pays what it pays) the Plan Sponsor will probably be named in the lawsuit. An insurance policy is in place to defend the Plan Sponsor, patient, TPA and broker/consultant. This cover is not expensive and almost rarely used (be careful not to be overcharged for this coverage).  Most cover is available through surplus lines, however there are a few domestic carriers that will underwrite these risks. In the four years we have been involved with Cost Plus Health Plans, we have not had one lawsuit although we are aware of a few that have occured elsewhere. Frequency of lawsuits is low. A source has told us that one  TPA/ audit firm has experienced 38 lawsuits stemming from over 40,000 audits over a four year period, which is less than 1% of claims. Many of these claims were for low amounts of less than $10,000 (Example: Farmers-Home-Furniture-Order).

This is a summary of how traditional Cost Plus Health Plans are structured. There are variations in the market, which we will describe in another article to be published on this blog next week.