Why serious employers can’t outsource judgment to PPO contracts and hospital billing offices anymore
Nov 17, 2025
Sadly, every now and then, a case lands on my desk that sums up exactly what’s wrong with American healthcare in one rancid, infuriating little package.
This one started with a family in crisis, an impending cancer surgery, and a tight but not emergent timeline. Our antagonist? You know, one of those benevolent “nonprofit” hospitals in Northern California calmly demanding 1,300% of Medicare for treatment with all of the grace and understanding of a Mafia Don.
Not an exaggeration. That’s what they wanted. Not 130%. THIRTEEN HUNDRED percent. And they were fully prepared to deny potentially life-saving treatment if we didn’t pay the extorted tribute.
The employer in this case exited PPO masochism years ago. Instead, they’re self-funded on a reference-based pricing (RBP) plan. That means the plan doesn’t pay whatever the hospital dreams up; it pays according to an internal standard tied to Medicare.
For this group, the basic rule is simple: 140% of Medicare for hospital and most professional services, with some variation for higher demand specialties and geographies.
In 99% of claims, that works. Claims are repriced, checks go out, the hospital grumbles, maybe ever saber rattles a wee bit, cashes the check, and life goes on.
Every so often, you run into that other 1%. Not the 1% that Bernie, AOC, and the Occupy crowd bellow about, but the bougie, gold-plated nonprofit hospitals with private helicopter pads and multimillion-dollar leadership salaries.
The Hospital Tries to Leverage Fear
Our member needed high-stakes surgery. The hospital knew it. The family knew it. Surgery was on the calendar; pre-op scans and imaging needed to be done. The message from the hospital was essentially: pay our inflated price, or the whole thing is at risk.
When our repricer hit their bill with the 140%-of-Medicare logic, we weren’t even in the same galaxy as their demand. They wanted ten times that amount. They wanted something no rational fiduciary could sign off on under ERISA’s command to guard plan assets prudently.
So, we did what an RBP plan is supposed to do. We rolled up our sleeves and we pushed back.
Beginning at 3:00 AM, I started pulling hospital charity policy information and spent the next 12 hours with the repricer and TPA, working the numbers and the phone. This is the part nobody puts on the shiny marketing decks. You will never see the top 10 institutional brokerages that thrive on health insurer overrides explaining that they have attorneys on staff to fight pilfered hospital pricing in the middle of the night if need be. It’s the trench warfare: talking to the business office, quoting Medicare, comparing to regional PPO prices, explaining the plan document, restating the same facts twelve different ways.
While we were doing that, we were also looking at two parallel tracks:
- What does this hospital legally owe this patient as a “nonprofit” facility?
- Is there a better facility nearby where we can move the surgery if this place refuses to be reasonable?
The hospital doesn’t just call itself a nonprofit for fun. It’s a tax-exempt 501(c)(3) hospital with a financial assistance/charity care policy posted on its website. It takes the tax breaks, the bond markets love, and it loves to wear a community halo. But that comes with obligations and provides plans like ours with a legal hammer I’m not afraid to swing.
Among other things, that means:
- They must have a written Financial Assistance Policy.
- They must limit what they charge eligible patients for emergency and medically necessary care.
- They must make reasonable efforts to determine if a patient qualifies for assistance before they start swinging the collections sickle.
Layer on top of that California’s Hospital Fair Pricing Act, which further caps what hospitals can expect from lower and moderate income uninsured and underinsured patients, and you start to see the picture.
This is not a one-way street where the hospital gets to name a price and dare anyone to object, even though this hospital likes to behave that way.
Our member is a working guy with a working family. His income and household size put him squarely in the zone where this hospital is supposed to be offering real financial relief, not using him as a bargaining chip for ransom.
The Offer: 300% of Medicare, Take It or Explain Yourself
I’m not in this business to die on every hill over exactly 140% of Medicare. I’m in it to get good care at fair prices and protect plans and families.
Modern-day RBP plans that actually work have a pressure-relief valve. In this case, the plan has the authority, in exigent circumstances, to pay up to 200% or even 300% of Medicare for situations like this: when the member is in real danger, time is short, and the facility has leverage.
So we escalated:
- The plan would pay up to 300% of Medicare for medically necessary services tied to this episode of care.
- That’s more than double the standard RBP multiple.
- It’s still rational, still defensible, and still much closer to reality than 1,300%.
At the same time, we made it very clear that anything above that number would need to be dealt with under the hospital’s own financial assistance policy. In other words:
If you insist on charging more than that, then the excess is a charity-care question, not a “shake down the plan and the patient” question.
And we spelled out something that too many employers forget:
- The plan cannot pay 1,300% of Medicare and still claim to be acting as a prudent ERISA fiduciary.
- These are trust assets for all participants, not just one unlucky person with a surgery date.
- Writing a six-figure check to make a complex claim go away might look caring to some, but it’s really irresponsible plan governance.
We also didn’t let the hospital pretend this was purely a commercial discussion. When you hang a nonprofit sign on the door, file 501(c)(3) paperwork, and publish charity care policies, you are not just another business trying to maximize revenue. And we reminded them of this.
The Result: Scans Under Control, Surgery Moved to a Better Facility
Once we drew that line, the situation started to move.
We carved off the immediate need: the imaging and scans required to safely plan the surgery. We negotiated those to a completely different universe than the original 1,300% fantasy:
- The pre-op scans next week will come in somewhere between roughly 200% and about 350% of Medicare.
- All of that will cost under $25,000 in total.
That’s still more than generous compared to what Medicare pays, but it’s within the bounds of reason, especially for complex imaging in an urgent matter like this. It gives the doctors what they need without donors or employees unknowingly underwriting a seven-figure annual windfall for one case.
Then we addressed the surgery itself.
Instead of letting this hospital hold the patient hostage, we started transitioning his surgery to a higher-quality facility nearby. A place with better data, better attitude, and more realistic pricing.
So the member will:
- Get every required scan.
- Have his surgery at a superior facility.
- Avoid a catastrophic balance bill.
And the plan will:
- Avoid locking in a precedent that destroys its RBP strategy.
- Uphold its fiduciary duty to the entire employee population.
- Still step up and pay substantially more than 140% of Medicare where appropriate.
That is what functioning RBP looks like in 2025, and I’m here for it.
What This Tells You About RBP … and About Hospitals
I live in this space year-round. We run RBP plans, fight claims, negotiate with hospitals, and explain Medicare rates to people who haven’t looked at them since the Clinton administration.
Here’s the pattern:
- Most claims are quiet. You never hear about them. They’re repriced, paid, and closed. This is where you get the bulk of your 25–30%+ savings over a PPO.
- Some claims require extra work. Maybe there’s a balance bill letter here or there. Maybe we go back and forth a few times.
- Once a year, maybe less, you get something like this: a hospital swinging for the fences at 1,300% of Medicare and banking that fear will do the rest.
Those rare, ugly cases are where you find out if your RBP partners are serious or just a set of clowns who came along and said, “Hey, we can do that too!”
If you fold the first time a big system snarls, word spreads. Your 140% of Medicare “standard” becomes a polite suggestion. Pretty soon, you’re back to paying those oh so warm and fuzzy PPO rates, only now you get to enjoy the hospital’s rage on top of it.
If instead you:
- Hold the line on absurd multiples,
- Use the flexibility you built into the plan to go up to, say, 300% of Medicare when there’s a genuine need,
- Invoke the hospital’s own charity care obligations and legal status, and
- Move care to better, more reasonable facilities when you have to,
…then your numbers hold. The savings you were promised actually show up. Your stop-loss trend bends down. Your employees get real protection instead of a glossy network brochure.
And your “nonprofit” neighbors are reminded of what serving the community looks like
This is what it looks like to run a plan that is on the side of the patient and the employer, not on autopilot. It’s messy. It’s human. It’s stressful. But if you’re willing to do the work, you’ll save more money on healthcare than you ever dreamed possible.
