“Cost Plus is a Real Plus – The industry at large is now contemplating new pricing methodologies, whereby the benefit plan identifies a fixed rate upon which it bases what it deems to be a fair market value. The benchmark can be based upon some percentage of Medicare, or any other number of parameters. ”
MyHealthGuide Source: Ron E. Peck, Esq. and Shauna Mackey, Esq., The Phia Group, 12/7/2012, www.PhiaGroup.com
Editor’s Note: The following are authors’ excerpts from the paper anticipated to be published in full soon.
Benefit plans are exploring alternatives price methodologies. We must explore the alternatives with an open mind, understanding that alternatives – while resulting in cost savings for the benefit plan – are not cost free.
A Brief History of PPOs
PPOs were originally developed so that select providers could offer services at discounted rates to benefit plans in exchange for steerage. Over time, exclusivity of in-network status became significantly lessened. This loss of exclusivity resulted in less value attached to in-network status for providers.
The Status Quo
Discounts are not the only reason to use a PPO. PPO agreements represent pre-negotiated terms and include a contractual prohibition on “balance billing.”
Forced Change
Stop-loss carriers are being more judicious in their review of claims payments and are stringently enforcing plan language that caps allowable payable amounts. Forced to choose a side, many benefit plan administrators are choosing to shed their PPO and administer claims solely in accordance with the terms of their plan document.
The Conflict PPO network agreements make it difficult, if not impossible to…
- audit claims submitted by in-network providers,
- openly prohibit the application of plan-based limitations, such as usual and customary rates,
- prohibit the review of provider bills, limit or eliminate the plan’s ability to obtain invoices,
- disallow audits by the plan, and
- apply ambitious deadlines.
Mercury Rising
Providers are not always to be blamed for these inherent conflicts. Providers execute contracts with the PPO (negotiating on the plan’s behalf) that providers presume will control the relationship.
Providers proceed in reliance upon the (reasonable) belief that the network contract will control the entire procedure. Some providers, however, take this advantage to the next level. In the State of California, the State’s insurance commissioner identified multiple instances where – it is alleged – facilities committed billing fraud. The State, furthermore, asserted that the terms of the network agreements concealed the billing practices, by limiting the payors’ rights to review the claims.
Cost Plus is a Real Plus
The industry at large is now contemplating new pricing methodologies, whereby the benefit plan identifies a fixed rate upon which it bases what it deems to be a fair market value. The benchmark can be based upon some percentage of Medicare, or any other number of parameters.
Fair and Balanced Billing
In response to this trend, some providers have advised that implementation of such fixed-cost systems may result in balance billing of the patients, similar to any out of network procedure. The benefit plan pays the amount set by the plan document, and the provider balance bills.
How Much is that Transplant in the Window?
Despite its name, health “insurance” is not “insurance” as that product is known in other industries. Insurance is purchased by insureds so that if and when they suffer a loss, they are provided with compensation equal in value to that loss. In health care, nobody knows what the fair market value of a particular loss (i.e. a hospital bill) is.
Contract to Kill
Contracts requiring one or all parties to commit a crime are void for illegality. Health plan administrators have a fiduciary duty, under ERISA, to uphold the terms of the plan document.
The plan administrator is required to pay no more than the maximum allowable amount, in accordance with the terms of the plan. If paying claims in accordance with a network contract means payment in excess of what the plan document allows, it can be fairly said that the network agreement requires the plan to breach its fiduciary duty, and may be void.
Agreeing on the Options
Providers and PPO networks are justified in their outrage. Benefit plans have for decades taken advantage of discounts, and much more importantly, have stifled providers’ rights to balance bill.
Providers and networks, however, must come to terms with the facts. Benefit plans cannot be chastised back into the classic PPO arrangements that have, for many years, been the status quo. In the coming years, the rising cost of doing business within the traditional PPO structure and complying with the new law will drive employers away from private plans.
Making the Pie Larger
Benefit plans need to work, hand in hand, with providers to develop new programs that offer true value to providers in exchange for cost-effective care. If all of the beneficiaries of private health insurance do not innovate together, traditional health insurance will lose out to the exchanges, or benefit plans will become nothing more than auto insurance policies and homeowner’s insurance… prohibiting assignment of benefits entirely.
About The Phia Group, LLC
The Phia Group, LLC, headquartered in Braintree, Massachusetts, is an experienced provider of health care cost containment techniques offering comprehensive claims recovery, plan document and consulting services designed to control health care costs and protect plan assets. The Phia Group’s overall mission is to reduce the cost of plans through its recovery strategies, innovative technologies, legal expertise, and focused, flexible customer service. Visit www.PhiaGroup.com.
Editor’s Note: Cost Plus benchmarking among plan sponsors is growing in acceptance. PPO networks and their provider partners are alarmed. The golden honeypot known as Managed Care is threatened. See Managed Care Under Siege
