Medical Center Fights Cost-Plus – Rallies the Troops


The cost-plus methodology to reimburse hospital facilities is catching on in Texas.  Basically, the concept is simple; pay hospitals their cost as reported to CMS plus a 12% guaranteed profit margin. That seems fair. After all, this is not a new concept but an old one pioneered years ago by Blue Cross. Back in those days hospitals were paid cost-plus 5%.

The City of Sherman changed their employee health insurance plan in October 2009 to pay hospitals on a cost-plus basis. Below is a memorandum issued by a local medical center to their medical staff members:

See Memorandum here – WNJ

What is interesting to us is the path choosen by the medical center. Would it not be better to have a face-to-face meeting with the employer and negotiate a direct contract mutually agreeable to both sides? And since all of this boils down to money, and since the monies involved here are predominately public monies (taxpayers are ultimately funding the City of Sherman’s employee benefit plan), total transparency should be the order of the day. And that is what the city is apparently attempting to do – they are paying cost (documented by filings to CMS) plus a seemingly fair profit margin of 12%. Our question to the hospital at this point is “What are you getting profit margin wise from the PPO networks you are a party to, but which we cannot see?”

In all fairness to Wilson N. Jones Medical Center, the Memorandum does state that they are seeking a meeting with the city. That is a good thing.

Our recommendation to the city: Inform the medical center that there will be no discussions regarding “discounts” off “billed charges” unless there is a definitive way to benchmark costs.

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