RBP Direct Hospital Agreements – Be Careful of What You Hope For

By Bill Rusteberg

A self-funded plan sponsor has direct agreements with several San Antonio hospital systems. These direct agreements are a straight, flat rated Medicare based fee schedule without the usual managed care outliers such as escalator clauses, stop loss provisions, etc.

One of these direct contract agreements is based on a flat 180% MC at Hospital A while at Hospital B the agreement is a flat 130% MC.

In terms of dollars is the reimbursement rate differential 50%? The answer is “NO.”

Not all hospitals have the same Medicare reimbursement rates. For example HOSPITAL A is classified as a teaching hospital with a large uncompensated care case load. This hospital qualifies for a Medicare “Bonus” on every medical encounter. Other hospitals in town also qualify for a Medicare “Bonus” but in smaller amounts than does HOSPITAL A.

The following two examples illustrates the financial impact this has on Reference Based Pricing claim payment.

The first is for a knee replacement and the second one is for a normal delivery:

Medicare Number
Medicare Rate$32,209.59$14,777.72$14,304.47$14,060.71
Uncompensated Care$12,169.79$1,495.14$1,359.49$1,551.38
% of DRG Rate38%10%10%11%
Total$44,379.38$16,272.86 $15,663.96 $15,612.09
Medicare Number
Medicare Rate$20,642.48$5,962.15$5,840.95$5,725.84
Uncompensated Care$12,169.79$1,495.14$1,359.49$1,551.38
% of DRG Rate59%25%23%27%
Total$32,812.27$7,457.29$7,200.44 $7,277.22

Notice that the uncompensated care number is fixed – it is the same for every DRG.  So in addition to the other components of the relevant DRG, a Reference Based Pricing Plan paying 180% MC to HOSPITAL A pays 180% of $12,169.79 or $21,905.62 for every inpatient admission. Just walking through the in-patient door rings up a bill for over $20,000 before services are even received. That’s one heck of a Cover Charge.

That same Plan Sponsor has a direct agreement with Hospital B at 130% MC pays 130% of $1,495.14 or $1943.68 for every inpatient admission at HOSPITAL B.

The Plan Sponsor has no direct agreements at HOSPITAL C & D but the plan’s reference based price is set at 120% MC. Plan members have been going to HOSPITALS C & D for years resulting with less than 2% in balance billed claims.

With this information at hand, how can a plan sponsor act to achieve more effective health care financing?

We know and you should too.

RiskManagers.us is a specialty company in the benefits market that, while not an insurance company, works directly with health entities, medical providers, and businesses to identify and develop cost effective benefits packages, emphasizing transparency and fairness in direct reimbursement compensation methods.