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:
| DRG 470 Knee Replacement | HOSPITAL A | HOSPITAL B | HOSPITAL C | HOSPITAL D |
| 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 Rate | 38% | 10% | 10% | 11% |
| Total | $44,379.38 | $16,272.86 | $15,663.96 | $15,612.09 |
| DRG 807 Vaginal Delivery | HOSPITAL A | HOSPITAL B | HOSPITAL C | HOSPITAL D |
| 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 Rate | 59% | 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?
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