Hoodwinking – A Popular & Proven Sales Strategy
By Bill Rusteberg
The following illustrates two common practices in the insurance industry to maximize revenue through deception by hiding administrative fees and commissions on the claim side of the ledger with a little help from the PBM.
By Bill Rusteberg
A self-funded plan sponsor is considering a proposal from a major insurance company (TPA) to administer the group’s health & welfare plan. The TPA makes it clear that it would be to the best financial interests of the plan sponsor to bundle all services, including claim administration and pharmacy benefit management under one contract, one roof, for lowest cost.
Here is how the deception is crafted:
- TPA determines what they need to charge to administer claims. Let’s say they determine they need $40 PEPM.
- TPA inflates this fee by $10 for a total TPA admin fee of $50 PEPM.
- TPA informs the client that if TPA is allowed to package their Rx program with the medical plan, they will credit 100% of Rx rebates against the TPA administration fee.
- The TPA warrants and represents that 100% of Rx rebates will be the exact equivalent of $10 PEPM. In this case the $50 fee will reduce to $40…….
Or, better yet…………..
The TPA warrants and represents that 100% of Rx rebates will be equal to or greater than the admin fees effectively gifting free TPA administration as in the case of the Edinburg Independent School District:
Edinburg ISD believes Blue Cross plan administration is costing them nothing, that their BCBS admin fee is a negative $70.82.
This charade is the equivalent to a car dealer giving a trade-in value off an inflated, arbitrary number, while selling the new car above factory invoice. The customer thinks it is a good deal. The car dealer ends up with a free used car and earns a profit off the new car.
It’s hard to believe anyone would fall for this but the evidence is clear. A con man’s primal pitch is the addictive attraction of “Getting Something For Nothing.
TPA’s must be very good at predicting what 100% of the rebates will be prior to the beginning of the plan year before claims are incurred and paid.
In this instance, just like the car dealership, the TPA ends up getting the admin fee they needed in the first place and 100% of the rebates. Plus they get to develop the Rx formulary – you can bet it is stacked to generate the maximum amount of rebates available.
The Edinburg ISD example is just one of many exposing the enormous corruption in American health care financing.
In another instance a BUCA was informed the group was planning to bid out their PBM services. The BUCA response:
“We have new (RX) discounts available (AWP’S) savings that I am able to pass along that equal very significant dollars!”
Yes, this really happened! How dumb does the sales rep. think we are?
The BUCA rep. projected a Rx savings of $642,000, or about 18.6% savings over Rx spend compared to the prior 12 month period. Someone was getting the +$600,000. Who was it? Who’s getting the haircut?
Insurance brokers know a little something about Rx rebates too. They too can leverage ignorance into turbocharged commissions. Take the case of Jeff, a Texas broker who wants more commissions but he doesn’t want his client to know it:
Jeff decided it was his best interest to strip out the BUCA’s PBM and replace with another PBM paying him higher commissions. In this true case Jeff ends up making almost $10,000 more from the BUCA plus even more from his PBM of choice.
These shenanigans go on all the time. We see it everywhere. It’s systemic.
Hard to believe all this is going on. And it’s even harder to believe plan sponsors aren’t doing much about it. And besides, if PBMs promise 100% return of rebates why have them in the first place? But there’s hope. Remember what Winston said?
“You can always count on Americans to do the right thing – after they’ve tried everything else.” – Winston Churchill
