Hospitals Compete For Business – School District Saves Money

Little Rabbit, Montana, with a population of approximately 240,000, is located in the central part of the state. The local school district is currently self-funded, but as is the case with most districts in the state, health care costs continue to rise at double digits.  With tight budgetary constraints and increasing medical costs, the Little Rabbit Independent School District (LRISD)decided to do something different to reign in their employee health care costs…………..they terminated their group medical plan.

After saying goodbye to the old and failed way of doing things, they started a new and innovative program designed to provide employees with the very best in health care benefits with a cost basis 50% lower. Using common sense, prudent business practices and good old fashion American ingenuity the LRISD wisely looked south to Texas for guidance.

A well known Texas political subdivision had made national news by cutting their health care costs by 40% and increased benefits at the same time. This was accomplished  by moving away from managed care contracts. Instead, they paid hospital claims on a cost plus basis.

Results were amazing and immediate. For example, a $100,000 hospital bill (billed charge) is typically repriced down to about $50,000 under a managed care contract. However, using cost-fo-charge ratios as reported to CMS, it is not uncommon to see a reduction down to less than $20,000.

This pioneering Texas employer went a step further – on renewal they invited the two area hospital groups to submit competitive proposals for hospital care. Both hospital systems vyied for the business, one being more aggressive than the other. Cost differentials between the two competing hospitals were significant. With rates at or below Medicare, this group enjoyed even more savings.

LRISD hired a Texas born and based insurance consultant to guide them in transitioning from a high cost health plan to a low cost health plan with better benefits. The group saved money, the employees gained better benefits, and one local hospital system got all the business. There was only one loser.

Editor’s Note: A premium paying insurance policy is not as good as a claims paying insurance policy. Some don’t understand the difference. “If your not a part of the solution, there is good money to be made in prolonging the problem”