South Texas Health Co-Op Adopts Cost Plus Model

The Board of Directors of the South Texas Health Coop (STHC), a risk pool established in 1998 to provide Texas educators with comprehensive health care benefits, have moved to  adopt a cost plus model for reimbursing medical care facilities effective March 1, 2011. Estimated cost savings, based on historical claim data, is expected to be significant.

Cost savings to the plan will be utilized to implement benefit improvements in the near term.

The STHC has maintained comprehensive health care benefits since 1998 with minimal cost increases due to unique riskmanagement techniques employed by out-of-the-box strategies. 

The STHC recognized in 1998 that health care providers, in partnership with PPO networks, negotiated pricing that in many cases were not market driven. The STHC began to directly contract with interested physicians and facility managers early on, with the intended effect of lowering health care costs for their members.

Rio Hondo Independent School District and the La Feria Independent School District are members of the STHC. Their participation in a cost plus reimbursement approach augments several other large employer groups in the Lower Rio Grande Valley to contain health care costs.

Medicare is experimenting with the cost plus reimbursement model with selected rural hospitals. The Medicare model is cost plus 1%. (

Amfels, (  the second largest employer in Brownsville, Texas, will begin to pay health care facilities on a cost plus approach March 1, 2011. Tropical Texas MHMR with over 500 employees headquartered in Brownsville changed their health plan to a cost plus approach last year, with significant savings reported to date.

The cost plus model employs published data hospitals and health care facilities submit to the Federal Government attesting to their costs. Using this data, each claim is audited line by line. Each line item charge is converted to the hospital’s cost basis as reported to CMS, and a 12%  profit margin is added to the charge.

Utilizing the cost plus 12% margin approach, savings over typical PPO contracts are significant. For example, a recent hospital bill of $425,000 in billed charges was repriced through a national PPO rental network down to $250,000. After auditing the bill, cost plus 12% reimbursement brought the claim down to $115,000.

Balance billing issues are assigned to an outsourced fiduciary of the plan and the patient, i.e. the insured, is held harmless.

Editor’s Note: When we asked Molly Mulebriar , ace health care expert, why more employers dont implement the cost plus approach, her response was “because they have no cajones.”