, who has been our most eloquent teller of health care craziness stories in recent years, sent out a request the other day for alarming stories from the broker/consultant sector. He wrote:
Benefit brokers get paid more for doing a bad job (i.e., allowing healthcare costs to go up pays them more since they make a % of costs in many compensation schemes). They can get rewards for driving up spending such as trips or other undisclosed compensation. Tell us some of the most outrageous compensation schemes that help fuel hyperinflation in healthcare.
, a deeply experienced, progressive and entertaining health benefits consultant based in Brownsville, Texas, sent in the following vignettes, and solicits more from other similarly experienced consultants. Read on.
Over 50% of employer groups of 200 employee lives and more currently self fund their health & welfare plans. Many are using independent third party administrators (TPA). Most plan sponsors view their TPA as “general contractor” which they rely upon to provide not only claim administration (record keeping) but many of the ancillary services necessarily needed such as stop loss insurance, PPO access through any number of available networks, audit services, etc. TPA’s have traditionally earned fees / commissions off each service they package along with their record keeping functions. For example, one national TPA earns a 25% commission off a vendor who provides a Reference Based Pricing platform (patient advocacy, claim re-pricing, legal defense and legal indemnification) which can amount to hundreds of thousands of dollars per year for a group of 500 employees. Tell us stories about this and particularly how some plan sponsors are pushing back against fee/commission mining among TPA’s.
One Texas TPA uses an ingenious method to drive up their compensation levels. This strategy hinges on the ignorance of plan sponsors who know no better, particularly rural political subdivisions. In almost every public request for proposals, this TPA is the most competitive offer on a typical spreadsheet. Fixed costs are the lowest and their aggregate stop loss factors are 10-15% lower than their competition. How do they do this? They make up their low (less than $10 pepm) administration fee by adding a $7.50 (or more) per claim processing fee. This is not shown on their proposal spreadsheet but is barely mentioned in small print within the proposal “Conditions” pages. In order to turbo charge this per claim processing fee (check cashing fee) they systematically unbundle one claim into multiple claims. In addition to this scheme, the TPA inflates the aggregate factors by $12.50. Then, upon delivery of the stop loss contract the true aggregate factors is disclosed but the $12.50 fee inflation now appears on each monthly invoice as a pepm “Aggregate Factor Management Fee.” These ingenious add-on fees in effect make the TPA the highest bidder in every situation. Tell us about similar situations you have experienced.
A self-funded employer questioned why a pain management doctor had charged +$1,000,000 in treatment costs (no hospitalization) on one patient during the plan year. The physician was part of a rental PPO network. The TPA never questioned the billing and sent the employer check run after check run which included significant charges for this plan participant. Only after $250,000 in claim checks were issued did the employer take notice and instructed the TPA to halt further payments. The physician sued and won a substantial award. Tell us about similar stories of excessive claims paid without any or little scrutiny and the consequences to the plan sponsor and ultimate outcomes.
A prominent physician within his community privately told a risk manager “We (physicians) don’t care what PPO network is used. We sign up for every one of them. We don’t really care what the reimbursement levels are, we simply run more test and provide more services to make up the difference.” Tell us about similar situations you may have experienced and how the employer may or may not have addressed resultant over utilization patterns.
A local hospital (member of a national chain of hospitals) met with a proponent of Reference Based Pricing. The purpose of the meeting was to negotiate a direct agreement with a local plan sponsor (4,500 employee lives). When told the proposed offer was 150% of Medicare (in and out patient services) the response was “I get 300% of Medicare from Blue Cross. Why would I accept 150%? Tell us about similar discussions with hospital officials in your community.
An 8,000 employee life group with BCBS located in one zip code only, experienced a $9 million spike in claims in one year. There were no significant outlier claims, no change in benefits, little or no change in demographics. The spike in claims were on hospital charges with little or no extraordinary change on professional services or utilization patterns. It was determined the spike in claims was a direct result of re-negotiated hospital contracts by BCBS the prior year. Tell us about similar stories and what was done to mitigate secretive managed care contracts through negotiation, changing networks, etc.
In Weslaco Independent School District vs Aetna is was revealed Aetna was taking a 9.6% of savings fee on all claim in addition to other fees charged to this self-funded plan sponsor. In effect, Aetna was the direct beneficiary of managed care contracts they negotiated on behalf of their client. Tell us similar stories of similar fees that many plan sponsors are not aware of and strategies to end or moderate these practices.
Recently (2016) a San Antonio based insurance consultant was arrested and plead guilty to accepting bribes from an insurance broker in return for gaining the business. His indictment was sealed for 8 months. Subsequently, others were indicted for bribery including another broker and a school board trustee of a large Texas school district. The FBI, in a press release, stated this was just the tip of an enormous iceberg with more investigation ongoing. Tell us about similar double dipping by fee based insurance consultants. How widespread is this practice in today’s industry?
Every TPA and BUCA has their favored brokers/consultants. Their duty of loyalty is to these “trusted” partners. In one instance we are aware of, a broker representing a long time client requested proposals from the market, including the BUCA’s and prominent TPA’s known to him to be active in the area. He received Dear John letters from all, stating (1) Sorry, we already have received this request from another broker and will be working though him or (2) Sorry, after review of the submission we find we will be uncompetitive. The problem – the broker was sole solicitor for the group and his submission did not include necessary claim data. The BUCA’s and TPA’s simply sent out form letters. Subsequently the employer was called upon by other agents and brokers who represented they knew they were out to bid and they could save them money. Tell us about similar collusion between vendors and brokers you may have experienced either as an independent broker or plan sponsor.
Hard to read stories like this and continue taking the system at face value. Choosing vendors in this industry should be based on verifiable performance data. Caveat emptor!
If you have similar stories, we’d like to hear them.