Working The Spread

The Weslaco ISD lawsuit against Aetna is a fascinating read. The pleadings provide clues for those who are curious about various revenue streams found (or not found) within some administrative contracts for third party administration of group medical plans.

Such fees include “shared savings” off PPO network discounts. Alleged in this suit, Aetna charged Weslaco ISD 9.7% of savings as a network access fee. In other words, Aetna’s PPO contracts, negotiated by Aetna with willing providers, was “sold” to Weslaco in return for a percentage of the discount.

This illustrates the importance of chargemaster rates in the health care industry. Third party intermediaries and their hospital partners rely on them as an important source of revenue. See Hospitals Dismiss Significance Of Chargemaster Prices?

The higher the chargemaster rate the greater the savings (and fees to be earned) off a discount. For example, a 50% discount off $100,000 billed charge is greater than a 50% discount off a $80,000 billed charge. The higher the chargemaster rate, the more the contract holder can make in “shared savings.”

“Hospitals on average have gross billed charge rates between 550% and 900% of what Medicare would pay. Their net receipts are about half of that as the cartel of PPOs that dominate 95% of the commercial group health business average discounts of 44% to 52%. For-profit hospital rates tend to be significantly higher than rates for not or non-profit facilities.” – Mike Dendy, CEO AMPS

Agents and brokers (and consultants) may earn undisclosed fees through these shared savings arrangements. These fees never show up as a fixed cost as they are embedded on the claims side of the ledger.

“Defendent Garza’s unauthorized activity become obtrusive when he actually contacted Linda Silva at Aetna, purportedly on WISD’s behalf, to instruct her to bill WISD for its TPA services on a VBM basis (VBM stands for medical access fee), rather than a fixed cost administration fee.”

As indicated in the Weslaco vs Aetna pleadings, a zero ($0.00) administration fee can be offset through this ruse. A zero administration fee looks good on a spreadsheet.

“Simply put, had WISD known what Aetna would bill for its TPA, insurance services, and broker commissions for the 2007-2008 period, it would have selected a cheaper alternative vendor.”

See original pleading here: Weslaco-vs-Aetna