If I Could Help Find A Plan That Benefits Employees Aligns with Company Goals And “SAVES” Money Would You Be Interested?
The Wall Street Journal recently published an eye-opening article about how the big hospital chains – think Sutter Health and Dignity Health in northern California – structure their contracts with insurance companies to hide prices, load in fees and stack the deck against more competitive, or even higher quality, competitors. This is likely “eye-opening” to most employers, but not news to savvy health plan purchasers and brokers.
According to WSJ, 77% of Americans live in hospital markets considered highly concentrated. These monopolistic markets create a situation where hospitals are able to demand whatever PPO payment rates they want from the big health plans. The health plans accept those bloated contracts knowing they simply pass these costs to employers in higher premiums.
While the health plans tout their 45%-55% average PPO discounts, what good is the discount if it’s based on charges 500% higher or more than what Medicare pays for the exact same service.
In some markets, the employer response has been Reference Based Pricing (RBP). The employer drops the PPO network and their unfavorable PPO “discounts.” Instead, the employer pays a multiple of Medicare, e.g. 140%, instead of the hospital’s billed rate. While the CFO of an RBP plan will acknowledge dramatic cost savings, the HR team will tell a story of high employee dissatisfaction and provider push-back/administration confusion.
Here in California where hospital consolidation is high, there has been little adoption of RBP. The hospital chains hold the cards and several have proactively served notice they won’t accept RBP payments and will aggressively pursue balance billing of any short fall.
What’s the cost-saving alternative for employers in these consolidated markets?
Most of the health plans have developed ACOs (accountable care organizations). An ACO is a collaboration between the health plan and the health system. With greater coordination of care and interchange of data between the provider and the payor, better clinical outcomes are achieved and unnecessary/redundant expenses are eliminated. Cost reductions are impressive compared to traditional network plans. However, the trade-off is employees and their families are locked into a narrower network with fewer provider choices. Reality check…restricted choice may be the “new normal” to lower health plan premiums and reduce annual renewal increases.
As CFOs dig into their 2019 health plan renewals, a review of ACO options ought to be part of that process. While there are other cost-saving, trend-bending alternatives out there, that’s a different subject for a different day.