3. Some Questions…
• If carrier discounts are so significant, why are costs
accelerating so rapidly?
• If big discounts from ABC insurance equal the lowest
healthcare costs, why aren’t all companies with
them?
• Follow up question: How can those companies that
are self insured with an independent TPA be getting
better results if not with the ABC Insurance company?
4. Answer: It’ s Always What You Spend,
Not What You Save
• Discounts are important, BUT they are not the only factor to control claims
costs.
• Large carriers administration systems are not necessarily the most efficient
claims processing due to the large volume they are forced to handle.
• In 2008, the American Medical Association agreed on a settlement with
the Blues parties to limit overpayment collections to no later than 18
months after the claim was paid.
• Food for thought: If the Blues were paying claims accurately in all cases,
why do they need to go and get their money back from the providers?
Why later than the current plan year? Who gets the money if recoveries
are made?
“Getting out of the hospital is a lot like resigning from a book club.
You're not out of it until the computer says you're out of it.”
Erma Bombeck
5. Billed Charges
The Moving Target
• The current system for hospitals and doctors getting paid for
services is primarily done on billed charge process
• Total billed charges can fluctuate significantly between providers
• If the billed charges are higher, even with a bigger discount, your
net payments will be higher.
• Independent networks are designed to create steerage to the
more cost effective, local providers that controls the total expense
to the group.
6. The Legend of a Wellness Visit
• Robert lives and works in San Diego, CA and his son needs a wellness visit and
immunizations.
• His health plan a large carrier network with a blue logo and he has a wide
geographical selection of providers that he can seek for his son.
• At the same premium rate, Robert can go to any facility. He chooses one and
takes his son for his physical.
• Result:
o Provider chosen charges $900 for the lab work alone.
o Smaller provider within network charges less than $300.
o The out of pocket expense to Robert is the same so he feels no
financial impact of his decision because wellness is paid at 100%.
o The employer that provides his insurance just got tagged for an
additional $600 to their plan costs.
o Multiply $600 times the number of children on your health plan.
o Is the large network surgical center worth $600 more per child than a
smaller network facility just to draw blood? Who makes that
decision? How many claims work that way? That is the question to
ponder…
True case study. Names changed to protect the innocent.
Claim data 2011.
7. The “Hidden” Rx Increase
• Large carriers are usually partnered up with giant Pharmacy Benefit Managers
who handle the financial settlement of their RX component
• PBM’s have become bloated companies focused on delivering increased
revenue to their shareholders not aggressively reducing RX costs
• Rx is rapidly becoming a larger component of the total medical spend. The
development of expensive specialty injectable drugs will continue this pattern.
• The US industry’s net income skyrocketed from about US $400 million in
2008 to a record US $3.7 billion in 2009. *
• PBM’s can differ in ingredient costs for the same RX by 10 to 15 percent
• PBM’s can steer, via copays, patients to use higher rebate medications that
provide bigger revenue to the PBM, but increased costs to your business
* Beyond borders: global biotechnology report 2010, Ernst & Young’s 24th annual report on the
biotech industry.
8. Claims Payors Are Different
• Third Party Administrators, whether you are self funded or
are fully insured, are different.
o Different software
o Different procedures
o Different administration
o Different overhead structures
o Different audit protocols
o Different mindset
o Different volume processing load
Bigger is not better when it comes to claims processing.
More auto adjudication (Explains the large recovery efforts)
More pressure to get claims paid faster
Less Utilization Review of each claim
Less chance for disease management intervention
Less chance of subrogation coordination
9. Why Bigger Is Not Better In Paying
Claims
• Large claim processors need to move claims through an
electronic system very quickly
• Payments can be erroneously made for:
o Non-eligible items per the Plan Documents
o Deductibles can be misapplied.
o If deductibles need to be corrected, all plan claims would need to be review for
accuracy. Most large systems cannot accommodate this level of adjustment
o Payment for duplicate services
o Payment for similar treatments billed under different codes
o Payments that exceed maximum plan benefit payouts
o Payments for treatments not authorized by the plan holder
o Claims should have been covered by another provider
o Ineligible dependent claims
• This is why the large payers need to go after overpayments after
the fact.
• Fully insured clients will not see the recovery of funds reduce their
direct premium costs.
11. Independent Third Party Administrators
• Technology has allowed many companies to pay
medical and RX claims for clients
• Not all software systems are using current developer
standards and are stuck 20 years behind the times
• Mindset of the TPA owners could be different
o Some are more aggressively managing and auditing claims on the fly
o Letting software simply pay the claims doesn’t address the issue of the
appropriateness of paying a claim
o Could be no different that hiring a large claim payer
• Not all TPA’s have similar PPO network connections
• Customer service standards can be radically different
12. Bottom Line…
• Watch YOUR bottom line!
• Acknowledge the importance of discounts, but don’t
determine the fate of your health plan solely on that
factor
• Many companies focus on hospital discounts and are
getting whacked on higher RX costs due to large carrier
PBM contracts and on physician costs where most of the
claims occur.
• Focus on cost avoidance, not just cost discounting
• Introduce Risk Reduction/Health Improvement Strategies
