“Bigger  Discounts  Reduce  Healthcare  Costs”  Bigfoot,  Elvis  and  Other  Myths

The Search for True Health Care Cost Containment

   Big  “Discounts”

Paid Claims

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?

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?

“Ge1ing  out  of  the  hospital  is  a  lot  like  resigning  from  a  book  club.                              You'ʹre  not  out  of  it  until  the  computer  says  you'ʹre  out  of  it.”  

Erma  Bombeck

Billed  Charges  The  Moving  Target

•  The  current  system  for  hospitals  and  doctors  geLing  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.

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.

The  “Hidden”  Rx  Increase •  Large  carriers  are  usually  partnered  up  with  giant  Pharmacy  Benefit  Managers  

who  handle  the  financial  seLlement  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  paLern.

•  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.

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

Why  Bigger  Is  Not  BeLer  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.

Independent  Third  Party  Administrators

Not  All  Created  Equal!!

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

BoLom  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