As I continue to talk and visit with employers about their group health plans, one comment that I hear is that they aren’t looking at alternatives because they were told by their broker that their incumbent insurance company or PPO network has the biggest and best discount available and therefore have the lowest rates. In addition, their broker has advised them that there are no better alternatives to consider that have a greater PPO discount. “I was even guaranteed > 50% discount in the quote from our current insurance program, so why would we consider anything else?”
As I’ve written in previous articles regarding and alternative pricing, once you understand how hospitals charge for their services, you too will ask the question “Discount off of what?” You see, an insurance company or PPO network can promise and tout huge discounts to anyone and any group. When I was a broker I always heard from various group insurance representatives that “our discount is the best in the marketplace or, no one can beat our discounts or, we guarantee X percentage discount.”
The problem is that when hospitals (any facility) contract with insurance companies and PPO networks, their discounts are based off of the hospital’s Charge Master – a voluminous file of all of the products and services they offer and their related charges. Charges can go up and up, at any time, so the contracted discount off of billed charges is meaningless, and is really nothing but smoke and mirrors. It’s like going to Target for a sale on clothing, only to have the store mark up their prices in order to gain attractive buyers because of the big discount they’ve advertised.
At the end of the day, you need to have a clear and precise understanding of the pricing that you’re getting from all facilities. If you don’t know the base price with which the discounts are applied to, how do you know what you’re paying for? As one friend said, “we can all brag about our golf handicap and how low it is, but the real test is how we score on the golf course.” How do you really know what you’re paying for with hospital and other facility services? The answer is, you don’t! None of us have any idea of the base rates to which discounts are applied, nor do we have any knowledge of how often, and how much the base rates go up.
Even if you get reporting to substantiate the discount they said you received, I go back to the question “Discount off of what?” It’s funny money.
In order to act as a responsible Plan Fiduciary, an employer need to know specific information. As Plan Fiduciaries for a health plan, employers are handling other people’s money and, and as a Fiduciary you’re entering into a contract with an insurance company and/or PPO network (on behalf of your employees) and you have no idea what price you’re purchasing those services for – not exactly acting as a responsible Plan Fiduciary. In fact, DOL class-action lawsuits have now begun to spring up against employers precisely because of this lack of Fiduciary responsibility.
If you want to know more about competitive hospital pricing methodologies and what you can do to act as a reasonable and responsible Plan Fiduciary, please contact me for a complimentary 30 minute consultation.
You Don’t Know What You Don’t Know.