In an article I wrote a couple of weeks ago Hospital Pricing Part 1: Top-Down of Bottom-Up? I spoke of the difference between the two:  Top-Down pricing is where an insurance company or PPO Network has negotiated a discount off of the Chargemaster (Billed Charges).  But if the Billed Charges can be increased at any time, the PPO discount is virtually meaningless.  It’s simply “discount off of what?”

Bottom-Up pricing is sometimes referred to as Cost Plus or Medicare Plus.  This method of pricing is one in which the hospital or other facility is paid on a formula that utilizes their Medicare Reimbursement as a baseline and then an amount over that is what is actually paid.

As you have probably read, hospital charges vary greatly in this country, within regions in the country, within states, and even with counties and cities.  Their Medicare reimbursements also vary, but not as significantly as their charges.  Public information indicates that any given hospital may charge between 100% to over 1,000% of what they get reimbursed from Medicare for the same service!

Bottom up pricing cannot coexist with a traditional PPO.  The reason is that when a PPO contract is in place, the hospital must get reimbursed under that PPO contract.  There can’t be any deviation from that negotiated discount and payment because it’s a binding and legal contract.

Typically, 60%-70% of a group’s actual claim total costs are from Hospital / Facility related claims.  Approximately 95% of a group’s actual claim submissions (frequency) are physician claims. Physician claims are not what’s driving your healthcare costs.  Utilizing Bottom-Up pricing does not infringe on that physician – patient relationship.  With Bottom-Up pricing, physician claims are paid as they are done today – except with a physician only PPO network.

So what you end up with is a plan that has NO network restrictions for Hospitals and other facilities, and also a typical PPO network for physicians.  There are more pieces to this puzzle, but now you know the concept.

Results have shown that this approach can lower healthcare costs by $150,000 to $200,000 for every 100 employees covered under a plan.  In addition, underwriters reduce their stop loss premiums and aggregate attachment points significantly as well.  Results for my clients exceed $2,000 per employee per year.

In order to actually lower your costs rather than cost shifting them to your employees, you must challenge the status quo.  This means getting outside the proverbial insurance company and PPO box and explore other avenues for results.

Ask your healthcare broker or consultant about how you can save $2,000 per employee per year and see how they respond.  If they can’t come up with an answer other than shopping insurance companies, networks or cost shifting, it’s time to find a new Advisor.

You Don’t Know What You Don’t Know.