Despite the many advances made in healthcare transparency and improvements in efficiency, cost shifting to Private / Commercial Payers is alive and well. As the Johns Hopkins research report indicates, the Nationwide Average Charge to Cost ratio on Medical Claims is around 3.5, with the top 50 most aggressive hospitals charging over 10 times cost. To visualize what this national average looks like, for every $100 in cost to a Hospital Facility to perform a service (after supplies, payroll, rent, etc.), they charge Private and Commercial (Non-Exchange) Payers $350.
Researcher: ‘What other industry can you think of that marks up their prices by 1,000 percent and remains in business?’
Cost shifting on Medical Claims is not a new phenomenon, its been going on for decades, however, it is being made worse by ACA because most insurers are losing money on the exchange plans. To survive, Hospitals have to make up the losses somewhere else – the non-exchange, non-Medicare/Medicaid business. Despite understanding and empathizing with their challenging position, we cannot let our clients be abused in this manner. As such, we have and continue to aggressively support our Referenced Based Reimbursement (RBR) models which virtually eliminates cost shifting.
PPOs – the Illusion of Savings
Using the example above, a typical PPO would (might) save the payer about 30% off this $350 charge = $245 net payable. While a 30% discount sounds good, its apparent this discount fails to offset the average 350% markup. In this example, that $245 is still 245% over cost. This type of repricing mechanism naturally has an hyper-inflationary effect on healthcare cost. If I were a healthcare facility and wanted to increase my profits, all I have to do under the PPO model is increase my charges significantly. As long I showed a great discount, its apparent the sky is the limit on what I could charge. I’m simplifying this process but fact is PPO contracts tie payers hands and make them hostages to exaggerated facility charges.
Reference Based Reimbursement
In our RBR models we manage the cost of Medical Claims by starting with the cost of services and work our way up, the same way that Medicare works in their Fee for Service model. By having the actual cost of the procedures, we can then apply a reasonable profit that is more than what Medicare pays (an average of 140% of Medicare) but far less than what would be paid on with any PPO contract. Does a hospital ever push back on this approach? Do they ever threaten to sue? Sometimes….. But there’s always a number that makes sense for all parties (no one wants to go to court) and it averages 140-145% of Medicare. This model is working great, is scalable and our Carriers aggressively support this approach. Its a great way to restrict year over year trend to the low single digits.
Call today to see if RBR is a good fit for your clients 🙂
Oh….and what would this $100 charge look under our RBR model? Medicare would pay “at most” $120 (20% over cost). If we mark that up by 140%, we get a $168 net payable reimbursement. That’s a $77 savings beyond what most PPOs would offer. Its a proven model for controlling the cost of Medical Claims.