I finally cracked the latest Health Affairs, and immediately found myself engrossed in Gerald Anderson’s piece on hospital pricing trends (paid subscription required for entire article).
While the article is focused on self-pay patients, the implications for workers comp payers are striking. And this isn’t some academic exercise, we’re talking serious money.
A quick backgrounder. CMS calculates what it should cost a hospital to deliver care for all patients, and uses this calculation in determining what Medicare will pay. But hospitals rarely use this cost basis to determine what to charge. In fact, the average hospital charges more than three times its Medicare-allowable costs.
The other key concept is gross to net revenues. Gross revenues are what the hospital charges; net revenues are what they collect. And in 2004, the average hospital billed 2.57 times more than they collected.
Here’s what this means for workers comp. Most payers use PPOs to get discounts on hospital costs. PPOs have contracts with hospitals giving their customers a percentage off charges (or below the fee schedule); these deals are typically range from 5% – 20% below charges/FS.
But as we’ve seen, charges are way way higher than costs. So, workers comp payers using PPOs are likely paying at least two times more than the hospital gets from other payers.
And much much more than the hospital’s costs.
I’m all in favor of the not for profit health care industry; I just don’t believe that employers should pay extra to help them with their mission.
What does this mean for you?
Time to revisit your PPO deals and look for other ways to reduce hospital expenses.
Joe, this is an excellent point and I appreciate you raising this issue. However, more important for the Hospital industry is the need for Hospitals to realize that this practice of overcharging work comp payors (even those using PPO’s) is resulting in the use of very aggressive cost analysis/cost containment firms. Hospitals wanting to stop the use of these firms need to get serious about putting realistic discounted relationships in place with PPO networks before this practice becomes the “rule” rather than the exception.
WOW, this is news? Joe, this has been a central theme in our safe work approach with hospitals and WC industry players.
Joe,
Good point… However, from my experience in medical bill review & WC repricing, I believe the overpayments to hospitals and other providers whom participate in PPO’s are not necessarily accidental or unintentional. My organization does a number of repricing audits and we have discovered that many repricing companies are overpaying provider bills on behalf of their insurance carrier clients, especially in the state of PA where each hospital has its own WC chargemaster of fee reimbursements by service code. Very few national repricing companies understand PA’s mechanism for paying hospitals and simply pay the bills at 80% or 100% of billed charges minus the PPO reduction which is much greater than the chargemaster. So, why would a repricing company who accesses a PPO do this at the detriment of their client? Consider:
1. If the repricing companies overpay the services, the PPO reductions will be higher. The savings will look greater (on paper) to the client and the repricing companies and the PPO’s they use will gain much higher PPO access fees. A win-win for the repricing companies and PPO’s and a great loss to their insurance carrier and self-insured employer clientele. Unfortunately, their clients are unaware of this as they rely so heavily on the “expertise” of their repricing vendor. Secondly, the providers do not notify the WC carriers when overpayments occur, only underpayments, and therefore the clients remain in the dark.
2. Even when we provide TPA’s and WC carriers with evidence of the overpayments, we have found that most have chosen to overlook the results and do nothing further with the information. At first, we were astounded by this revelation, but then we discovered that some carriers and TPA’s have “revenue sharing arrangements” with these repricing companies. The carriers are so obsessed with these arrangements that they lose sight of the fact that they are actually losing money on these relationships as they are paying much more in medical expenses had the repricing been done accurately and services not properly documented, been denied. The TPA’s lose sight of the fact that they are harming their self-insured clients by overpaying medical bills as they are gaining too much revenue from these deals and it’s much too lucrative to stop.
3. The real losers are the WC insureds who have no knowledge that all of this is going on behind the scenes. They are putting safety programs in place and reducing their overall injuries and cannot understand why their mods are still going up. It’s truly a travesty.
4. Most of the WC carrier, TPA, and self-insured employer decision makers do not have a vested interest in the company. In other words, it’s not their personal money. They are much more interested in the perks they receive from the repricing vendors and they want these to continue so they intentionally do not bring this to the attention of the Board members or owners.
Hopefully more interested parties will subscribe to your blog and it will open their eyes to what they need to do to stop the insanity.
Linda, thanks for one of the most eye-opening comments I have ever read on a health care blog.
I work for an insurer in a state neighboring PA, and we have arrangements with a PPO for our out-of-area network there. I will look at these arrangements in a new light.
JD… Thanks so much for the compliment. I greatly appreciate it. It’s nice to know that someone else in the industry cares about this stuff. I sincerely hope that you do not find what I think you may find, but I wish you the best of luck with the unearthing process.
Thanks again!