Sometimes history provides the best perspective and subsequently solutions to life’s most challenging problems, for example runaway healthcare costs. Read on to learn a history lesson on the beginning of PPO networks and how the disconnect between medical services and the cost of service were born.
The future is best planned for by looking in the past.
Phyllis Merrill, CEO of MBA Benefit Administrators and the creator of The Open Solution describes in her book, “UnCommon,” co authored by Brian Tracy, the history of medical insurance and how that impacts how we have reacted to and inflated the cost of medical care today. “The first medical insurance was an Indemnity Plan that paid a set mount for a specific type of medical event. Then came Major Medical, which at the time seemed revolutionary, and gave people a way to cover the cost of catastrophic care for the price of a monthly premium. It was up to the insurance company to pay for medical care and being an informed and responsible consumer was now not possible.”
In most cases you cannot even find out the cost of a service at a hospital before it is provided. There are no price comparisons, or shopping around. Because everyone is entitled to have medical insurance, there is a sense of entitlement for the payment of medical bills regardless of the cost. Merrill goes on to say, “This created a disconnect between the billing and the payment of the bills. The disconnect is even greater now that it has become a right to have all major medical expenses paid no matter the cost.”
The interesting thing about insurance is that discounts were originally negotiated as a means to drive insurance groups to specific service providers and facilities.
An insurance company would drive traffic to hospitals and specific doctors in exchange for a specified discount on services rendered. In most cases, the actual discount of was the current retail price, and then the provider inflated the non-group patients by 20% to offset their costs.
Merrill describes how this history has created the runaway price tag associated with health care in the U.S. today. “The idea of discounting as a percent off of retail is genius because if the hospital needs more money they simply increase the billed charges and leave the discount percentage the same. This approach is widespread today.”
There is one final component to this powerful partnership between the insurance companies and providers that has guaranteed price hikes.
“.. in exchange for discounts, most PPO contracts do not allow payers to audit a hospital bill. Hello unlimited mark-up! In hopes of gaining some control over runaway spending, some insurance companies have negotiated the price on DRG’s (Diagnostic Related Group). Facilities, however, are still very much in control. Glenn Melnick, Professor of Health Economics, University of Southern California asks, ‘How do hospitals set prices? They set prices to maximize revenue, and they raise prices as much as they can – all the research supports that.’”
The bottom line of this brief history lesson is three fold. First, PPO groups are designed to drive foot traffic to partnering providers. Second, discount prices given to insurance groups are actually a facade to the big business of the medical industry. Lastly, taking an insurance company’s right to an audit of the invoices away absolutely gives the power to collect more profits in the hands of the provider, ultimately taking the ability to control costs away from the patient receiving medical care.
So, what now? You have to have medical insurance.
At some point you will take advantage of the amazing medical care that is available in our country. What can you do about any of this? The answer is actually quite simple, and yet it is so breathtakingly brilliant. At MBA we use a highly effective audit and repricing platform. Rather than paying an egregiously overpriced claim, we pay the provider based on their actual cost to perform the services and disallow billing errors. It is that simple. We use publicly provided information as a basis for appropriate payments. Time and time again the claims are satisfied with huge savings for the one receiving care, and the financially responsible party, whether that be their self-funding employer, or their medical insurance provider. This is a system that has also been upheld in the court of law, and has set a precedence for cases nationwide. MBA is a preferred provider of ELAP who is responsible for the auditing and repricing of claims, along with legal protection for the members in the event of balance billing.
In fact, the results MBA is getting is unheard of!
When most medical plan costs are rising in the double digits yearly, Merrill enthusiastically shares, “Every renewal in our book of business that uses our audit and repricing method that were on ELAP went down.” That doesn’t happen anywhere, to anyone; and yet, here we are making real discounts happen.
Without exception, clients received a reduction of premiums at renewal this year. What a wonderful experience it is, to go to a renewal meeting with that kind of news to report.