Tag Archives: ppo

6 Tips for Reference-Based Pricing

Reference-based pricing, also called metric-based pricing, is an alternative to the traditional PPO model that offers substantial cost saving and benefits for self-funded employers by leveraging fair and transparent practices.

If you aren’t familiar with reference-based pricing, it could seem disruptive to your operations to make a change. However, many self-funded employers are implementing this alternative and reaping the benefits.

How does reference-based pricing compare with the PPO employers are currently offering to their employees?

PPO: The most prevalent form of health insurance, where the annual cost for employers increases year-over-year and high deductibles are a challenge for patients.

Members use a network of hospitals and doctors under a discount to take advantage of pre-negotiated costs. Oftentimes, these discounts vary widely inside the network and result in fluctuating costs. An independent study conducted by Castlight Health, a San Francisco-based healthcare price transparency company, shows PPO allowable amounts for common procedures swing as much as 500% in some regions.

The variable discounts are calculated on variable billed charges from the hospitals’ chargemaster, prices that many times are inflated and fluctuate dramatically between hospitals for the same service. In one example, the California Public Employees’ Retirement System (CalPERS), which manages the largest public employee benefit fund in the U.S, found that facilities throughout the state charged vastly different rates — between $15,000 and $110,000 — for a hip or knee replacement.

Referenced-based pricing: A modern solution for self-funded employers to manage healthcare costs for their business and employees.

Under this model, reimbursements to providers are based on the actual cost to deliver service or Medicare reimbursements. This more level approach starts at the bottom and adds a fair profit margin. Working with a reputable solution provider, self-funded employers can save up to 30% in their first year after switching to reference-based pricing.

See also: Myths on Reference-Based Pricing  

It’s not uncommon for employers to question making the switch from a PPO to a reference-based model. Is it worthwhile to make a change? Will employees understand the change? Does it require a lot of work? Let’s explore six tips for a smooth transition to reference-based pricing without disruption.

1. Do a little homework: Start by finding an experienced provider

Employers should only work with partners that are trusted and experienced with providing successful reference-based pricing solutions.

Look for a provider that has more than five years of experience auditing claims in all 50 states, welcomes reference calls, shares case studies from successful partnerships and retains clients long-term.

2. Schedule face time: Vet your potential provider

Request to see a provider’s operations in person to assess if the provider is financially secure, is equipped with resources and demonstrates a commitment to the success of their clients.

Look for a partner that welcomes site visits and pay particular attention to the size of the customer service team.

3. Commitment counts: Co-fiduciaries are an important consideration

Your reference-based pricing solution provider should be a partner that is 100% invested in your success.

Look for a partner that is willing to sign on as a co-fiduciary because it may be asked to assist in managing the financial assets of your plan.

4. Knowledge is power: Employee education is paramount

When you make a change to a benefits package, clear communication is important to ensure employees understand the new plan.

Look for a partner that will educate, answer questions and serve as a continuing resource to your office for the duration of the partnership.

5. Relationships count: Employers and medical providers must work together

Reference-based pricing is not a one-size-fits-all solution.

Look for a partner that collaborates with health systems (especially solution providers with established partnerships), and demonstrates dedication toward fair provider reimbursement.

See also: Innovation: ‘Where Do We Start?’  

6. Measure the impact: Assess how your plan is working

The partnership doesn’t stop after a plan is in place!

Look for a partner that is results-driven and reports on your cost savings. A provider should also provide a dedicated support specialist and be a continuing, committed resource.

Workers’ Comp: the Best of Both Worlds

I kicked off this series by detailing my argument for why physician quality is the single most important aspect of a claim — efficient and effective care is far more impactful than discounted care. Now, I want to expand on this idea by delving further into the relationship between the preferred provider network (PPO) and the exclusive provider network (EPO).

First, let’s understand what is meant by EPO. The narrow definition of the term is a network that is the exclusive option for providers. In workers’ compensation, it most accurately describes programs like the MPN in California, the HCN in Texas or the PPP in Illinois. These are all examples of models where the insurer or employer can define an exclusive list of providers from which an injured worker must choose their doctors. In a broader sense, I think of the EPO as the listing of doctors and ancillary providers that are going to be included in elite programs. This includes the list of doctors you would want to use every time you create a workplace poster or the list of doctors used in any channeling program like initial triage. Think of it as the doctors you want to use any time you have the opportunity to either direct, contain or influence selection of a provider. Ideally, the goal of an EPO should be selecting the best available providers to drive improvements in outcomes.

And improved outcomes should be at the heart of the relationship between PPO and EPO. Over the past decade, outcomes-based networks have become a well-adopted and proven model for dramatically improving a claim population’s overall costs, lost time and litigation, but many organizations struggle with the roll of PPOs in this model. They are also curious as to how to leverage the best of both worlds — PPO and EPO — to drive better outcomes and better pricing moving forward.

Separating “Who” and “How”

The idea of using both PPOs and EPOs to improve outcomes has been somewhat confounding to date. As discussed in Part One of this series, the primary goal of the PPO is to contract with as many providers as possible to drive the best purchase prices for medical and ancillary services. In the absence of any controls over care, the PPO serves its customers best by including poor-performing doctors, courtesy of more available discounts. With controls (and strategies to leverage those controls) for outcomes in place, however, the game changes, and the roll of the PPO needs to be reconsidered.

See also: Why So Soft on Workers Comp Fraud?  

In this environment, PPOs and EPOs coexist in an important balance. The EPO needs to determine “who” to work with, and the PPO provides the mechanism for “how” you work with them.

Consider the following table:

Hopefully, it quickly becomes clear that the “best of both worlds” model is not only achievable but also makes things like vendor selection and program management easier.

Under this framework, the value proposition and role of the PPO is clarified: The PPO is the source of doctors who have been properly vetted through credentialing practices and contracted to provide care, typically at a favorable price. This function could be offloaded to your bill review vendor if it is positioned to resell networks, or you can take on the task of deciding which combination of PPOs gives you the best bench to select doctors from in each jurisdiction. On a case-by-case basis, you may find barriers with a certain jurisdiction or PPO vendor, so some research may be necessary to determine how to manage selecting a subset of providers from a list of preferred providers.

Once you’ve built your bench of “available” doctors, the next step is to select the doctors that are going to be invited into the elite program, or EPO. The most effective method for selecting doctors for an EPO is outcomes-based. Depending on the program, it may be necessary to have processes and documentation for decisions related to the inclusion or removal of doctors from your elite programs. This is more important in situations where the decision to exclude a provider will prevent them from being able to treat your injured workers. Think MPN exclusion. It’s not really an issue when you are just selecting three doctors to be on a workplace poster.

The core message is: Think differently about the purpose of your PPOs; they have a specific value proposition when you are working with an EPO strategy. Use the PPO to build your bench of available doctors, and use your EPO to decide which doctors are the ones you want your injured workers to use.

See also: Healthcare’s Lessons for Workers’ Comp  

The age of accountable care is upon us — in both comp and group health. Data science and access to big data has enabled a level of accountability that did not exist a decade ago. If you do not have a strategy for using quality as a primary factor in determining who should be seeing your injured workers, you are missing the boat. Having a framework for how to separate who you work with (EPO) from how you work with them (PPO) helps get you started on the path to an outcomes program or provides an easier perspective for how you manage and improve an existing program over time.

Next Steps

Once you have your framework in place, you need to determine the right balance of quality and quantity. To do this, quantify the difference between good and bad doctors. There are a lot of tools available to help you do this. Then, determine how many doctors you need of each type in a given geography to fully service workers. Next, eliminate those doctors whose outcomes don’t make the cut from your network. As long as you have enough good doctors available who can also provide a discount, there is zero benefit to having a deep bench. Once you make smart cuts, emphasizing quality over quantity, watch your savings and worker satisfaction with their care dramatically improve.

Next up: outcomes strategies for each type of jurisdiction. In Part Three of this series, I will dive into three types of jurisdictional models and look at the differences between states. Stay tuned!

This article was first published in Claims Journal.

What Matters in Workers’ Comp

Is this claimant supposed to be off work? Did I get enough discount on the services? Were those services even necessary? I would argue that the question everyone should be asking instead is: Who is your doctor? After all, the physician is the person who sets all of the other wheels in motion — wheels that influence things from quality of care to how long an employee is out of work and the ultimate cost of an injury.

Throughout the past 15 years that I’ve spent managing networks and working with top companies developing custom solutions, one thing has consistently held true: Physician quality matters … A LOT. In fact, provider quality is shown to make the single greatest impact on a claim. It’s something that shouldn’t be overlooked, and yet all too often it is.

Numerous studies have shown that good doctors make a difference. There is a huge discrepancy in claims associated with doctors who score well on an outcomes basis versus those who don’t. The average costs associated with a problematic D- or E-rated physician, compared with a rock star A- or B-rated doctor, are astounding when you really dig into the data.

It is even more profound when you factor in case mixing and adjust results based on severity or type of claim.

See also: The State of Workers’ Compensation  

A wealth of information now exists on physician quality, and many different models, from simple to complex, can provide useful insights into which doctors can be associated with better outcomes. Carriers and employers should apply this data to think more aggressively about their networks.

The PPO Dilemma

Before we get there, however, let’s look at what’s going on with preferred provider organizations (PPOs). PPOs are the most common strategy used to control costs in our market. A PPO’s value comes from providing a negotiated discount on a medical encounter. Once you have entered into business with the PPO, its primary revenue source comes from matching your bills to a pre-negotiated discount — and the PPO gets more matches by contracting with more doctors. Therefore, if the PPO only contracts with the doctors who show the best outcomes, the PPO loses significant amounts of revenue any time bills come in from uncontracted doctors who don’t perform as well in outcomes.

As such, all discount networks must contract with as many doctors as possible to ensure they don’t lose revenue by missing a hit on a bill. A perfect PPO would include 100% of doctors who pass the base qualifications of credentialing. But, as shown in the prior illustration, there is a huge difference in outcomes between the top half and bottom half of the PPO’s doctors.

I don’t fault PPOs for this — PPOs do offer a clear value in reducing purchase costs per episode. They also must contend with multiple factors from jurisdiction to jurisdiction that will always limit how choosy they can be. There is a role to be played by discount networks, but that role is not the full picture of how to bend the curve on claim costs.

“Savings” Don’t Always Reduce Costs

Here is a simple concept: If a cheap pair of shoes costs 30% less than a high-quality pair, I might save money on the initial purchase, but, if the cheaper pair of shoes needs to be replaced twice as often, my savings on each transaction doesn’t lower my total shoe cost.

Applying this logic to medical care, let’s look at two patients — one going to a discounted doctor and one going to a full-fee-schedule doctor. Let’s assume a typical ratio of 7:5 visits between high-scoring and mid-tier doctors (the real difference is typically higher). Patient A goes to an in-network doctor selected at random from an approved list of providers that generates a 5% savings off each bill. Patient B is sent to a doctor with a high outcome score but no discount. The average bill from each doctor is $100. After the first visit, Patient A has cost $95, and Patient B has cost $100. The payer for Patient A saved $5, and the payer for Patient B has saved $0. By the time Patient A has been to his/her seventh and final visit, medical care cost $665, with PPO savings of $35. Patient B’s care wrapped up after five visits, costing $500, with $0 in PPO savings. This showcases the problem of using percent of savings as a metric – longer duration and $165 more in total medical costs reflects $35 in savings over Patient B. The metric is flawed because the more you spend the more you save.

The point to consider is that network savings are the shiny object that distracts from the difference in total costs. I am not arguing against leveraging savings where available; rather, I want to underscore that quality at a higher price point can significantly outpace discounts when you look at the total cost of a patient in any market.

All health markets suffer from the cost of care that requires too many visits or the additional costs of a second necessary procedure to repair a bad surgery. In workers’ comp, this is exponentially compounded when you factor in the costs of temporary disability as a result of poor recovery and permanent disability stemming out of failed procedures.

The Path Forward

The best way to start down the path forward is to separate the decision about which doctors to work with from how to work with them. The who should be determined by some level of quality metric while the how is figuring out which PPO or contractual relationships get you the best access to doctors who will get you the best results. This means you should first find the doctors who perform well on your chosen metrics, and then look at the PPO or combination of PPOs that get you contractual access. It works in the opposite flow as well; you can look at the total population of doctors available through your network vendors, then pick who you want to work with from that list.

See also: Even More Tips For Building A Workers Compensation Medical Provider “A” Team  

In part two of this series, I will go into the concept of right-sizing networks and the relationship between PPOs and exclusive provider organizations (EPOs). Pick the doctor, and then figure out which network or combination of networks provides access. It may require a little more work and data science on the front end, but the outcome is well worth it.

As first published in Claims Journal.

The Deception Behind In-Network ‘Discounts’

Here’s a strange paradox: Healthcare costs have increased by an unsustainable rate of about 8.5% each year over the past decade, according to PwC’s Health Research Institute. Already, the average employer-based family health insurance plans costs more than $18,000 annually.

But Medicare spending has been relatively stable. Over the past three years, the program’s payouts to hospitals have increased by only 1% to 3% a year, roughly even with inflation. The prices paid for some core services, such as ambulance transportation, have actually gone down.

See also: ‘High-Performance’ Health Innovators 

To see what’s happening, we can start by pulling back the curtain on how preferred provider organizations do business. A PPO is a network of preferred health-care providers such as doctors and hospitals, typically assembled by an insurance carrier. In theory, the insurer can save money for its customers by persuading providers in the network to discount their services in exchange for driving volume to their facilities.

UnitedHealthcare Choice Plus, for instance, boasts that its PPO—a network of more than 780,000 professionals—cuts the cost of typical doctor visits by 52%, while saving 69% on MRIs. Pull back the curtain, and you’ll see these discounts are an accounting trick. To allow PPOs to advertise big discounts, providers simply inflate their billed charges on a whole range of services and treatments.

Don’t insurers have a natural incentive to keep provider prices down, even if they don’t end up paying the list price?

In fact, no—at least not since the Affordable Care Act took effect. That law established a “medical loss ratio,” which requires insurers covering individuals and small businesses to spend at least 80 cents of every premium dollar on medical expenses. Only 20 cents can go toward administrative costs and profit. (For insurers offering large group plans, the MLR rises to 85%.)

If a provider raises the cost of a blood test or medical procedure, insurers can charge higher premiums, while also boosting the value of their 20% share. Insurers can make more money only if they lower their administrative expenses or charge higher premiums.

In this way, the MLR rule encourages insurers to ignore providers’ artificial price hikes. Insurers can continue to attract customers with the promise of steep discounts through their PPO plans—and providers can continue to ratchet up their prices. By hoodwinking their customers, both insurers and providers make more money. Since insurance costs are merely a derivative of health-care costs, the result has been a steady rise in insurance costs for millions of working families.

For employers caught in this price spiral, there is a way out: partial or full self- insurance. When businesses self-insure, they pay employee health claims directly. That creates an incentive for businesses to question—and push back on—providers’ price increases. Self-insuring businesses can strengthen their leverage by using “reference- based pricing,” which caps payments for “shoppable”—nonemergency—services at the average price in a local market. Members who use providers with prices below the limit receive full coverage. If they use a provider that charges more than the limit, they pay the difference out-of-pocket.

This setup creates a strong incentive to control costs: Patients have a reason to shop around for the best value, while providers are pressured to keep their prices below the cap. The most expensive doctor is not always the doctor with the best outcomes.

See also: High-Performance Healthcare Solutions  

That’s what happened when the California Public Employees’ Retirement System adopted a reference-pricing approach a few years ago. The agency had noticed that provider charges for hip and knee replacements varied from $15,000 to $110,000. In 2010, Calpers established a reference price of $30,000 for the procedures. Predictably, patients flocked to providers charging that price or less and shunned higher-cost facilities. Over the next couple of years, the number of California hospitals charging below $30,000 for a hip replacement jumped by more than 50%. In the first year Calpers saved an estimated $2.8 million on joint replacements.

What worked for Calpers can work just as effectively for small and midsize businesses. Today’s medical inflation is exactly what one would expect from health policies that reward insurers and providers for raising prices. Employers shouldn’t accept this status quo. By self-insuring and setting their own reference-based reimbursement, businesses can sidestep the traditional insurance model that continues to bleed them dry.

Will Watson Replace WC Professionals?

The Japanese firm Fukokui Mutual Life Insurance has replaced more than 30 office workers with artificial intelligence (AI), in this case the famed IBM Watson. Watson, or one of its doubles, is in fact affecting nearly all industries in multiple ways. Eliminating workers is a major goal. But could Watson replace workers in workers’ comp?

AI has been around for decades, but now with advanced technology it has fully caught on, and its applications are widely varied. AI is what drives driverless vehicles and operates machinery sans human involvement. More practically, AI enhances worker productivity, accuracy and efficiency. But AI should never reach workers’ comp if more pragmatic, technology-based strategies are implemented now.

Replacing workers’ comp professionals with Watson is not feasible at this point or, I hope, ever. Yet, it is a wake-up call to the industry.

See also: 10 Questions That Reveal AI’s Limits  

Imagine injured workers navigating the workers’ comp system without claims adjusters and medical case managers. Picture Watson managing claims. It could make payments without difficulty and even review the bills effectively. Watson could also determine which claims are the most challenging and refer them to medical case management.

Stop there!

Envisioning Watson as medical case manager is a real stretch. Human interaction is central to effective medical case management. Likewise, Watson delivering claim management services without dialogue with the claimant would be spotty and unpleasant at best. Accuracy and efficiency under Watson management could be nearly perfect, but claim adjusting relies heavily on human interaction. Injured workers managed by Watson would feel victimized in a heartless system. The only recourse would be to litigate. Watson might have trouble with that.

While replacing professionals with technology like Watson is going too far, it should prompt workers’ comp payers to engage current technology to improve processes and outcomes—just to keep up. Clearly, the momentum in every industry is more technology to gain efficiency, and workers’ comp cannot afford to lag. To stay in the game, technology designed to assist workers with task-relevant knowledge and decision support that makes them more accurate, more efficient and, yes, smarter is crucial.

Watson will replace health insurance industry administrative workers fairly easily. Essentially, bills are paid if they match the benefit plan and the treating doctor is in the PPO. However, the workers’ comp industry is very different from general health and much more complex. The question is how can the workers’ comp industry optimize efficiency and productivity without discarding its professionals and alienating injured workers? The answer is to apply currently available predictive analytics technology to make WC professionals smarter, more accurate and highly efficient. Of course, that also spells profitability for the organization.

Apply predictive analytics to understand historic data and the cost drivers inherent in it. Monitor the data continuously to identify risk conditions as they occur. Create apps that inform claims reps of conditions and events in claims that need attention in real time so action is taken early.

Assist claims reps by providing information for decision support such as the probable ultimate medical reserve amount for a claim. Time and effort are saved, while accuracy and efficiency are gained. Rather than labor with decisions such as adjusting reserves, you can present a timely and accurate projection, optimizing efficiency.

See also: Next Big Thing: Robotic Process Automation  

Similarly, relevant information should be available for medical case managers so they can avoid searching for claim information and status. Timely alerts and shared information promote collaboration and integration of efforts between claims and case management decision-makers in the organization. Watson is thwarted.