The Market

To say that the current state of American health care is in flux would be a gross understatement. As the cost of care continues to rise, the market is beginning to question the overall loss of value associated with current cost containment offerings. No longer is it enough for a payer to utilize a PPO; the discounts from billed charges can be misleading to say the least. Consider, for example, the contracting route that many of the big-box PPO networks take: Per-diem reimbursement with a variable stop-loss threshold, or a flat "percent off" reimbursement methodology. In either scenario, are costs really contained?

In evaluating a fair payment level for any given medical service, one must question if the options available are the only ones in existence. The per-diem / stop-loss contracting methodology is, in essence, a revenue split between the PPO and the health system. The networks secure seemingly advantageous per-diem rates for their clients, but in return the health system insists on a lower stop-loss threshold. The financial incentive then exists for the hospital to ensure that the stop-loss threshold is met, thereby reverting to a percent-off methodology and voiding any savings achieved through a per-diem reimbursement model. In a flat percent off of billed charges contract, payers need to ask if the discounts are keeping pace with annual hospital charge inflation. In order to remain effective, a contract of this nature needs to written in such a way that the "percentage off" increases over time just to break-even with hospital charge increases. The reality is that the 20% reduction the network boasts of was only a true 20% reduction for the time period that the contract was made effective. In fact, the contract has been decreasing in overall value with every annual charge master increase from the health system.

Increasingly payers are realizing that it is their clients who foot the bill for what has become a very synergistic financial relationship between many networks and the hospitals they choose to do business with. It is for this reason that many payer groups are looking to service firms such as Austin Resolutions to provide cost containment in a manner that achieves significant and sustainable value to those actually paying the bills.