Inviktus

Protecting Health Plans from Significant Exposure

The best protection for the people is not necessarily to believe everything people tell them.
-Demosthenes

For self-funded health plan sponsors, large catastrophic claims can seemingly be the worst challenge they will ever face. Given claim incidence frequency, even the smallest plan populations are subject to significant exposure and it may be more impactful on their finances than larger organizations. These claims can have a negative impact on reserves, future contribution rate increases and significantly affect the cost of stop loss insurance protection, but does the damage end there? Considering that stop loss has become such a substantial portion of fixed cost spend, the cost increase alone can be more than enough for many to swallow. As is often said, however, things can be worse. What if your stop loss carrier denies some or all of a claim reimbursement? In this article I’m going to cover plan structure elements that can limit exposure, reduce claims costs and save stop loss premium dollars.

As I’ve indicated previously, self-funded plans across the US remain largely based around some variation of a Preferred Provider Network or PPO. The typical benefit plan design provides for the richest level of benefits within the network, and then a reduced schedule for members that receive services outside of the network. While it is often assumed that any services rendered in-network are also at low-cost, that is definitely not always the case. Yes, there is some protection from some of the egregious charges that can occur outside of the network’s protection, but unfortunately the insurance carrier networks hold their contract agreements as “confidential” so we are generally left to see only their overall discounts for broad subcategories of services. This also raises the question, discount off of what starting point? There are around 70,000 ICD-10 procedure codes, so that leaves self-funded plan sponsors largely in the dark and at the mercy of trusting said “confidential” network arrangements.

There is not much variation in professional fees for primary and specialty care, but there is significant variation in facility costs. For instance, an MRI in a hospital setting could cost four, five, or even up to ten times the cost of getting the same MRI in a freestanding imaging center. Considering the broad swath of overall discounts that a healthcare system then negotiates, we generally see the overall discount amongst the major carrier networks within a very tight range. For healthcare systems this may prevent any one of the carrier networks from gaining too much leverage in a particular marketplace. The individual reimbursement rates themselves can be based on discounts off of billed charges or a DRG (Diagnosis Related Group). While the latter provides some protection from longer than anticipated stays and/or complications, please beware that many high cost claim codes may be considered “outliers” under the network agreements and therefore not be subject to a DRG limit.

When we get outside of the network things can become even more troublesome, not only for plan sponsors, but for members alike. Members receiving services outside of the self-funded plan’s contracted network need to understand that those providers and facilities are not contractually obligated to adhere to charges that may be widely accepted as “reasonable and customary” under the provider network. In order to protect plans from what could literally be any amount they wish to charge, plan document language typically only allows for reimbursement up to an amount considered as such (aka “allowed,” “usual and customary,” etc.). The member can then be open to balance billing by the provider and/or facility, and unknowingly be subject to substantial financial exposure. As a result of these practices and medical expenses still the leading cause of bankruptcy in the US, “surprise billing” legislation is being considered by lawmakers at the state and federal levels as I write this.

Over the years I have seen the out-of-network reimbursement methodology at odds with stop loss contract language. For instance, the definition of what is considered “reasonable and customary” can be vastly different if not specifically spelled out and mirrored in both the plan document and stop loss contract. I suggest language in the stop loss contract and plan document that caps reimbursement at a defined percentage of Medicare and also AWP (Average Wholesale Price for prescription drugs administered as a medical claim). Your claims payor must then have a mechanism in place to accommodate a level at or lower than agreed upon by all parties. At the end of the day, your stop loss carrier could deny a large claim reimbursement without these elements in place, so it is critical that your service providers are working together well ahead of the plan year commencing.

Okay, so now a plan sponsor may be comfortable with their in-network level of risk protection and not quite ready to move to a model like RBP (Reference Based Pricing to a percentage of Medicare, which may still keep the plan member exposed to balance billing). They may also have comfort in their out-of-network plan language, stop loss contract and claims payor ability. One would think it ends there, right? Not exactly. Another entry point for exposure often goes unnoticed by plan sponsors since fees may be buried within claims costs. Given the gamesmanship often inherent in out-of-network charges, the cottage industry of claims re-pricing and negotiation has developed. While the purpose is helpful, negotiating charges back to a reasonable level before being paid by the plan, many arrangements require significant fees for this service. These fees can often be as high as 25%-33% of savings off of the billed charge. Take the following example:

Consider a $1 million dollar claim that was charged at 800% of Medicare (yes, this happens).
Price that claim back to 200% of Medicare, which would be $250k in this scenario.
The resulting fees could be $187,500-$247,500 for the savings that the carrier or third party produced.

Doing the math, the fees above are nearly equivalent to the claim cost in this scenario, and may have been produced at the push of a button by the claims payor or third party. This example could hardly be considered real savings, and the plan sponsor could be better served by an arrangement with a claims payor that includes these services, prices them at a reasonable capped fee per incidence or a PEPM (per employee per month) fee.

Absent this, another road a plan sponsor may consider is eliminating out-of-network coverage completely, they just need to be cautious since payor contract provisions may allow them to increase administration fees if out-of-network coverage is eliminated. You don’t have to go farther than the example above to see the reason for this. With all this stated, choosing service providers that are transparent and independent of conflicts can not only drive claims cost savings, but support further fixed cost savings if you choose a stop loss partner that understands the plan’s true risk profile, underwrites and collaborates accordingly.

Man versus Machine

A MATRIX Minute from MATRIX Group Benefits, LLC

Many of us remember scenes in Star Trek when Dr. McCoy would scan a member of the crew with a small handheld device which diagnosed the illness or injury of the crew member. Many may also remember how far fetched that seemed, especially when compared to Dr. Welby M.D. He would make a house call on a patient and crudely, in comparison to Dr. McCoy, use a thermometer under the tongue, a squeeze bulb blood pressure cuff, a stethoscope, and a watch-timed pulse to diagnose a cold or flu, and hand-write a prescription or determine the patient needed some tests in the office.

In today’s world of medicine, bio-medical engineering and scientific advances in technology have developed the ability to perform microsurgery with the use of robotic arms controlled by computers, new drugs that can be personalized based on the genomic make up of a person, and now artificial intelligence (AI) using computers to collect and interpret various forms of data.

In studies that have compared the findings or diagnoses made by physicians to the findings made using AI, the AI results increased the number of positive results previously indicated as negative and reduced the number of false positives made by physicians. Most notably, these results were found in the readings of diagnostic imaging performed for cancer screening. The early deduction may be that AI could emerge as the preferred tool for interpreting diagnostic imaging, which likely would include x-rays, CT scans, ultrasounds, MRIs, and nuclear medicine scans.

To the extent these new technologies advance the quality of care and improve patient outcomes is too early to predict. But the interest in AI is significant and expansions of its application in clinical settings is assured, and will likely be followed by fast track approval by the FDA. What has not yet been discussed is how improvement in patient outcomes will be monitored and measured, or how much all of this will cost consumers, and the plans that provide benefits.

Health plan sponsors may want to keep an eye on the development and use of AI in the treatment of patients and monitor provider bills for new charges related to diagnostic treating using AI, particularly for diagnostic imaging related to cancer. Until the FDA issues definitive approvals for the use and application of AI, such services are investigational and likely excluded under most benefit plans.

Understanding Performance Networks

Your network is your net worth.
-Porter Gale

In many ways we have come full circle with the structure of provider networks over the past several decades. We have gone from employer sponsored health plans providing unrestricted access to providers, directing care within a managed network through a gatekeeper, using benefit differentials to steer utilization to a network of providers, and now with costs continuing to spin out of control many new variations exist. The goal? To lower health care costs that continue to drastically outpace general inflation and other economic measures.

The crux of the problem is nothing new. Beyond market forces and the innovation of employer groups, consultants, health plans and technology, the federal government has even addressed the need for change in the healthcare delivery system at several degrees of magnitude. The Health Maintenance Organization or HMO was given federal support with the Health Maintenance Organization Act of 1973, removing restrictions and encouraging expansion. Initially the intent was for employers to provide a more comprehensive benefit package at a lower cost. What’s not to like about that, don’t we all want this from our employer sponsored health plans? As the concept advanced, primary care centric medicine made sense even without the connectivity we have today. Due to continued cost pressures along with conflicted and bloated health plan administration, however, the end of the 20th century saw many of these plans fail. The acronym for many has since become synonymous with restricted access to providers. Additionally, the proverbial fox watching the henhouse, with the health insurance carrier and the providers being one in the same.

So what were we to do next? Overcorrect. The Preferred Provider Organization or PPO that started in the early 80’s with Taft-Hartley plans gained tremendous momentum with others as many employer groups moved out of HMO’s, particularly across the western part of the United States. The PPO was attractive because it technically provided access to most providers. Those providers that adhered to a negotiated rate schedule were rewarded with higher patient volume through benefit plan design steerage. Conceptually the higher patient volume outweighed the lost revenue per episode that non-network providers may charge. Over time this fee for service model pressured the provider community because it took the focus away from quality and shifted it to quantity. Even more simply, providers were just not able to spend much time with patients whether by necessity or human nature.

While the PPO still remains the most popular network choice for many plan sponsors, the value of the network discounts has come into question. In particular, the basis for determining the negotiated or discounted rate. For example, would you rather have 50% off of $1,000 or 10% off of $500? The networks negotiating these rates keep most of this information confidential, so we as consumers are left in the dark. They are then free to promote their leverage in the marketplace and corresponding overall “deep” discounts off billed charges which can essentially be any starting number. To combat this some plan sponsors have implemented Referenced Based Pricing (RBP) models that reimburse a percentage of a cost basis, or reference, such as a percentage of the Medicare allowable rates. While simple in concept and intuitive in design, there has been some resistance by the facility and provider community resulting in limited expansion of these plans. Economic, political and social factors have come into play as is often the case with the tremendous amount of money spent on healthcare.

With the passage of the Patient Protection and Affordable Care Act (ACA), which just celebrated its 10th birthday, so came the genesis of today’s Accountable Care Organization or ACO. In its simplest form the ACO resembles the HMO, but with today’s network technology to share data and a shift to measuring outcomes through quality metrics. The ACO combats the excessive fee-for-service model by compensating providers on meeting these metrics, many with a shared savings component although the measurement and reporting remains a challenge given the complexity involved. From an underwriting perspective there may not be much if any short-term cost savings since ultimately the providers and facilities will tend to negotiate payments on an overall revenue neutral basis. Over time, however, if quality improves then the costs should decrease. The ACO model is typically more provider centric although most are now run by large healthcare facilities and/or insurance carriers. Will these organizations take a pay cut through reduced utilization over time? I’ll leave that for you to ponder.

Variations of “performance” networks have evolved out of the ACO model. From Clinically Integrated Networks (CIN) that are provider led and aimed at improving care and lowering costs, to “narrow” networks that may simply be more tightly controlled PPO’s driving deeper discounts that may or may not have a quality measurement component. The latter is typically recommended if seeking reduced utilization over time since we are often unable to look at the discount methodology found in provider contracts as stated earlier. In all cases there remains significant exposure to health plans (and members) when services are provided out-of-network. So much exposure, and a significant source of revenue for the same companies that negotiate the in-network rates, that I will cover this topic in a future article. Until then I’ll echo my continual support for self-funding and the plan sponsor fulfilling their fiduciary role by selecting TPA’s, networks and other service providers that are transparent and free of internal and external conflicts of interest.

Intero Health

Please Define Transparent

Honesty is the first chapter in the book of wisdom
-Thomas Jefferson

In the digital age, ‘transparency’ has become a word that we typically encounter several times daily in both our professional and personal lives. It’s use varies widely, and in the realm of employee benefits it seems at times even more-so to those of us in the industry. Before diving deeper, it may help to frame this discussion with the applicable definition found in The Business Dictionary:

Lack of hidden agendas and conditions, accompanied by the availability of full information required for collaboration, cooperation, and collective decision making.
Minimum degree of disclosure to which agreements, dealings, practices, and transactions are open to all for verification.
Essential condition for a free and open exchange whereby the rules and reasons behind regulatory measures are fair and clear to all participants.

It would seem that insurance carriers, third party administrators (TPA’s), prescription benefit managers (PBM’s), healthcare facilities and all other service providers in the food chain should gladly adhere to these basic business principles. We are, after all, talking about healthcare which comprises almost 18% of the U.S. economy and touches every single one of us at various stages of our lives. In fact, with something this robust and personal, one would think that no stone would be unturned before these massive amounts of dollars are exchanged. Yes, most of the service providers in the industry claim to provide transparency in one form or another, but are they actually doing it?

Self funded plan sponsors should be aware that ERISA considers those that manage the plan fiduciaries, and thus have set forth standards of conduct for managing the plan and its assets. In fact, the Employee Benefits Security Administration has a great publication posted on the Department of Labor’s site titled ‘UNDERSTANDING YOUR FIDUCIARY RESPONSIBILITIES UNDER A GROUP HEALTH PLAN.’ If you haven’t read this, I suggest you familiarize yourself with it.

One of the key charges for a fiduciary? Hiring a service provider such as a TPA. Not only does the plan fiduciary have to ensure that the plan is “paying only reasonable plan expenses,” but they should compare and evaluate the service providers on an ongoing basis. Given this, it is imperative that service providers administering the plan are able to provide sufficient data to the plan sponsor and it’s fiduciaries in order for them to fulfill their obligations. Further, given the definition of transparency, specifically ‘lack of hidden agendas and conditions,’ the service providers should not have internal or external conflicts of interest that could limit their ability to act prudently.

I could drone on and on with examples of service providers unwilling to provide what many would consider reasonably transparent reports, typically those that are also insurers, but the bottom line here is quite simple. If a plan’s service providers are not acting in a transparent fashion and providing the data required for the fiduciary to effectively mange the plan, it is their obligation to find one that does. As a result, the plan sponsor then holds the keys to driving further plan savings from competitive stop loss contracts and effective claims management programs.

Welcome to 20/20

A MATRIX Minute from MATRIX Group Benefits, LLC

In less than twelve months, we can all look back to the start of the year with 20/20 hindsight, and say “I saw that coming.” What “that” will be is hard to say for sure, but there are a few things on the horizon that we can anticipate during the new year. Some of the things that we should expect include:

Continued advancements in specialty, orphan, and biologic drugs and faster approvals by the FDA. Whether the efforts of the federal government to curb prices by the manufacturers will be successful remains to be seen.
Continued acquisition of medical practices by insurers as they continue to expand their influence in the healthcare delivery space. Whether anyone will view the ownership of medical practices by insurers as a conflict of interest is unknown.
Continued litigation of insurer and plan sponsor practices to limit benefit payments for excessive charges by providers resulting in more litigation by providers against the insurers and benefit plan sponsors.
Continued political jockeying regarding legislation to regulate surprise medical bills and more campaign rhetoric advocating Medicare For All or some variation of it.
Expansion of digital health and increased patient information/education regarding medical conditions and treatments, service providers and quality, and consumerism that focuses on pricing, benefit coverage, and patient financial liability.
Increased emphasis on healthy lifestyles and preventive care by plan sponsors in an effort to improve the early identification of health risk factors and the emergence of early stages of disease. These efforts are likely to include providing access to optional/voluntary programs outside the benefit plan at discounted prices arranged by plan sponsors or paid by plan sponsors on a reimbursement basis.
Increased focus on provider disclosure and transparency of services, quality, and prices that is clear and understandable to a person who does not have a background in the medical healthcare delivery provider industry.
Increased focus on creating narrower provider networks as payers attempt to leverage volume for deeper price concessions. With the narrower networks plan sponsors may face the challenges of how they handle medical needs that are outside the scope of services of the narrower network or that may be available within the narrower network but are considered insufficient or unsatisfactory for the patient situation.
Expansion of domestic “medical tourism” to direct patients to designated directly contracted medical centers of excellence for treatment of certain medical conditions.

Happy New Year. How good will our 20/20 hindsight be in twelve months?

Long-term Risk Strategy vs. Short-Term Savings

Written by: Aaron Polkoski

The essence of strategy is choosing what not to do. — Michael Porter

When I started working in employee benefits almost 22 years ago, I was a stop loss insurance underwriter for a managing general underwriter (MGU). My function was to price policies with a delicate balance between competitiveness and appropriateness to cover the underlying risk for the company’s insurance carrier partners. Through a combination of actuarial tables, resulting underwriting models, claims experience and my gut feel, I priced each prospective and renewal case accordingly. I quickly learned that while certain elements of a particular proposal may ultimately better suit a client’s needs, it was human nature by the broker or consultant, plan sponsor or third party administrator to ultimately focus in on the bottom line rate cost.

At that time in the late 1990’s, healthcare trend was at a significant multiple of general inflation. An “unsustainable” rate as indicated by plan sponsors, plan members, politicians and industry experts. When I moved into the consulting and brokerage side of the employee benefits industry in 2005, there was still no end in sight to the massive increases in medical and prescription healthcare cost increases. I recently moved back onto the risk side of the industry and as we embark into 2020, guess what? With advances in healthcare, new specialty medications and significantly increased government regulation and control, we are somehow still dealing with the seemingly impossible task of cost mitigation for these “unsustainable” trend increases in healthcare costs.

During all this time, beyond government intervention there have been significant advances in benefit plan design and hot-button programs aimed at bending the cost curve. Health Maintenance Organizations (HMO’s), Preferred Provider Organizations (PPO’s), Consumer Driven Health Plans (CDHP’s) and Health Savings Accounts (HSA’s), disease management programs, wellness programs, member incentives, digital health tools, concierge care, direct primary care, Accountable Care Organizations (ACO’s), reference based pricing, specialty pharmacy management and I could go on and on. The result? Yes, each of these have played and continue to play roles in incremental cost savings, but many of these have come and gone for plan sponsors with mixed results, many of which are not effectively validated through objective data (that’s an entirely different topic in and of itself).

At the end of the day, a large majority of claims are still generated by a small portion of an employer group’s population. An even smaller fraction compile the largest claims and greatest disproportion of the cost. Given this, why do plan sponsors, insurance brokers and employee benefits consultants continue to grasp for the perceived lowest-cost option at each renewal? Simply put, ‘A Bird in the Hand is Worth Two in the Bush,’ unless you develop and execute a clear strategy on how to catch those two elusive birds, then there is ultimately more value derived from using that strategy to double your quarry. The same holds true with your large claim risk management strategy. While the lowest-cost stop loss insurance rate at plan renewal may be the best short-term pricing option, there could be significant missed opportunity laying ahead.

New plan designs and programs are aimed at reducing the frequency and magnitude of large claims, but these shock claims remain the primary cost driver for health plans. Stop loss and reinsurance premiums have increased as a result to become a significant portion of fixed costs for self-funded plans, and larger portions of these individual claims have become the burden of the plan due to higher specific deductible levels needed to mitigate massive premium cost increases. All this said, pay attention to the new shiny objects that come up in health care, but don’t lose focus of a long-term strategy to keep your large claim costs managed. Demand data transparency and develop an actionable approach to managing these claims to drive lower spend and a lower stop loss insurance premium over time.