The Next Right Thing for Health Plans

Metric Based Pricing:Myths and Keys to Success

Wednesday, October 5, 2016

Founded in 2003, ELAP Services is a pioneer in health plan cost management that delivers an industry-best comprehensive solution for self funded employers –

the only that provides:

ELAP Overview

PLAN DESIGN & CO-FIDUCIARY

CLAIMS AUDITDIRECT

CONTRACT

MEMBER ADVOCACY AND

DEFENSEANALYTICS

How metric-based pricing addresses

the root of the problem

Why MBP?

5 common myths about metric-based pricing

Myths

The 3 keys to a successful MBP

program

Success

Agenda

The unsustainable ‘status quo’ of a

PPO system

The Problem

“All the Prices are too damn high”- Gerard F. Anderson, Johns Hopkins Bloomberg School of Public Health

Inflated Medical Bills: The Root of the Healthcare Problem

“Getting a 50% or even 60% discount off the chargemaster price of an item that costs $13 and lists for $199.50 is still no bargain.” -Steven Brill, TIME Magazine

“American Employers are the sloppiest purchasers of health care anywhere in the world…they have passively paid just about every health care bill that has been put before them, with few questions asked.” – Uwe Reinhardt, Princeton Professor

A Managed Care Issue or an Economic Debate?

“The health plan fiduciary is typically oblivious to the true costs hidden inside their plans in the same way they don’t understand the all-in costs of their 401(k) plan.

The major difference is that healthcare waste can easily be ten times greater than the “Bps” being scrutinized inside 401(k) plans.”

- Craig Lack, Benefits Expert

SOURCE: Kaiser/HRET Survey of Employer‐Sponsored Health Benefits, 1999‐2015

Healthcare Cost Impact on Members and Their Families

• 40% of Americans have medical debt and 1 in 5 have credit impairments – most are fully insured

In Eastern Pennsylvania, What Does a Plan Pay for……a CT Scan?

Departmental statistics are obtained from a hospital's most recent Medicare cost report data, from American Hospital Directory – www.ahd.com

$2,892

$1,446

$199

$145

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

Hospital Cost Medicare Payment 50% PPO Discount Billed Charges

How metric-based pricing addresses

the root of the problem

Why MBP?

5 common myths about metric-based pricing

Myths

The 3 keys to a successful MBP

program

Success

Agenda

The unsustainable ‘status quo’ of a

PPO system

The Problem

Higher Discount = Worse Deal?

*Study using ELAP data for each state

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

0% 50% 100% 150% 200% 250% 300%

Savi

ngs

%

% of Medicare

% Savings off Billed vs. % of Medicare

Direct correlation between higher discounts and higher payment as multiple of Medicare

What is Metric-Based Pricing?

Metric-based pricing uses rational and consistent metrics, Medicare and cost, as a starting point for

provider reimbursement – rather than the discount set by the carriers and insurance companies

Why Metric Based Pricing?

We give our clients the opportunity to treat their medical costs in the same manner that

they would any other business cost

Simply Stated…

How metric-based pricing addresses

the root of the problem

Why MBP?

5 common myths about metric-based pricing

Myths

The 3 keys to a successful MBP

program

Success

Agenda

The unsustainable ‘status quo’ of a

PPO system

The Problem

MYTH #1

‘Reference Based’ and ‘Metric Based’ pricing are the same thing

Reference Based Pricing vs. Metric Based Pricing

Hospital CHospital BHospital A

CT Scan

$400

• Medicare and cost can vary greatly from hospital to hospital

• Non-specific reimbursement methods weaken legal position

• Only pricing one way is unfair to providers

Reference-Based Methodology: CT Scan

$400 $400

Reference Based Pricing vs. Metric Based Pricing

Metric-Based Methodology

Hospital CHospital BHospital A

$352

$348$248$302

$458$485

• Look at specific hospital’s specific costs and Medicare rates for each line on bill

• Re-priced two ways and paid at higher rate to ensure fair payment

• Paid exactly as plan document states – strong legal position (specific, current, attested by CFO)

CT Scan

MYTH #2

Metric-Based Pricing underpays Hospitals

Is Medicare a fair baseline?

• Do Hospitals make money on Medicare?• Studies vary:

• Anywhere from -9.0% margin to +1.5% profit margin on Medicare payments• Nearly 50% of Hospitals make money on Medicare

$80

$85

$90

$95

$100

$105

$110

Hospital All-InCost

MedicarePayment

Metric-BasedPayment

• Even at worst case (-9.0%) and a very low metric-based reimbursement (Med +20%) – hospital makes profit

MYTH #3

Only metric-based pricing leads to balance billing and credit impairments

Credit Impairments Due to HC Costs

“62% of US bankruptcies are related to medical bills, 75% of those filing for bankruptcy were fully insured.”

- Medical Bankruptcy in the United States… a study by Harvard University (2007)

“Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people this year—making health care the No. 1 cause of such filings” – CNBC (2013)

“Mounting evidence shows that chaos in medical billing is not just affecting our health care but dinging the financial reputation of many Americans… the credit record of one in five Americans is affected”

… unpaid medical bills in collection “frequently end up on consumer credit reports,” as an outgrowth of “very complex and confusing systems of figuring out who owes what after a medical procedure.”

- When Health Costs Harm Your Credit, The New York Times (2014)

Metric-Based Pricing Reduces Change of Hitting Full OOP

W/PPO (45% disc)

Billed Charges $10,000

Total Allowed/Paid $5,500

Member Deductible $5,000

Member Paid $5,000

Plan Paid $500

Total Paid $5,500

W/MBP(62% disc)

$10,000

$3,800

$5,000

$3,800

$0

$3,800

Scenario: $10,000 Billed Charges for Hospital Visit

Savings

$1,200

$500

$1,700

MYTH #4

Providers won’t let people with metric-based plans in to their facility

Provider Pushback

Providers accept MBP patients the vast majority of time1

In rare cases, providers will demand payment up front for a planned procedure (colonoscopy / mammogram) --- in those cases a single-patient contract can be negotiated so member receives proper care 3

Most common forms of pushback occur after bill is paid – appeal and balance bill 2

MYTH #5

Metric-based pricing is a short-term solution

Not if it’s done right…

Negotiating payment any time there is pushback leads to cost uncertainty, stop/loss issues and encourages providers to increase pushback 1

Current PPO model with annual increase in health care spend is not sustainable3

ELAP has clients w/ 9+ years on full audit program with little to no increase in spend year over year 2

Hold the line

Consistent Savings

Status Quo ineffective

How metric-based pricing addresses

the root of the problem

Why MBP?

5 common myths about metric-based pricing

Myths

The 3 keys to a successful MBP

program

Success

Agenda

The unsustainable ‘status quo’ of a

PPO system

The Problem

3 Keys To A Successful MBP Program

KEY #1

Employer and Employee education

KEY #2

Strong and experienced patient advocacy

KEY #3

Picking the right prospect

Indicators of a good MBP fit

• Self-funded, 150+ enrolled employees

• High health care costs / high renewal increase

• Engaged executives / innovative mindset

• Organization with tight budgets, or low margins

QUESTIONS