Americans pay the highest health care costs in the world and it only continues to increase, year after year.
Our guest today is Douglas Aldeen, a healthcare attorney in Austin, Texas who’s been practicing for more than 20 years. Doug became a health attorney in 1997, completely by chance when he was offered a job in the provider sponsored HMO arena (doctor owned insurance companies). He has a robust background and can enlighten us on the current market place, state of healthcare transparency, and reference-based reimbursement and payment.
Current Landscape of Healthcare Today
When asked about the landscape of healthcare today, Aldeen started off with the statement “PPOs are dead”. PPOs and BUCAs always claim that claims data is proprietary and yet they have breaches a lot. Aldeen thinks that in the long-term, PPOs and BUCAs aren’t going to be around because they do not do what they are supposed to do, they do not provide value. That is why Aldeen says that independents with TPAs is the way of the future.
Health insurance is different than any other type of insurance because you can use data to figure out how to manage and fund future spend. This is not normal for insurance because usually insurance is used to fund the unexpected, but in healthcare it is used to fund the expected. This fact means that health insurance cannot be treated like every other type of insurance.
Percentage of Medicare Reimbursement
“120% of Medicare doesn’t work” stated Aldeen. That is why we are seeing a lot of states getting into the RBR arena. Montana and North Caroline are two examples that are going to the RBR model for their state health plans. Both states are increasing the percentage of Medicare to the higher end of the spectrum. When looking at the percentage of Medicare being paid, 120% is the low-end and 220% would be the high end.
As time goes on and the market matures, you’re getting down to where the providers and everybody else can live between whatever those numbers might be. However, this is all going to be based on the local market and what kind of market exists in the geographic location. There are many factors that will dictate the level of reimbursement.
In Maryland, all hospitals are reimbursed the same amount no matter who is paying it. This means that Maryland is an all payer state.
How does Referenced-Based Pricing Work?
First, all financial data from a hospital must be sent to Medicare because Medicare uses this data to figure out their pricing. When creating the pricing model, they use the total cost plus a percentage. For example, when we say 120% of Medicare we mean that it is 100% of the price and then a 20% profit added onto it. The next thing you need to know is that there is not really a network. This means that there is a set fee and that it doesn’t work by going off of discounts from a PPO plan. This also means that there is zero contractual obligation with a provider, so the provider can balance bill.
This leads us into the MOR rule, which has created perverse market incentives. The MOR rule states that an insurance company has to pay out 80% or 80 cents for every dollar it collects, which leaves 20% for an administrative fee. However, this system has created a big problem. As hospitals raise their charges, insurance companies are just matching it because they don’t care if the costs are increasing as long as they are making more money.
Unfortunately, this system is not being questioned by consumers because they just don’t understand it. Ned stated, “Healthcare is nothing more than one big math problem. Unfortunately, a lot of people doing the math problem don’t know what they are doing.” Because of this, 90% of claims are unchallenged and there is zero incentive for insurance companies to lower their premiums. This is why it is so important that everyone is educated on this, especially your employees.
Doug thinks that the healthcare marketplace is slowly going to become more and more transparent However, right now it isn’t a widely followed concept. An example that Doug made was when there are doctors that also own other facilities, that may or may not be in-network for their patients, and they will recommend these facilities to their patients and not care about what it will cost that patient. This is all being done without the patient’s knowledge and they have no understanding on what is happening behind the scenes.
Transparency needs to be the main goal so that all consumers can start to understand how health insurance works and why healthcare pricing is the way that it is. If consumers aren’t educated on this, it will never be fixed and the problem is just going to get worse and worse.
Referenced-Based Pricing is a great model to follow in order to cut down on healthcare spending. This is especially true for self-funded employers. Doug gave us an example of a self-funded employer who followed this model and dramatically improved his bottom-line, so much to the point that it sold itself, all in 2 years. When you aren’t paying fully insured premiums or PPO rates, the results are immediate and noticeable.
When asked where he sees healthcare in 5 years, Doug stated that he sees direct contracts as the way of the future. More and more employers are going to see the benefit of having direct contracts with hospitals and providers and will be able to cut down on their healthcare costs drastically.
If you want to get in touch with Doug, you can email him at either firstname.lastname@example.org or email@example.com