Problem # 1 – Networks

Networks are by far the greatest contributing factor to current strategies that increase cost, reduce transparency, and perpetuate the misappropriation of the value that provider contracting brings. Prior to the creation of networks for HMOs, you could see any provider you wanted. The insurance company paid its part and you paid yours. Consumers were far more aware of total cost and potential for excessive care than they are today.

Networks brought the promise of lower insurance costs by creating a system of providers in which the costs were negotiated down, and known in advance. Insurance loves certainty. So, the advent of fee for service was created. Around the same time (1975, to be exact), the American Hospital Association created a committee called the National Uniform Billing Committee (NUBC) designed to simplify medical billing. They created standardized forms and coding for billing purposes. Thirty years later, on May 23, 2007, NUBC created, and mandated the use of, a new form called UB-04. This was the game changer.

The UB-04 is the form by which all facilities (i.e. hospitals) file claims. Keeping in mind that claims on these forms can easily be five or even six figures, it seems crazy to me the scarcity of data needed. Here is the gist of what goes on that form: patient and insurance identifying info, diagnosis code, and then broad line items like “operating room” or “hospital charges.”No one is required, or even asked, to break down the hundreds or thousands of items that can go behind those line items.

Further, nearly every network contract forbids the payer (the insurance company, if fully insured or the employer if self-insured) from asking for an itemized bill. Yes, you read that right. The patient can ask for it anytime, although even if they find something amiss, there is little their carrier can or will do about it. It is estimated the 80 percent of medical bills have “mistakes” for supplies not given or procedures not performed or not needed. And all this gets bundled into that price with no checks on what's behind it.

Speaking of price, let's speak to the prices charged for those items behind the universal charge. How about $1,000 for a manual toothbrush? Or $540 for a tongue depressor? This hugely overinflated bill with no detail comes to the carrier. Now what? Well, it applies its “discount.” That could be 10 percent to 70 percent. Carriers love to tout their discounts. The bigger the discount, the higher the starting price. Seventy percent off a price marked up 1000 percent is still almost a 300 percent markup.

So we all know our health care system is severely messed up. What can we do about it?

For these particular issues there are two strategies that have a powerful impact.

Medical bill review – This might require dumping the bigger networks and making sure your plan uses a network that allows the payer to request itemized bills. By having independent experts review every line item to make sure it was appropriate, necessary, and actually performed, it is estimated we can reduce costs by as much as 30 percent.

Referenced based pricing – This is my personal favorite. In this environment, we remove the network completely. This allows employees to go to any facility they wish. When the bill comes in, it can first be reviewed (if combined with MBR) and then pricing can be applied more in line with other measures for paying for care. Often it is marked up a certain percentage above Medicare pricing. This is a pretty good benchmark because the government regularly exerts its muscle in this regard to tie payments to more reasonable markup on actual price with increases at a much lower inflation rate.

These two strategies combined can easily save $150,000 or more per 100 members. Keep in mind that for the average group, this is only 10 percent of claim volume, so 90 percent of claims are not impacted and can continue on as all know them to be today.