Part 1: Pricing 101
Part 2: Member Side Controls
Medical expenses are fundamentally the product of the number of services rendered times the price per service. We’ve reviewed some of the member side methods of controlling quantity and price, so this piece will be reviewing provider side measures. There are two basic categories of provider side measures. The first are methods that set the structure of the provider universe. The second are controls that change provider behaviors by the introduction of gatekeepers. Those are the traditional control methods for a fee for service model.
Networks form the basis of quantity of services and pricing of services. Changing the network changes price per unit and units per member.
A big broad network where the over-arching imperative is to make sure that every member has a choice of every doc and facility within walking distance is far more expensive than a narrow network where the members will have limited but sufficient choices. This is for two reasons. The first reason is that a big network will have the marginal provider charge more per service as they understand that the insurer really wants them in the network. Secondly, patterns of care vary widely for the same patient with the same symptoms. Big expansive networks are far more likely to contain a high percentage of high utilizing providers.
Narrow networks are targeted networks. There are a few basic sets of targets. The most common on the Exchanges is to minimize price per unit of service. In my region, most of the low cost Silver plans are based on Medicare reimbursements plus a small kicker. That kicker is between 4% and 8% for the different insurers in the region. Medicare+5% is only attractive to some providers. Big commercial networks will often be priced at Medicare +35% or Medicare +50%, so a low cost network dramatically drops the price per unit.
A second way that can complement unit price minimization narrow networks is minimizing high utilizers from the network. If an insurer has thirty or forty million claims from its primary provider network, it can quickly identify which orthopedic surgeons are inclined to quickly recommend back surgery for back pain versus those surgeons who push people through physical therapy first and then operate second. The probability of a good outcome are roughly the same for these two routes, but the physical therapy -reassess – operate decision tree is way less expensive and less intensive than the operate first decision tree as there would be far fewer back surgeries performed as phyiscal therapy diverts people away from surgery by solving the problem cheaply. Insurers can do that for quite a few fairly expensive decision trees where there are multiple viable options dictated mainly by provider preference. A network can be built to excludes a large number of the providers who are habitual intensive service prescribers.
These network construction decisions form the skeleton of the provider side cost control strategy. There is an upfront side as well. As we talked about with members, the basic plan design of choosing whether something is an HMO or a PPO will influence provide decisions.
PPOs have no gatekeepers. A primary care provider that sees a patient can send them off to get a scan without anyone saying potentially saying no. A surgeon can recommend slicing and dicing without a second opinion. HMOs have gatekeepers. High cost scans will usually require an authorization from the insurance company where the insurer will ask to see a medical justification (bad HMOs will run you around for the next three months here); surgeons will either need to submit medical justification or a second opionion before a patient gets opened up.
Richard, I want to quibble on something. Both HMOs and PPOs will require authorizations on high cost scans or surgery. The difference in an HMO and a PPO is that the gatekeeper (generally the PCP), has to approve seeing specialists. With a PPO, a patient can just decide they want to see a high priced ortho for low back pain without having that authorized.
The problem with the HMO model is that a PCP may well be rewarded for not making many referrals and therefore be tempted to provide treatment outside of a specialist’s care for which the specialist is quite necessary.
The variance between what an insurance company pays a provider is also very much dictated by geographic location. In large metropolitan areas, where the providers are in more direct competition, carriers can frequently get providers to accept lower payments, whereas in more rural areas, they may have to pay more. Also, in some states (Wisconsin and Minnesota, for example) providers tend to demand higher reimbursement and get it because all the providers demand it. In both states, it is not uncommon to see 200% of Medicare for some specialites.
I was not aware of how Medicare influenced pricing. Interesting.
Are insurance companies trying to influence doctors’ behavior by monitoring their “intensive service prescription rate”? Just like they try to influence patients’ decisions by pushing them toward certain doctors or treatments, I’d guess they do the same to doctors but don’t know for sure.
Is this affecting doctors’ decisions not to accept Medicare? My parents see some doctors who do not accept Medicare. The doctors used to but have said the reimbursement is so low they can’t afford to keep their practice open. Among my parents’ friends this has become a problem as more of their doctors stop accepting Medicare and the patients (my parents and their friends) have to find new doctors at a time in their lives when that becomes more challenging. Or pay out of pocket, which is what some of them do with doctors they visit only occasionally.
@Violet: Not really. A lot of people complain about Medicare reimbursement, but most doctors accept it. However, that is why they won’t accept just a little over Medicare from the insurance companies. It is where they make up the difference.
@japa21: liver transplants will need pre-auth from any plan… the new set of Hep-C drugs will need pre-auth from any plan — but a “simple” gall bladder surgery just needs notification without authorization from several insurers permissive plans in my region.
@Violet: Medicare is a good pricing reference as most providers take it, it is nationally available and everyone agrees what code means what at this price. Most Mayhew Insurance provider contracts are set up as Medicare base rate plus something where that something can be small or it can be big. And yes, there are Medicare +100% and Medicare +120% providers for certain specialties and certain locations.
Big city docs in common specialties (primary care, cardiology etc) usually will get Medicare plus a standard kicker. Out in the boonies docs with uncommon specialties (Dermatology is the most prominent) can easily get Medicare +100% or more. That is because they are the only provider offering that specialty within an hour or two drive, so they basically own the local market.
@Violet: The pricing profile in most cases from lowest to highest pay:
1b) Medicaid Managed care
3) Fee for Service Medicare
4) Low cost/narrow network Exchange
5) Medicare Advantage
6) Narrow network Commercial group plans
7) Regional Commercial networks
8) National Commercial networks
One single doc at a single office location could accept 6 seperate rates from Mayhew Insurance for the same procedure. S/he could accept Rate #1 on Dec. 31, 2014 and a much higher rate on Feb 1, 2015 for the same patient for the same thing if the patient changed their coverage in the past month.
Multiply that out by several insurers per market plus traditional Mediaid and traditional Medicare, and it gets messy.
@japa21: There definitely are doctors who used to accept Medicare and who now don’t, though. I have been to two of them with my dad recently. They’re both great doctors and I’d personally feel comfortable going to them if I needed to see a doctor in their specialty. But they have stopped accepting Medicare. The reason they gave my dad is they can’t afford the low level of reimbursement.
I guess what you’re saying is that people with regular health insurance subsidize Medicare patients. Interesting to think about as we push for “Medicare for All” or a single payer type health system. I guess it would push doctors out of the business? Or they’d operate outside as boutique practices? Or being a doctor wouldn’t be very lucrative? All of the above?
Any comments on the Blue Shield/Sutter Health kerfuffle? It sounds like disputes between the two are going to go to binding arbitration, which on the face of it sounds like an absolutely terrible idea, given that arbitrators seem to take on average less than half a day and rarely even involve the arbitrator even reading the entire case summaries, let alone looking at evidence, and are explicitly forbidden to involve witnesses, eg talking to an expert, eg say a doctor.
@Richard Mayhew: Thanks. That’s interesting.
@Richard Mayhew: There is little doubt that the number of things that require pre-authorization, even with HMOs, has dropped significantly, and many surgeries where there aren’t too many alternative means of treatment (gall bladder, hernia, etc.) no longer require authorization if it is done outpatient.
Many high price scans still do. Specially when an MRI is ordered and there has been no x-ray prior or a CT scan would do just as well.
My wife is currently on Medicare, I still have my own insurance through work. Medicare does very little in terms of pre-authorization. She just had major foot surgery and no call in was necessary. I had ear surgery last year. The diagnostic imaging was pre-aurhoized, but no auth was needed for the surgery, although they did have to notify the insurance company.
I think one of the reasons is that records are so much more tracked than they used to be. Plus, with so many surgeries being done on an outpatient basis, insurance companies aren’t dealing with hospital stays. And even those are pretty standard. Basically an insurance company has to be notified of the admission and, based upon diagnosis will automatically authorize x number of days and only need to be notified again if it goes over that period. I worked in utilization review several years ago whenthere had to be almost daily updates.
@Violet: The Medicare for all would be interesting, as the overall reimbursement woudl probably be lower. What is interesting among those doctors who have stopped taking Medicare payments is that it is mostly specialists. A couple years ago, Medicare revamped its reimbursement and lowered its reimbursement to specialty groups and upped its reimbursement to primary care practitioners.
However, as much as many rpoviders complain about the low reimbursement from Medicare, most office managers will tell you that billing and claim management is much better with Medicare than with commercial insurance. They may get less, but they usually get paid quicker and there are fewer errors.
@Richard Mayhew: There is one other level, which is almost never seen any more, the basic indemity plan. This used to be the most common insurance and providers would just be paid a percentage of their billed charges. There are still a few of them out there, but the premiums are horrendous.
Yep, office managers and accountants love traditional Medicare as they pay fast, and they pay clean.
Office managers would love their entire population pool to be composed of the following (from most prefered to least preferred)
* No deductible/no cost sharing high cost commercial insurance
*Medicare fee for service
*Medium deductible/ mid-cost share commercial insurance
*Medicare Advantage (pays a little better, pays way slower, plus cost-sharing)
*High deductible/high cost broad network commercial and Exchange plans
*High deductible/high cost low cost/narrow network commercial and Exchange plans
Ella in New Mexico
Richard Mayhew or anyone:
Having just witnessed another ObamacareFAIL I need someone to answer me this: Do employees of companies that offer “self-insured” plans with high deductibles and multiple out of pocket limits have ANY right to opt out of that horrible, bankrupting insurance besides the fact that the deductibles are less than 9% of their incomes? What good is a $300 per month premium when you later have to cough up 10’s of thousands of dollars for care, thanks to the nicely embedded/grandfathered tricks inherent in these worthless plans?
This weekend, my 17 year-old nephew got admitted to the Neuro ICU for a venous blood clot in his brain, a rare and highly unusual emergency. They will max out their individual out of pocket for the hospital and doctors, but my brother is convinced he has separate deductibles and out of pocket costs for his son’s medication and lab work–both of which are going to be extensive as they are pursuing a possible genetic disorder as the cause of his illness.
After discharge, we stopped at the pharmacy to pick up what will now be his twice a day blood thinner shots. My sister in law broke down in tears because HER SHARE of the lousy 40% copay will be $2200 each month. For 6 months. And they don’t think that has a limit, which may not be true, but who the hell knows until she spend 12 hours on the phone? I put it on my credit card because they literally need another paycheck to cover this cost alone.
They will eventually be asking grandpa for an advance out of the money he has set aside for the kid’s college fund, once they get an idea of how much they’ll need and over the initial shock of all this–and their pride. Thanks, Obama care. THANKS. So glad we have so many people “covered by health insurance” now. It’s so awesome.
@Ella in New Mexico:
My sympathies to your nephew and his family, but how is this “Obamacare fail”? From what you wrote—
—it appears that your brother’s lousy insurance is provided by his company. If Obamacare didn’t exist, he would be just as bad off—and there would be millions of people with no insurance at all.
Maybe your anger is that Obamacare didn’t solve all the problems or go far enough. I would be angry too, but my anger would be directed not at Obamacare but at the fucked-up legacy health insurance system that all too often has stood in the way of any reform at all.
@Ella in New Mexico: Self insured plans have minimal regulations on them compared to on-exchange plans that are fully insured. Your nephew is getting screwed, I understand that, but he would have been screwed as hard in an alternate universe 2015 if PPACA was killed at any point before it passed.
@Ella in New Mexico:
Is this your nephew’s parents’ health insurance plan through their work? If so, how long has their employer been offering this plan? Are you sure that these issues are “because of Obamacare”? Or would those issues have been there before the healthcare changes were made and perhaps been even worse?
It’s my understanding that the employee can always opt out. They may not be eligible for subsidies to purchase other insurance because they do have health insurance offered through work. Not sure in your nephew’s case how that would work out. Your nephew and family should look into it at least by contacting a Navigator.
Not sure when your nephew turns 18, but at that time he should be eligible to purchase his own health insurance at a much cheaper rate than his parents can. It looks like New Mexico took the Medicaid expansion, so he should be able to get covered by that at the very least.
Ella in New Mexico
@Steeplejack: See below
@richard mayhew: No. My brothers plan was BETTER before the passage of the ACA. It got worse and worse on a yearly basis after the poison pills and “grandfathering” laws were enacted subsequent to the original ACA, all agreed to by my man, Obama and my party, the Democrats.
His prior plan was commercial and while not perfect, he would not be facing the no-man’s land of nightmarish, unpredictable charges he is now, in which no one can even give him a straight answer to his questions. His company can decide they won’t pay certain charges based on their own whims, too, which is scaring the shit out of him. He is very sure they won’t authorize his much needed knee replacement surgery now, either. Cuz they can do that.
Admit it: more and more “small businesses” (although I cannot for the life of me figure out how a giant DOD contractor Honeywell Corp. managed to get itself classified as such for insurance purposes) are choosing these self-insured plans for their employees now that the ACA has made it easier. And more people who have “health insurance” are now going to be so poorly ensured that they may as well just quit their jobs and go on Medicaid.
I cannot believe that when a person is forced to accept this substandard health insurance that he or she does not have the right to opt out and buy his own coverage and still be able to deduct his medical expenses off his taxes, but my brother SWEARS he cannot. He makes too much money for subsidies on the exchanges, but premiums are not really the biggest deal for him right now. If he just had the right to switch before this February 15th open season closes, it could save him thousands and thousands of dollars.
I’m not against the ideas of the ACA. I’m angry that we were all hoodwinked about the real, unintended consequences of the law for working people getting insurance from our employers, and that no one is hearing the horror stories if its screw ups because it might mean we’re criticizing our own brand.
So Richard, I ask you because you purport to be an expert here. Instead of just constantly doing arcane actuarial, insiders columns, why can’t you help the average Balloon Juice reader like me? What rights does my brother have to get the hell out of this plan and into something reasonable besides become unemployed? At 51?
@Violet: it’s a special plan, and it looks like he can’t get the same tax benefits even at the end of the year if he opts out. And my nephew won’t be 18 until Dec. 2015.
@Ella in New Mexico: According to healthcare.gov:
It sounds like they can still change plans. There isn’t much time but they do still have time to change to a plan that works better for them. They should contact a Navigator asap.
Here is the link about changing your plan.
Your brother is probably right that he won’t be eligible for subsidies. I think he should still be able to deduct the medical expenses on his taxes if he itemizes. I’m not a tax accountant, but there are people who post here who could answer that question if you ask in a more active thread.
There are people who are losers with the new health plans and law. Richard has talked about it here and I’ve heard it covered in various places. I hope these issues get ironed out.
The main determinant of the cost of medical services in America is the cocaine habit of the doctor’s girlfriend. Because of this, American medical services cost approximately 2.4 x 10 exp 27 times the cost of equivalent medical services in primitive countries like France or Germany.
Obligatory link to Ezra Klein’s article “21 graphs that show America’s health care prices are ludicrous.”
@Ella in New Mexico: Ella — if you can convince me that something better could get 218 votes in the House AND 60 votes in the 2009/2010 Senate, please.
Otherwise, I’m writing a post right now that gives a work-around that could improve this particular situation… but it must be done NOW
I used Albuquerque as my test case https://www.healthsherpa.com/insurance_plans?zip_code=87101#c35001/ppl17/csworst_case/hhs1/hhi50000
Ella in New Mexico
@Richard Mayhew: Thank you. Much appreciated. :-)
@Ella in New Mexico: Ella — there is something very odd about the math in your story.
ACA allows for different sets of deductibles ( a pharmacy deductible, an in-patient deductible etc) but the total out of pocket for a non-grandfathered plan can not exceed $6,400 for a single individual in a year no matter how the dollar figure got there.
An ICU visit for anything will burn that annual out of pocket max for your nephew in the first hour of care.
If the plan is not grandfathered, and if deductibles are at $6300, it is not as that would be a deductible change, then the rest of your newphew’s care is on the insurance company for the rest of 2015.
Part 2 of the math is not making sense:
All of these costs are attributing to your nephew who already hit his annual OOP max for the year. There is no non-grandfathered plan in America which has a $12,000 Out of Pocket max.
What I am betting has happened is the claims for the ICU had not hit the insurer, so your nephew was showing he had a full deductible and out of pocket amount available to spend. When the pharmacy called the insurer to confirm that a $4,000 specialty drug prescription would be covered, they were told to charge the co-insurance by the insurance company rep.
What I think will happen is that his mom will get a $2,200 check in the mail in three or four weeks once the ICU claims clear.
ASO plans (which is what a self-insured plan is called in the industry) still has to be ACA compliant, they just get to dodge some taxes and other things:
Part 3: grandfathering:
If your brother’s plan has changed in any noticable way since ACA passed, it is not grandfathered. It is ACA compliant which means once everything gets straightened out, the pharmacy claims will get refunded.
Kudos for your diligence in following up on this.