Discounts off of what?

Dave Chase, co-founder of Health Rosetta, penned an article titled “Have PPO Networks Perpetrated The Greatest Heist In American History?” Originally published in Forbes in 2016, it is an eye opening account of the pervasive waste in our healthcare system.

The start of the economic depression for the middle class correlates with the rise of PPO networks. The average of so-called PPO “discounts” nationwide is that employers pay roughly 2.6 times greater than what Medicare pays, however it varies widely between markets from some paying less than Medicare to most paying far greater. Dendy privately shared some client reports where it showed companies had PPO networks from the major carriers blindly paying scores of bills at over 10 times Medicare prices. PPO networks charge access fees, a fixed cost of a group health plan, of $12-$20 pe/pm for what is arguably the obligation to overpay providers for healthcare services.
— Dave Chase

In short, a PPO discount is based upon billed charges that have been marked up. It’s a win-win for the provider - who gets paid above a market rate - and the insurance company - who gets to tout wonderful discounts in their plan. As one of my own doctors told me “we need to bill Cigna $100, just to get paid $50.” The cash price that I paid for this visit was $45. No insurance, no billing department needed. Chew on that for a moment.

Discounts off of what?

As Dave Chase describes in his book “Much of pricing in health care is set as a percentage of Medicare pricing. Why? Because Medicare uses a rigorous process to develop pricing that takes into account actual hospital costs and market variances.” When your PPO network advertises a 50% discount, it sounds nice but in many cases we have no clue what the starting price is and if that price is fair.

Pulling Back the Curtain

Below is a listing of hospitals in the St. Louis metropolitan area. We took CMS reported data from May 2017, the latest available, on overall billed charges as a percentage of Medicare. We then broke this down by In-Patient and Out-Patient. and just for fun, we threw in Leapfrog safety grades.

How do we fix this?

Fortunately, employers have many tools and strategies available to prevent this type of waste inside their health plan. If you are on the edge of your seat looking for answers, I encourage you to check out our March 5th healthcare summit (did we mention it’s free?!)