Nexus establishes prevailing prices for medical services using objective and normative data such as Medicare Rates, Medicare cost data, average reimbursements/payments, as well as other public and private data sources.
The reference pricing takes into account actual costs, prevailing area charges, and other objective data to determine the reasonableness of the charges.
Standard primary care physician visits are not the problem because they are nominal in contrast to facility costs (e.g. heart surgery, tracheostomy). It is comparing a few hundred dollars for a doctors visit compared to a surgery billed at $85,000 when a fair price is closer to $55,000; that one procedure could mean a $30,000 savings to a company’s health plan.
Our Reference-Based Pricing (RBP) model has been extremely effective as we pay hospitals a fair price for major procedures, which satisfies the hospital and saves the plan a ton of money. Typically, we use Medicare as a benchmark and pay a fair percentage above the Medicare Allowable Price (MAP), which typically results in 25-40% savings beyond the traditional PPO. This process is ERISA compliant and allows employees to go to any hospital of their choice.
Fully insured plans and traditional self-funded PPO plans must adhere to the Plan Document, which does not allow for any negotiation on over-inflated bills. The problem – the net payable amount is not based on any transparent benchmark that can be used to deter- mine if this is a fair price (generally referred to as Usual and Customary, U&C, etc.). A benefits administrator can adjudicate a claim 100% accurately and still end up paying the facility an amount many times over cost.
It’s well documented the national average Charge to Cost ratio for hospitals is well over 300%. In the most recent annual report from National Nurses United (National Nurses United / IHSP Press Release, 01/06/2014), the following key findings were observed:
- 14 U.S. hospitals charge more than $1,000 for every $100 of their total costs (a charge to cost ratio of 1,000 percent) topped by Meadowlands Hospital Medical Center in Secaucus, NJ which has a charge to cost ratio of 1,192 percent.
- The 100 most expensive U.S. hospitals have a charge to cost ratio of 765 percent and higher – more than double the national average of 331 percent.
- Despite enactment of the Affordable Care Act, hospital charges recorded their single biggest jump, a 22 percentile point increase from the fiscal year 2010-2011 to the fiscal year 2011-2012 in the past 16 years for which the IHSP has analyzed the data.
- For-profit hospitals continue to dominate the list of those with the highest charges. For-profit corporations average charges of 503 percent of their costs, or $503 for every $100 of total costs. The current PPO model is broken, and it’s time for a different approach.
Beyond the problems with hospital charge-to-cost ratios, it is important to have a TPA that promptly and effectively communicates with hospitals and provides payments. Through electronic processing, we can concisely and accurately adjudicate claims payment.