You can “name your own price” for a hotel room, but what if you could name your own price for a hospital stay? That is exactly what a growing number of employers are doing through their self-funded health plans. It’s called Cost Plus and it is saving early adopting employers 25% or more of their healthcare spending.
You know that managed care networks negotiate agreements with hospital systems. The negotiations occasionally make headlines when they break down, but then they settle. The negotiated fees are often expressed as a discount off of billed charges, sort of like wholesale vs. retail pricing. You may not know that although these discounts can be 50-60%, the actual prices are still two to ten times what Medicare pays for the same service and Medicare may be the hospitals largest customer. What a deal!
That’s where Cost Plus comes in. Here’s how it works. A self-funded employer drops its managed care network, hires a Cost Plus administrator and amends its plan document to limit spending on hospital charges to a reasonable amount, like Medicare plus 20%. The Cost Plus plan has no in or out of network hospitals, it has no hospital network at all. It does include a physician and prescription only network, but that’s easy.
After a hospitalization, the employee gets a hospital bill, say $100,000 and the Cost Plus administrator pays Medicare plus 20%, say $25,000. Often the hospital accepts the payment as reasonable. About 20% of the time the hospital “balance bills” the employee for the $75,000 difference. Now it gets interesting. The key to the success of the Cost Plus strategy is that the administrator then steps in on behalf of the employee. The administrators’ legal team explains to the hospital that the plan is limited to paying Medicare plus 20%, which given that the hospital accepts Medicare charges every day, should be more than reasonable. The conversation might go something like this:
“But the patient signed pre admission paperwork taking responsibility for the hospital charges” says the hospital. “Were the actual charges listed on that paper work? How can patients consent to prices they will never see until after discharge?” replies the administrator. In the end, knowing that the courts recognize a reasonable payment from an unreasonable charge, the hospital settles.
RBP is not for the faint of heart. These settlements can take weeks or months, and hospitals can refer patients to collection agencies, but good administrators know how to use the law to keep collectors off employees and protect credit scores. Is it worth it? With deductibles and payroll deductions going through the roof what is the alternative? Some potential hassles for the few or increasing financial stress for the many.