The Shift to Medicare-Based Pricing
Background: This case study involves a large employer group with 4,800 employees enrolled in their health plan. They use a national PPO network that averages 88% in-network penetration (12% out-of-network) and the PPO network averages 46.2% discounts. The previous out-of-network solution averaged a blended savings of 26.2% prior to vendor fees. This group was not ready to use a full PPO replacement model and opted for an out-of-network program that would use Medicare at 150% for all out-of-network claims except for emergency claims which were routed through a supplemental / wrap network to obtain a contracted discount. This group allowed negotiations to occur on appeals and accepted any discount greater than 30% off billed charges, allowing additional payment on those claims to eliminate member disruption.
Summary of Results: The following is a summary of the results after the first 2 years (2013 was a partial year):
The effect of using Medicare-based pricing has caused an increase of 242% in gross discount and after appeal negotiations, netted a 60.9% discount meaning that 2.5% of charges or 4% of gross savings were reversed and later allowed as payment to reduce disputes.
Additionally, this group saved roughly $1.4 million of additional savings for a mere increase in overall program cost of $100,000. The net effect was a $1.3 million of added savings by changing programs.