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Published on : March 03, 2012

Changing the Rules:  Impacting the Cost of Care Prior to the Delivery of Services

Changing the Rules: Impacting the Cost of Care Prior to the Delivery of Services

It’s time again to change the dynamics in healthcare. We certainly can’t wait for ObamaCare, or Congress for that matter, to reduce the cost of healthcare services. As it has always been, it is the responsibility of the business community to create new solutions to impact the quality, cost and convenience of healthcare in the market. That has never been truer than in today’s economy.

Today’s prescription for cost reduction is to combine medical management, typically URAC Accredited, with PPO and HMO networks offering “deep” discounts, and supplementing that with organizations that reprice incurred claims that are Out-of-Area/Out-of-Network (OON).

No matter how effective your analysis and selection of PPOs or HMOs for your covered employees or insureds, there will be OON claims. Even the best network configuration can leave 10-30 percent of claims OON. The result is that significant dollars are left undiscounted on medical claims that must be paid at full-billed charges or a Usual and Customary Rate (UCR) is applied resulting in additional patient financial responsibility.

Getting Ahead of the Pricing Curve

Fortunately, what is emerging today is a new model for driving Plan and member savings, one that combines medical care pre-certification with a negotiations process.  I think all of us would agree that there is significant leverage in reducing the cost of services before care is delivered. The challenge has been that the majority of organizations only provide one piece of the process: either pre-certification or post care negotiations. Recently, however, we have identified innovative organizations that have integrated care management with the claims re-pricing process. The result is significantly greater savings on OON medical claims, and in some cases, redirection of care to In-Network providers prior to the delivery of services.

The successful organization utilizes its care pre-certification process to identify potential OON care, as well as high-cost services. The information is then forwarded to a claims negotiations team, which reaches out to the pre-certifying provider and attempts to negotiate favorable reimbursement prior to the delivery of medical services. In the vast majority of instances, the OON provider is willing to aggressively discount the care in order to keep the case. These discounts can be dramatically greater than what would have been negotiated after the care was provided.  There have been instances where the discount has been as much as 500 percent greater than what could be negotiated after the service is provided.

If the OON provider is unwilling to negotiate, the organization will then work with the referring provider and the patient to identify an In-Network provider.  Again, once this provider is identified, the organization can still negotiate savings above the contracted PPO rate.  Because the provider has not performed the procedure, there is nothing in their PPO contract that precludes an organization from negotiating outside of the PPO Agreement. In other words, the organization can leverage the potential of new business to obtain deeper savings.

It is important to note that the negotiation is separate from the pre-certification process.  Once the negotiation is completed, the provider must still meet the pre-certification requirements for the procedure requested.

Example: A provider contacts the pre-certification company to get approval for a procedure.  It is identified that the provider is outside the patient’s Primary PPO.  The information is forwarded to the negotiations unit and the provider is contacted to negotiate Medicare Plus or DRG pricing, as appropriate.  If the provider is willing to negotiate, a formal sign off on the discount is obtained and the pre-certification process is continued.  If the provider is unwilling to negotiate, the negotiations unit will contact the referring provider and patient, identify an In-Network provider and establish a fee reduction with that provider.  Once this occurs, the information on the new provider is passed on to the pre-certification nurse and the process continues.

Ultimately, the patient and the referring physician have the final approval to move the care to an alternative provider.  However, once the patient understands the financial liability of using an OON provider, who is unwilling to negotiate, he/she typically agrees to change providers.

Case Study- Knee Replacement: The following is an example of an In-Network provider requesting a pre-certification on a knee replacement.  Because of the high cost of the service, including the implants, the information was forwarded to the negotiations unit of the Care Management firm.  The negotiations team determined that the pre-certifying provider was not willing to negotiate more aggressively on their fees, including the implants, beyond its PPO discount.  The team then identified an alternative In-Network provider that was willing to negotiate in order to provide services.  The impact was as follows:

Original Pre-certifying Hospital:

Total Estimated Hospital Charges: $39,360
Implant Charges: $11,704
Estimated Discount on Implants: $2,833
Final Cost of Implants: $8,871
% PPO Savings on Implants: 24 percent
% PPO Savings on Hospital Charges 15 percent

Provider of Services:

Actual Hospital Charges: $36,757
Actual Implant Charges: $11,270
Actual Discount on Implants: $6,920
Final Cost of Implants: $4,350
% Savings on Implants: 61 percent
% Savings on Hospital Charges: 29 percent

The result was greater savings to the Plan, reduced out of pocket cost to the member, and enhanced employee satisfaction.

Coordination is Critical

One of the most critical elements to making this process work effectively and efficiently is the coordination between the pre-certification team and the negotiations team. It needs to be a seamless and timely process. Delays in communication can pose very real challenges in getting care negotiated prior to delivery.  It is important that care is not delayed because of the process. Obviously, this type of program is not designed to impact emergency treatment. 

Generally, there is an internal electronic process for moving information from one operational area to the next to eliminate delays and potential miscommunication. Also, this enables the organization to track the timing of the process and provide real-time updates to the Plan Administrator and the patient.

About The Author

Corte B. Iarossi is a health insurance/managed care professional with over 20 years success.  His experience includes leading sales and marketing teams for large Insurers and HMOs, as well as fast moving, entrepreneurial medical management and claim repricing organizations.  He has also worked with several physician hospital organizations where he developed PPO and HMO products.  He can be reached at (423) 505-9128 or