It’s no secret that employers are overpaying for healthcare. But understanding why this is the case can be more challenging. In our latest webinar, we highlighted five major areas where employers tend to overpay. Here’s a recap of what we had to say.
Under many health plans, a member who needs medical care is left on their own to choose, usually from a set list of in-network providers. While this freedom can feel nice, members typically aren’t equipped to choose providers who are high-quality and have reasonable prices. Even when quality and pricing data is available, members generally don’t end up shopping around.
However, when a health plan has the systems in place to find these high-quality, affordable options and make sure the member knows that they’re available, it can lead to significant savings.
For example, when one Flume Health member in West Virginia needed a lung transplant, they were planning to go to their incumbent hospital. But Flume Health worked with our Medical Management partner, AIMM, to evaluate other Center of Excellence hospitals within driving distance, and found one facility that had higher quality scores and was $150,000 less expensive. Because of this cost difference, the plan was willing to waive the member’s out-of-pocket costs if they chose the latter hospital.
But the plan didn’t tell the member what to do; it was their decision to make. Our job at Flume was simply to explore the pathways to care that were available, and make sure the member could make an informed decision.
Fraud, waste, and abuse are rampant in our healthcare system. For example, it’s been estimated that up to 80% of all hospital bills contain errors. While these aren’t all large errors, when you scale them out across our entire healthcare system you’re looking at a huge amount of waste.
That’s why it’s important that health plans actively monitor claims for fraud, waste, and abuse. We recommend that every employer ask if claims monitoring is part of their plan’s healthcare supply chain. If not, it may be time to make a change.
This is often the lowest hanging fruit for health plans, because almost everyone overpays for drugs. Drugs are expensive… if you pay retail. Below is a list of common drugs and the actual prices we’ve seen clients paying. The good news is that there are several things a good pharmacy partner can do to bring down drug costs.
For example, there are coupons for many drugs that are worth thousands of dollars. And some drug manufacturers actually have Manufacturer’s Assistance Programs that will give the drug to qualifying employees for free. Other drugs can be sourced from other Tier 1 countries at a lower price.
So it’s important that you’re working with a good pharmacy manager: one who knows where to source drugs at their lowest cost; has an incentive structure based on savings or a flat fee; will build your formulary to minimize the up-front cost, not maximize the rebate; and is willing to guarantee transparency.
This bucket is somewhat broader than the previous three. When we say “Black Swan” events, we’re referring to high-cost, often one-off events which aren’t going to happen to every group every year, but which are common enough that you want to be prepared to respond proactively if they do happen.
One example of a Black Swan expense is air transport. If you have a member who needs to be transferred from one hospital to another, it’s not terribly uncommon for the hospital to arrange an air transport. This is extremely expensive, and a lot of the time it’s not actually necessary.
At Flume, we work with a service provider called Sentinel Air Medical Alliance. Their job is to protect plans from unnecessary air transport costs, both by catching air transports that aren’t necessary, and by negotiating reasonable prices when an air transport is necessary. We hope that our clients don’t end up in a situation where they need this service, but if they do, we want to make sure the plan is prepared to respond.
An employer who’s shopping for health coverage will often assume that the big carriers—Cigna, Aetna, Blue Cross Blue Shield, etc—are the only options they have to choose from. In reality, those networks are only part of the healthcare puzzle. There’s actually a wider range of options to choose from, and that choice can affect how much you’re paying.
In addition to the big, national networks, employers have the option to use a smaller, regional network, or oven forgo networks entirely and use tools like Reference-Based Pricing to create a plan where members can see any provider they want.
This choice involves a series of trade-offs between factors like cost, ease-of-use, provider access, and flexibility in the rest of your health plan. Fox example, using a national network through a big carrier is easy, but it can be expensive and severely limits an employers decision to make decisions about other parts of their plan design such as the four categories we’ve already discussed in this webinar. A regional network or RBP plan might require more effort from members and the plan sponsor, but provides more flexibility to design the other parts of the plan, and can be significantly less expensive.
For a more in-depth conversation about these five categories, as well as a Q&A with Grant Parker, Flume’s Head of Marketing and Sales Enablement, watch the webinar recording at the top of this blog post.
Insurance networks claim to give their members a discount on healthcare, but that term can be misleading. This post explains how both networks and RBP plans end up paying the prices they do.