New Hope for Health-Care Costs: Cash Pricing

June 11 01:00 2014 by ushadmin

Most employers are already implementing a variety of strategies to contain health-care costs, such as restructuring benefits, establishing coverage tiers and opting for value-based purchasing or private health-insurance exchanges. CFOs should also, however, look at market-based solutions.

In particular, moving to a cash-pricing model for elective health-care services — that is, virtually anything other than procedures in response to sudden emergencies, like heart bypass surgery in response to a heart attack — has great potential to curb costs. A vast majority of medical procedures are elective.

Cash pricing refers to a payment for medical services that is negotiated between a patient and a provider. Whereas contract rates in PPO health plans are negotiated annually between payers and providers, reflecting the relative market power of each party in a given area, with cash pricing, providers bid on a specific procedure for a specific patient in competition with other providers.

With the selected provider freed from bearing the administrative costs of managed care for that procedure, it can offer significant discounts. Cash pricing is routinely negotiated one on one between patients and providers. It’s less common within employer-sponsored health plan (ESHPs), but employers could readily adopt it.

A key benefit of cash pricing is the opportunity to base the provider selection not only on cost but also on a provider’s proven quality or efficiency. That opportunity doesn’t exist with PPO health plans.

How the Process Works
First, an employee requests medical approval for the procedure from the EHSP. Upon receiving the approval, the employee typically meets with his or her primary-care physician and chooses providers from a list of local ones that have expressed interest in discounted cash payments.

Then, an external vendor retained by the ESHP sends a bid request to the chosen providers that asks not only for a price quote but also for data on how many of the particular procedures they’ve done and their patient outcomes. The vendor can help the employee make the selection based on that data as well publicly available data on things like hospital readmissions, patient satisfaction and complaints, and malpractice lawsuits.

After the procedure is done, such vendors typically take a percentage, often 20 to 25 percent, of the difference between the cash rate and what a network provider would have been paid under the ESHP.

The bid process is generally completed within 48 hours. When a cash-price provider is selected, the employer prefunds an account set up for that particular provider and procedure and then releases the money to the provider’s account at the time of service.

As a financial incentive for employee participation, employers usually waive the deductible and co-payment for the medical procedure. The employer and employee are both indemnified against “balance billing,” where a health-care provider bills for the difference between what the provider chooses to charge and what the health plan chooses to reimburse.