Benefits and Compensation

Implant Charges Seen as Ripe for Health Plan Cost Control

Implants — spinal fusion; as well as hip, knee and shoulder replacements — have emerged as major price problems today. Costs are up and so is utilization, which explains the cost surge health plans are undergoing for these procedures, according to three attorneys from The Phia Group in Braintree, Mass., who spoke in a Jan. 14 webinar.

The price growth in implants has been “incredible,” attorney Chris Aguiar said. For example, in 1997, Medicare paid $343 million for spinal fusions; in 2008, it spent $2.24 billion (a 400-percent increase when adjusted for inflation).

Hip replacements grew from 258,000 in 1997 to 410,000 in 2011; and knee replacements skyrocketed from 264,000 to 644,000 over the same period, he said.

The medical industry is the only one where technological advancements have made the prices increase, according to author Steven Brill. But the advancements plans pay more for are irresistible, the attorneys noted, because they lead to better outcomes and save lives, the attorneys remarked.

A Perfect Storm

Reasons for the growth in implant costs include: (1) more facilities are cropping up hoping to ride the wave of demand; (2) new technologies and medical advances are improving outcomes and recovery times; (3) America’s population is aging; and (4) America’s population is overweight and obese.

Implants are expected to possibly quadruple by 2030, and the national tab for implants will be $77 billion. The cost of the device is the predominant portion of the overall orthopedic procedure (for spine surgery it’s 90 percent). One reason for that is that re-sellers’ mark-up on the devices: “They are marking these things up 300 percent on average, for reselling something they may have had in their possession for a few hours.”

Data Empowers

Implants are new, compared to specialty drugs and hospital stays, for being seen as a source of overcharges. Apart from implants, other catastrophic bills that can financially harm a self-insured the plan the most include dialysis, oncology, Intensive care unit visits; hemophilia, specialty drugs, children’s hospitals and air ambulance.

How can health plan sponsors rein in these rising costs? First, plans and vendors should look at historic billing and payment data, including invoices, to get an idea of the amount of upcharges each facility is making; including the implant hardware. That lets the plan negotiate better prices where markups are high, said Phia Group President Adam Russo, Esq.

Work within the PPO Contract

Secondly, network contracts can be an obstacle to instituting transparency and rational pricing.  “These PPO contracts are almost a shield against common sense,” Russo said. There may be several bases on which a plan could talk down the cost, but when PPO contracts are in place, providers are replying: “This is what the contract says I get paid, I don’t want to discuss it more.”

Violating the network contract should be avoided; the plan is bound by it and needs to respect all parties that signed it. Instead, the plan should operate within the contract, and respect network relationships that are sacrosanct. But Russo recommends reviewing the network contract and introducing alternative interpretations of it. Even in the network context, plans can open a dialog with the surgeon based on the plan’s knowledge of: (1) the actual cost of the implant and the average provider charge for the procedure (illustrating the degree of the physician mark-up); and (2) improper practices like unbundling. Once it knows those things, the plan has a foundation for cutting payments even in a network context.

Self-funded health plans can incentivize providers toward agreeing with a cut in their fees by promising to pay the claim within 10 business days, for example.

Another approach may be to tell the provider: “If this plan becomes insolvent, these patients will go to an exchange, and an exchange will certainly pay you less, so at least work with us.”

While in-network claims offer limited opportunities to argue for discounts, even the most important PPO processes out-of-network and wrap claims. Those claims, which are not auto-adjudicated by the PPO, offer better opportunities. When claims are out of network, plans have more leverage and providers do more egregious mark-ups, so opportunities for substantial discounts are much better for the plan.

Providers may accept “common sense” and reduce mark-ups; on the other hand, they might balance bill the patient, attorney Ron Peck said. The plan needs to have a strategy in place that protects plan members in the event of balance billing.

For more information, see the Guide to Self-Insuring Health Benefits

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