There are a few key competing interests blocking an employers’ ability to control their healthcare costs. We believe this situation will only change when trailblazing advisors are willing to shift the conversation to healthcare supply chain management.
In a recent keynote presentation by David Contorno he walked through the presentation he often gives to employer groups. In that presentation he outlined spelling out the four competing interests that conspire against an employer’s goal of controlling healthcare costs:
Competing Interest #1 – Your PPO Network
Discounts off of an inflated arbitrary price make no sense. If a given medical procedure has a pre-fixed price of “$2,000 with zero discount”, most advisors will argue against the zero discount in favor of a 75% discount through a major carrier’s PPO network. The problem is this discount is often taken off a chargemaster price that can be at $50,000+ for the exact same procedure. This means the discounted price comes out to a whopping $12,500 instead of a pre-negotiated $2,000.
Competing Interest #2 – Your Insurance Carrier
This one is really plain and simple and everyone should know. With the ACA, carriers have a mandated medical loss ratio maximum of 80% to 85%. Therefore, carriers are locked into a specific profit margin as a percent of total premium. So the only way to increase premiums is to increase the underlying medical costs, which creates misaligned incentives.
Competing Interest #3 – Your Pharmacy Benefit Manager
It is absolutely imperative for a PBM to act as a fiduciary to the medical plan. Most PBMs do not act as fiduciary and explicitly say so in their contracts, preferring to optimize for revenue through multiple hidden revenue streams. One particularly interesting example illustrates just how non-fiduciary PBMs can operate nefariously. If a pharmacy dispenses a generic drug that sells for $6 and both the pharmacy and PBM profit off of its $6 sale. But if the patient’s copay is actually $10, the PBM requires the pharmacy charge the $10 copay for a $6 drug so the PBM can pocket the extra $4 that has nothing to do with the price of the drug.
Competing Interest #4 – Your broker
That’s right, you. Many broker’s fees are based on commission and if premiums go up, broker compensation goes up too. See David Contorno’s “My Ethical Dilemma” for more on this.
If you made it this far, chances are you are going to be a part of the solution to save Americans from punishing health care costs. We’re glad to have you on this journey.