By Michael Gorback, M.D., board-certified in Anesthesiology and Pain Medicine. He taught for 8 years at Duke University and is the author of 32 scientific articles and textbook chapters, and one medical book. Dr. Gorback currently practices pain management at the Center for Pain Relief in Houston, TX, and claims that nobody has ever suffered due to lack of knowledge of his opinion.
This article is a WOLF STREET exclusive.
Bookies call it the “vig,” insurers call it a “PPO Repricing Fee”
You’ve made your money and you’ve left your skid marks on the world. Now you want to fulfill one of your teenage fantasies – owning a red ’57 Chevy (forget the other fantasies – those women are by now all either deceased or decrepit).
I’m a car broker. You hire me to find your dream car, and I get 20% of any savings I can negotiate.
Seller #1 has the car you want. Asking price is $60,000, and I get him down to $55,000.
Seller #2 has the same car in much better condition for $54,000, but he won’t budge on the price.
Which car will you end up with?
This is the distorting effect of third-party administrators (TPAs) in the health-care market. A TPA is often brought in to manage the benefits of an employer offering a self-insured plan. It’s big business: In 2013, Kaiser reported that 16% of covered workers at small companies and 83% of covered workers at large companies are covered by either partially or completely self-insured plans.
But it quickly gets complicated, as they say. The TPA is usually a health insurance company. And the “self-insured” plan often isn’t actually self-funded. It buys reinsurance from the health insurer that is acting as TPA. That’s how they get around state regulation. If they just bought insurance outright, it would be state regulated. If it’s “self-insured,” it falls under ERISA, and they can ignore state insurance laws. So they are often hiding the purchase of health insurance inside a “self-insured” wrapper.
The TPA makes money in two ways: it earns administrative fees; and there is what bookies call the “vig” and what insurance companies call a “PPO Repricing Fee.”
That means if I as a physician call a TPA and offer to do a procedure in my office for 1/3 of what it costs in a hospital setting, they aren’t interested. If they haggle me down to $300 from my usual $600 fee, all they can show their customer is a $300 savings. If the patients go to a hospital, the TPA can reprice the cost from the ridiculous hospital fee of $5,000 for the same procedure down to $1,000, “save” their customer a whopping but fictional $4,000, and bank a nice repricing fee – perhaps 20% of the $4,000 in “savings.”
Are you beginning to understand why hospitals crank their charges up so high? Their co-conspirators – the insurance companies – can show their customers even greater “savings.” In exchange, the insurance companies limit the number of facilities that have contracts. It’s win-win for everyone except the employer and the employees who are paying for all this.
You would think H.R. people for these self-insured plans would be on to this scam. But you’d be wrong. The insurers and TPAs give them a dazzling dog and pony show demonstrating how steep the discounts are, and how huge the “savings,” but they invariably fail to mention that 50% off a price that has been artificially quadrupled is not such a hot deal.
They also fail to mention that there are doctors and facilities that can provide the same services for far less who are locked out of these plans. The exclusion can be in the form of simply refusing to offer a contract at all, or in form of offering a fee schedule so low that it’s an offer that must be refused.
In this way, hospitals and insurance companies collude to keep prices higher, instead of trying to lower them. They aren’t adversaries. They’re confederates. By Michael Gorback, M.D. at the Center for Pain Relief. This article is a WOLF STREET exclusive.
Why does Medicare pay almost seven times as much for Dr. Gorback to do the same procedure at a hospital as opposed to his office? He doesn’t know either. But that’s one of the inexplicable intricacies of our health care system. Read… The Sheer Insanity of What You Pay For Medical Services
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