Collusion? At the very least, it’s a broken system.
By Michael Gorback, M.D.:
I had a patient who I thought would benefit from viscosupplementation, the injection of hyaluronic acid (a naturally-occurring component of joint fluid) into the knee for arthritis pain. I sought pre-authorization from his insurer for a single injection of Synvisc One. And that’s when things became … interesting.
His employer had a self-insured plan run by a third-party administrator (TPA). As I reported in a previous article, the TPA is usually a health insurance company, and the “self-insured” plan often buys reinsurance from the health insurer 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.
A TPA makes money in two ways: administrative fees and a “PPO Repricing Fee.” The PPO repricing fee is similar to paying me to find you a car with a commission based on the price reduction I can get you. If you hire me to find you a specific car and I get a percentage of the difference between asking price and final price, I have an incentive to connect you with the guy who is asking $65,000 but will accept $55,000 rather than the guy who is asking $55,000 but will accept $50,000.
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 patient goes to a hospital, the TPA can reprice the cost from the ridiculous hospital chargemaster fee of $5,000 for the same procedure down to $1,000, “save” their customer a fictional $4,000, and bank a nice repricing fee – perhaps 20% of the $4,000 in “savings.”
Therefore, the financial interests of TPAs and their customers aren’t necessarily aligned, and collusion between certain parties can actually raise prices paid. And what if the TPA gets a cut of the seller’s price? What’s the TPA’s incentive?
To find you the highest price.
When I sought pre-authorization from my patient’s insurer for a single injection of Synvisc One, his insurance company, as represented by the TPA, would only approve it if we used their approved pharmacy to get the Synvisc. I don’t think this common denominator is coincidental, nor am I convinced that the self-insured company knows that this is going on.
The pharmacy wanted $1,200 for the Synvisc. The patient had a few thousand dollars left on his deductible so he would pay the entire cost. We told him we would provide the Synvisc for $590. This is the ASP, or average sales price, for Synvisc One according to Medicare. Yeah, I was only charging Medicare rates.
The patient would save $610. That’s good, right?
But if he had done that without insurance approval, he would have forfeited having the cost applied to his deductible. His choices were to pay $590 and not have it count toward his deductible, or pay $1,200 and have it count toward the deductible. How many patients know how to goal-seek this in a spreadsheet?
The designated pharmacy did not offer to meet our price even though as a large corporate supplier they probably get Synvisc at a much lower price than I can negotiate. We finally got through to someone at the TPA who approved the lower price we were asking.
If the TPA, which is supposed to act on behalf of the employer and employee, insists on a specific vendor that costs over twice as much, one must question the relationship between the TPA and the vendor.
Is it collusion?
In my experience with insurance companies and their pharmacy fellow travelers, that’s the smart way to bet. At the very least, this is a broken system that doesn’t serve the customer well at all. By Michael Gorback, M.D., board-certified in Anesthesiology and Pain Medicine. He practices pain management at the Center for Pain Relief in Houston, TX.
Outraged by the prices, often unknown upfront, that you and your insurer pay for medical services? Enter the bizarre world of “Place of Service” pricing. Read Dr. Gorback’s … The Sheer Insanity of What You Pay For Medical Services
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.