Measuring the value that your cost containment partner brings to the table can be tricky, and views of the niche industry vary widely – some insurers wouldn’t be without their treasured partner by their side, while others prefer to work alone, not involving another party in what is already an extremely complex process. David Kernek looks at both sides of the coin
Along the grapevine…
Assessments of cost containers from two senior industry figures from the insurance and assistance company sectors sum up the broad opinion on cost containment companies. The first: “In general, they do a good job, and to try to replicate them in-house would be hugely resource hungry. If I’m honest, they’re all much of a muchness in terms of their pre-agreed rates and what they will get discounted at the back-end. I don’t think any [one is] particularly better or worse than any of the others.”
The other, somewhat more pointed, comment given to ITIJ was: “If the hospitals charged a reasonable price for doing a reasonable job, and the insurance company then just paid the bill – like what happens in any other type of insurance work – you wouldn’t need them. If the insurance companies and the assistance companies bothered to take the time and trouble, and employed a few competent people, either one of them could set up their own commercial networks and cut out the cost containment companies completely.”
Not unqualified endorsements, but compared to what some of the cost containers themselves say about their side of the health insurance business, they sounds like enthusiastic testimonials. “It’s a very complicated business,” says Dr Colin Plotkin at Colin Plotkin & Sons Consulting in Vancouver, “and it can be a very, very dirty one.”
Through a haze of numbers
How, then, should insurers and assistance companies assess the pitches made by third party cost containers? How can they know that the savings promised will be delivered?
“Measuring savings can be a multifarious exercise,” says Reid Cawston, vice-president of sales for the ITPA (international third party administrator) division at Europ Assistance-Global Corporate Solutions (GCS). “Ten years ago, the average savings rate was the gold standard, but it quickly became a bait-and-switch situation with some companies’ definition of gross savings versus net savings. Calculations using discounts might have a tenuous legitimacy. The only approach I have seen that actually works is when the insurer takes a holistic view of their risk, and samples similar groupings year-over-year to see if costs are holding steady when adjusted for inflation.” He explained further: “An insurer’s book of business fluctuates in size. There will be catastrophic cases every couple of years that can make the numbers swing dramatically, but when reviewed and adjusted for these factors, most insurers would be happy with a predictable loss ratio rather than large annual variations.”
Ten years ago, the average savings rate was the gold standard, but it quickly became a bait-and-switch situation with some companies’ definition of gross savings versus net savings
Cawston says that the quarterly and annual reports his division sends to clients focus more on metrics that demonstrate the efficiency and satisfaction levels of customer services, rather than on the percentages saved. “This is what our clients have asked for and this is what we deliver. They want to know that the members are happy, calls are being answered quickly, issues are being resolved in one call, calls are not being abandoned, wait times are at a minimum, claims do not need to be re-worked, members are not being balance billed, and so forth.” By using such data, he continued: “The insurers and their actuaries will quickly determine if a cost containment company is stabilising their risk; it takes only about 90 days for the claims lag to catch-up with the IBNR (incurred but not reported). But no insurance company wants their cost containment partner running roughshod over providers or neglecting members while operating under the name of the insurer.”
He says insurers look not only at a cost container’s results, but also its reputation. Reputation in this business, says Cawston, ‘is everything’. “Of course they look at reputations. More and more, these decisions are not being handled by one person overseeing all of the claims operation. Frequently, there is a formal request for proposal process, and there might also be a procurement department responsible for vetting the bidders, reviewing references, and looking into the details.”
Such efforts to increase transparency have prompted improvements, he added: “This level of diligence has forced our industry to get far better at measuring what we deliver on and ensure that fly-by-night operators are not tolerated. In many cases, third-party administrators private-label their services to insurance or assistance companies, so we are answering the phone as the insurer, acting as their agent, and speaking to their members. In business, it doesn’t get much more intimate than that, so you want to make sure the company you choose demonstrates the level of professionalism you demand of your own organisation.”
If the TPA or assistance company mishandled a case, he says, and a patient died or was left without appropriate support, ‘very real brand and reputational damage’ would ensue against the insurer. “The member has bought the insurance, and that is who they will hold accountable if things go wrong.”
Furthermore, there is also a legal liability for insurers to think about when looking at cost containers, says Cawston: “When we are working with business travel insurance, there is the doctrine of duty-of-care – which is law in many countries – forcing employers to ensure employees are safe from harm that is ‘reasonably foreseeable’. If you send your employee to a hazardous location without appropriate oversight and pre-travel advice, you might be found liable not just for medical bills, but for negligence.”
Added value services
Martin Weintz, group head of assistance, spoke to ITIJ on behalf of the UK-based Collinson Group – which includes the Intana assistance and cost management operation – and its US cost containment/assistance partner, Global Excel. He agrees that savings and discount statistics might not be the best and only guide to a cost container’s worth: “A percentage of savings value is a very common way the industry uses to measure a cost container’s efficacy – and it’s also the traditional method that’s used over the years. Unfortunately, it’s also a number that can be misleading; it tells only a small part of a very complex story.” He warns that relying on that particular number alone as a measurement of success – or failure – can be extremely unrepresentative, especially with regard to the US healthcare system: “The billing structure there is unique in that prices charged are unregulated and, because of that, providers rarely get paid what they bill. Instead of asking ‘what kind of a discount did you get’, insurers should be asking ‘how much did I pay over cost’?” Ultimately, he says, a cost containment company should be focused on driving true bottom line value to the insurer, and that can’t be measured only by a percentage of savings number. “Unfortunately, most cost containment companies still measure their performance based on a savings percentage value. If that’s all the information they’re providing to an insurance company, then it’s pretty much impossible to assess their efficacy. Getting an 80-per-cent discount on a bill where the provider has billed 30 times their costs is hardly a great measure of success – you’ve still paid six times the actual cost of the service! But without knowing the actual costs, or what you’ve paid over cost, an insurer probably wouldn’t be able to challenge the cost container.”
[Clients] want to know that the members are happy, calls are being answered quickly, issues are being resolved in one call, calls are not being abandoned, wait times are at a minimum, claims do not need to be re-worked, members are not being balance billed
Intana and Global Excel give a number of different measurements to their clients. Probably the most important set of numbers, according to Weintz, compares what they’re paying in the US to Medicare rates. “This provides a true benchmark for how well we’re succeeding in driving their paid amounts to a provider’s actual costs,” he said. Other benchmarks include case severity and average length of stays against Medicare and, in certain cases, Milliman Care Guidelines. The firms also provide trended results on inpatient and outpatient case sizes, geographical distributions, cases opened, and patient demographics.
Kevin Thomas, director of Interhealth’s cost management division in South Africa, says Americans have ‘stuffed up the market with their exorbitant discounts – 50, 60, 70 per cent’. “That has messed up a lot of people’s perceptions of cost containment,” he claimed, “because many seem to base their models on that kind of US principle. In a number of countries around the world, discounts are flying out of the window. You get some sort of preferential pricing, but that’s only one aspect of cost containment.”
In addition to bills for the basic hospital services, he explains, there are separate bills from pharmacies, doctors, and radiologists. “From a cost containment point of view, you’ve got to manage all of those different components and get the best pricing. When you’re talking to a foreign client, they think you’re getting a good price from the hospital and that’s the deal, but we’ve got to go through each and every bill from all of the providers, make sure they’re in line with what we’d agreed with them, and run medical and financial audits.”
All that is part of cost containment, he emphasised, and a lot of overseas companies don’t quite understand the value of it. “It’s an immensely complicated operation, but the problem with the whole industry is that its backbone is run by people who have no clue about the business … people behind the scenes – underwriters, auditors and people like that – who don’t understand and don’t take the time to understand what the variations are in the different parts of the world.”
As an example, Thomas clarified: “You’ve got a guy – an underwriter – sitting in New York, and he’s got to justify an ‘x’ per cent saving. That’s what he wants. He gets the bill, he looks at that number in the bottom right-hand corner, and that’s what he wants to see there: that magical discount. Most of them have an idea of what that magic number should be before they’ve even talked to me. All that does is put the pressure on certain cost containment companies to do what I call double billing. You get a bill for £1,000. You get back to them and ask them to up it to £2,500. You then get a second bill for £2,500. Some hospitals will do that. They give you a 30-per-cent discount, and you get back to your client and say ‘I’ve managed to get you a 20-per-cent discount’, you put 10 per cent in your pocket, you still charge them a fee, and the underwriter guy in New York is happy because he’s got what he thinks is a 20-per-cent discount! It’s a crazy business!”
Thomas says Interhealth/MSO doesn’t get mega discounts from hospitals, but adds: “From the data we’ve collected in the years since MSO has been operating, we can quite comfortably say our estimated overall savings are in the region of 15 to 20 per cent. There’s the clinical audits, and the financial audits … you can’t really show all those things. They’re intangible, but we’ve got access to that kind of data, and you can show trends.”
In New York, Gigi Galen Grobstein, founder and president of Star Healthcare Network, highlights the ‘very fine line’ walked by cost containers between their clients and hospitals, many of which in the US, she says, are going out of business or being swallowed in mergers or acquisitions. “You’re judged by your discounts,” she told ITIJ, “and we’re proud of the discounts we get. The average discount is 36 per cent, but in North Dakota it’s going to be much less, and in, say, California and Florida, much higher. You just can’t predict now what you’re going to get with the provider. Clients judge us by our percentage of savings, our average savings, but we do look at charges, and make sure a provider is not over-charging. As I said, you walk a fine line.”
A recent development, she added, has been the entry of collection companies into the sector. “In our business now, there are a lot of collection companies. There are times when a bill we would have gotten from a hospital goes straight to a collection company. Instead of negotiating with the hospitals, we are negotiating with the collection companies.”
More than meets the eye
For Magdi Riad, president of SelectCare Worldwide, there’s more – much more – to cost containment than simply negotiating price deals and discounts with providers: “You’ve got a lot of people in this business who say they are cost containers, but the question always is: have they been sucked into the American healthcare system? And when I say sucked in, I mean, have they got tied into a lot of contracts with companies that own 50 or 100 hospitals, particularly bad contracts that in some circumstances – depending on the age and condition of the patient – means you get absolutely no discount … you pay the bill in full, regardless of how much it is.” Also, he added, there are a lot of cost containment companies that do not have the systems that would enable them to track the diagnosis-related group (DRG) codes on hospital invoices. All cost containers were not created equal, then, as Riad showed: “To me, a company that says ‘we have five PPO networks, and we can give you this discount’, is not a true cost containment company; I consider them middlemen.” As far as he is concerned, a cost containment company is one that takes a medical invoice coming from the US, and understands what the DRG codes on that invoice mean. It also has a history with that hospital, so they see the movement of the DRG coding. “Cost containment is about in-depth analysis of invoices and reaching a mutually agreed outcome that satisfies both the hospital and the payer,” he concluded.
The insurers and their actuaries will quickly determine if a coast containment company is stabilising their risk; it takes only about 90 days for the claims lag to catch up with the IBNR
It’s not only hospital bills that have to be watched, though, warns Riad. “Doctors can make mistakes or overcharge, too. Doctors might use codes that will allow them to bill the maximum for a specific procedure – some procedures will be $5,000, or it could be $11,000 – but that code might not reflect what was actually written in the medical records. As a cost container, you need a manual intervention – you need to go back and verify who is billing for it and that it’s billed appropriately: the admitting physician or the specialist?” Whether or not such mistakes are deliberate or not is debatable, but Riad is clear in his view: “Doctors use billing agencies, and there are some agencies that do courses in how to over-bill. To identify over-charging, I employ one of their teachers who was actually teaching how to over-bill. Given our location in North America, we live and breathe the American healthcare system. It crosses the border, but we are foreign enough to raise our eyebrows when we see something unusual. You say, how the heck could they spend $35,000 on medication? If you gave this medication to a horse, it would have died!”
In or out?
Reid Cawston at Europ Assistance-GCS suggests the barbeque test when choosing cost containers. “In the end, almost anyone can get you a discount … at least once. A truly effective cost containment partner, of course, must have good discounting in place, but they must also be focused on containing costs at every opportunity while managing the welfare of your members wherever they are in the world. If your cost containment partner isn’t someone you’d invite to your family BBQ, do they really represent your best interests?”
With a 25-year track record in the business, Dr Colin Plotkin says insurers should have three yardsticks to measure against when selecting cost containers: the ‘access’ fee charged should have no role in attainment of getting the best results; balance billing should be completely eliminated – disputes over the discount or any form of deferred liability to the payer should be non-existent; and the welcome return of an insured person to any given provider who has agreed on a prior rate of reimbursement for a similarly insured person.
savings and discount statistics might not be the best and only guide to a cost container's worth
“These three parameters,” he says, “must be viewed as being inextricably entwined, and cannot be separated one from the other. It’s what we abide by, and we’d suggest that every cost containment company, whether affiliated to an assistance company or not, should meet those criteria.” Insurers need to pay attention to what the company is really achieving in its efforts at cost containment, added Dr Plotkin: “What a lot of insurance companies say is, ‘Oh, but he charges only 10 per cent.’ I get asked this all day. ‘How much is your access fee?’ The person who asks me that question is obviously more concerned about how much money I’m going to make than he is about his job and function at the insurance company to get the best net result. You could call me, and I could say, ‘yeah, I can get you a 98-per-cent discount.’ I can also fly to the moon!”
Unlike cost containers owned by insurance and assistance companies, and which therefore start work when a case opens, Dr Plotkin’s case begins when the bill comes in. “The role of the assistance company,” he says, “is to manage the case while it’s still active, while that of the cost containment company is to try to get the best outcome once the whole case has ended. One of the problems in our industry is that there are assistance companies and cost containment companies that have the same mother and father. That is a conflict of interests.” He pointed out that the role of the assistance company is to get the patient out of hospital as quickly as ethically possible, whereas the role of the cost containment company is to revel – rejoice – in the highest bills possible, because the higher the bill, the more money they are going to make. “You’ve got the assistance company badgering the hospital to limit care to the patient, and you’ve the sister company being nice to the hospital, saying ‘come on, give me a nice discount’. This is the equivalent of wanting to suck and blow at the same time,” pointed out Plotkin. “Independent cost containment companies such as ourselves have nothing to do with assistance. What we deal with is a final bill. If they call me and ask for my advice because I’m a doctor, I’ll always help our clients, but I’m not interested in the assistance function. I want them to send me their final bill, and we will do whatever we can to get that to the lowest acceptable amount.”
Unsurprisingly, the above approach is not endorsed by the conglomerates that operate combined insurance, assistance and cost containment services. Magdi Riad at SelectCare Worldwide, a subsidiary of Canada’s Co-operators Life Insurance, said: “Being a subsidiary of an insurance company is not only an advantage to the insurer, it’s also an advantage to a cost container’s client. I’d rather go to somebody who had created an infrastructure to suit themselves; that would be a better choice than somebody who’s doing it simply to make money out of it. When you look at PPO networks, you find that the most successful at negotiating really good deals with hospitals are those owned by insurance companies. Think about it this way: nothing can scratch your back better than your own nail. We do cost containment for other companies; we’re scratching our own back and other people’s, too.”
Gigi Galen Grobstein also likes to be involved from the beginning of a case: “Our work starts when the case starts. It’s always easier to have a case when the patient is heading to the hospital, then we can pretty much watch it and what’s going on with the patient from start to finish. We don’t just do cost containment; we give a white glove-type of service. A lot of times we can give assistance companies information on what’s going on with their case and allow them to decide what they need to do for their patient.”
Reid Cawston reckons that Europ Assistance’s global reach can help to reduce claim costs: “Policy design such as limits and sub-limits can control an underwriter’s exposure, but might cause disputes if the member isn’t aware of the limitations. Member Education such as travel warnings to get vaccinations, take prophylactic medications, stay away from hostile areas, and pushing security and health alerts, are forms of cost containment, but the ‘savings’ are hard to measure, particularly over the short term. Medical case management and member steerage are very effective cost containment tools. Companies that employ medically trained personnel to actively communicate with the treating physician to provide oversight, and when appropriate arrange repatriation, can dramatically reduce an insurer’s exposure. Member steerage involves the member seeking assistance being sent to an in-network provider that the cost containment company has identified as high quality and willing to work with the assistance company to manage the member’s care.”
Martin Weintz of the Collinson Group’s assistance division said the end-to-end approach works well for them: “At Intana, we believe that active case management is the key not only to effective cost containment, but also more importantly to better patient/customer care. While the majority of cost containment companies get involved in the latter stages of an assistance case, our innovative approach ensures that the member benefits from direct case management and that there is no double entry in terms of the logistics of case handling and administration. The benefits we have seen of this approach have been that costs that might otherwise be incurred are either much reduced or avoided by virtue of our partner’s knowledge of local regulations, billing structures, and so on.”
Cost containers are involved in the travel insurance business whether some parties in the industry like it or not, but what’s important moving forward is that there is a higher level of understanding between hospitals, insurers, assistance providers, and cost containers. By making clear exactly what the services on offer, are cost containment providers can show insurers the value of their proposition, but endlessly promising discounts that are unattainable do the industry a disservice in the long run. Whatever method or process of cost containment is used when navigating the global healthcare system, one thing is for sure: insurers and assistance providers are using more detailed and varied methods to assess the value of the proposition offered by their cost containment partners.