The number one money-saving strategy for your plan is NOT negotiated provider discounts

February 13th, 2020

money saving strategy

By James Vertino, Chief Executive Officer

It is a compelling story. Too bad it is not true.

You hear over and over again, and may even believe, that self-funded plans can maximize their costs savings after they negotiate discounted fees with providers.

These self-funded plans feel good about their negotiating success in getting a 15 percent discount on billed charges that they believe will deliver an overall cost savings of 15 percent.

But wait. That’s not how it works.

These discounts may very well be defined as the difference between the full billed charges from a provider and the allowed charges within the payer’s network that the provider will accept.

When discussing network discounts, remember these facts if you really want to maximize your savings:

  • Discounts are applied to billed charges rather than an accepted “fair price.” Inflated payments could be the result.
  • Your hard work negotiating discounts is admirable. But your efforts do not impact plan utilization or the volume of services reimbursed by the plan.

You’ve probably seen reports about how inefficient and wasteful our care delivery systems are. Patients are overtreated or receive unnecessary surgery. Unneeded or duplicative tests are often ordered. Chronic disease is not treated properly. Recent research shows that 71 percent of ER visits could have been handled safely in a primary-care or urgent-care facility.

The Institute of Medicine says,“Geographic variations in spending are substantial, pervasive and persistent over time,” and that, “There is little or no correlation between spending and health care quality.” Standards of care and price for that care vary widely for no good reason.

The answer to the cost-reduction question does not come easily. There are many factors at work. But direct contracting and reference-based pricing has been shown to contain costs and should be considered. Some plans have encouraged members to explore concierge services and medical tourism in search of lower costs for high-quality care.

To truly contain rising costs, we must develop and embrace alternative, innovative solutions that go far beyond the myth behind provider-discount negotiations.