What’s the Real Price?
Look behind administrative fees and network discounts when evaluating Medical RFPs.
PATTY STARR, PRESIDENT & CEO
Is this the real number?
This question is a critical conversation starter employers need to have—one that is missing from too many medical RFP/RFI discussions. Frequently, employers find themselves bearing more costs than initially planned because variable expenses were not evaluated or estimated, or bundled expenses were not compared during the review process.
Here’s a common scenario. An employer wants to reduce their per employee per month (PEPM) plan administrative fee. A spreadsheet is created that highlights key fees from several plans. Most likely it includes PEPM admin fees, value of discounts, maybe a line for out-of-network shared savings, payment integrity shared savings, and/or pharmacy medical rebates. The employer makes a decision based on the information presented.
The problem is the evaluation did not assess all the contract provisions and the spreadsheet did not breakdown what was or was not included in the fee. The price really wasn’t the price after all.
There’s an onus on the employer to set expectations, deepen plan knowledge, tease out expense details, and ask the question: What are the plan fees? It seems simple. But nothing about health plan costs are easy.
Think of it this way. If you were purchasing a car, would you compare the price tags on two black sedans and say, “This one has a lower MSRP and less expensive monthly payment. I’ll take it?” Probably not. You’d look inside the vehicles and find out what features they include. Are there leather seats? Is there a sunroof, what’s the size and type of tire, and what about a technology package? You’d investigate the safety rating, consider maintenance and serviceability, and test drive the cars to see how they operate. If you only chose the vehicle based on the sticker price and what you see on the exterior, you would completely overlook the differentials and possibly a better value car.
Health plan comparisons are similar. If you only look at discount values and PEPM, you’re overlooking cost-driving factors that will impact the financial performance of your plan and could result in unexpected fees.
As you begin planning for next year, we encourage you to get the real story behind the numbers on a spreadsheet. Put these strategies to work.
Set Clear Goals. When developing an RFP/RFI, clearly state your expectations. State you would like a “full evaluation” of all contract provisions and estimated plan performance based on your current employee population, plan utilization, and geography (available quality providers). Make it clear you want to understand every component of the plan’s fee structure and the terms and conditions of the contract.
Review Variable Costs. Many medical RFP evaluations are missing major expense items. So, when reviewing plan information and pricing, be sure the spreadsheet you’re analyzing includes all fixed and variable costs in a line-item format. Compare unbundled and bundled costs. Are there caps on variable costs?
‘Reconcile’ Your Spend. Much like reconciling a bank account and finding shortages that indicate hidden fees, you can determine if the price presented to you during your review process was a true cost. First, request the following fee information, adding those up to get a Net Claims and Fees amount.
- ASO (Administrative Services Only) fees paid
- Stop loss premiums
- Fee-for-service claims—found in consultants’ data warehouse or from carrier annual claims reports
Now, enter your prior year’s spend from your claims bank account and subtract the Net Claims and Fees amount to “reconcile” and determine if there is a variance. A variance indicates payments and expenses paid to carriers that may not have been included in the initial analysis.
The bottom line is, when you dig into Medical RFP/RFI evaluations to determine the true cost of providing healthcare to your employees, you’ll find that monthly administrative fees and discounts are only part of the story. The more we hold each other accountable for pricing transparency, the better we will perform as teams, businesses, and communities.
