• How to determine actual cost
  • How are Network discounts determined
  • Can we compare Medicare cost, Reference Based Pricing Cost, Direct Contracting

Network pricing and out of network charges?


Self-funding by itself does not reduce claim spending, not even by a dollar

Discount Analysis: Strengths and Limitations

The focal point of cost analysis has long been on network discounts and has always been somewhat problematic. It’s important for finance leaders to understand both the strengths and limitations of discount analysis. “Unit cost discounts” reflect the contractually agreed-upon reduction in billed charges that participating providers have committed to. While often referred to as a composite number such as “35%,” the actual value is at best misleading. When is a discount not a discount?

A facility with a $1,000 billed charge may offer a discount of 40% resulting in a discounted charge of $600, while another charges $800 and discounts by 35%, resulting in a net charge of $520. The biggest discount doesn’t necessarily reflect the lowest net charge. Until charges for procedures are leveled or matched, and not arbitrary, discounts remain meaningless. Example: I can sell anyone a Mercedes-Benz CLS- Class today at 50% off.

Hospital list prices, contained in something called a chargemaster are insanely high, often running ten times Medicare, which becomes the amount that hospitals routinely accept as full payment from insurers. Moreover, the relative level of a hospital’s chargemaster prices bears no relationship to either the quality of the services the hospital provides or to the cost of the services provided. The purpose of these fictitious list prices is to serve as a starting point or anchoring point for negotiations with third-party payers, Preferred Provider Organizations – PPOs, regarding the amount that they will pay the hospital for its goods and services. Discount negotiations begin at the top and work down, 10% to 50% of their chargemaster rates. 50% off is approximately 225% of Medicare. Providers need 122% to break even. According to Rand, PPOs average 241% of Medicare but go up to 400%. It is important to understand price variance, the cost differential between hospitals in the same network, exact procedure code and maybe same physician. 735%. Our Concierge Member Advocate finds the price variance for your members; steerage.

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