Issues Backdrop
Healthcare costs are out of control
Health insurance premiums are rising at twice the rate of inflation. Premiums rose between 6% to 12% in 2007. Premiums have risen 87% since 2000, according to a Kaiser Family Foundation study (Source: NY TIMES April 2007). Today, 47 million Americans are uninsured. The national healthcare debate ranks second, behind only the Iraq war. With nowhere to turn, employers are asking the government to help bring the situation under control.
Payors are being pushed to the breaking point. Costs are rising, coverage is shrinking, and 2 million more people each year join the ranks of the uninsured.
The PPO Predicament
Preferred Provider Organizations (PPOs) grew in popularity during the 1980s, and currently represent 81 million Americans. This health insurance model promised affordable healthcare by guaranteeing Providers increased patient volume in exchange for deeper discounts. The flexibility to go outside the network attracted Members in droves.
However, out-of-network use was greater than anticipated. This forced Payors to pay out-of-network claims at undiscounted rates. In an attempt to contain costs, Payors illegally shared PPO contracts among themselves.
The health insurance ID card, which functions as a proof of contract, began to display many PPO logos. Without a single ID, Providers could not identify which PPO was steering the patient. Payors paid Providers according to the lowest fee schedule in the doctor's managed care network. As a result, Providers were significantly underpaid.
Providers are losing an estimated $40 billion dollars a year
Health plans “cherry pick” the lowest fee schedule from Providers in their managed care network. They also use “silent PPOs”, a practice whereby a member incurs a claim from a provider outside their PPO network and the claim is discounted through another PPO network not identified on the health insurance ID card. In the 1990s, Providers began scrutinizing the language in their contracts and started fighting back.
Costly litigation
Providers began by questioning some of the larger claim reimbursements. Soon, auditors and lawyers noticed these contractual breaches. Lawsuits and legislation followed. Recent court decisions in Delaware and Louisiana awarded Providers reimbursement at 100% of their fees retroactive a number of years. More than 14 states enacted legislation enforcing a single PPO ID on each member's card.
The Rise of National PPOs
In order to be compliant, Payors began contracting with a handful of National PPOs. National PPOs do not offer the ratio of patients to Providers like a local PPO. As a result, National PPOs are costly because they receive the smallest Provider discounts.