| A Sacramento-area surgeon couldn't schedule | | | | The creation of an oligopsony through |
| surgeries for more than six months because his | | | | consolidation is the main weapon in the strategic |
| contract was not loaded in the insurer's computer | | | | arsenal of insurance companies. Oligopsony exists |
| system. More than 200 of Dr. Watson's patients | | | | when providers significantly outnumber buyers, |
| received letters indicating incorrectly that he was | | | | enabling them to dictate prices. Take for example, |
| no longer participating in the network. Watson lost | | | | the PacifiCare's $9.2 billion merger with United |
| about 25 percent of these patients and was not | | | | Health Group Inc. in late 2005, which created a |
| paid for about eight months. Another insured | | | | vast network of HMO and PPO plans covering |
| spent eleven months trying to get claims paid for | | | | more than 3 million Californians. Today, three plans |
| his family, including an autistic child. The insurer | | | | alone (UnitedHealthcare, WellPoint and Aetna) |
| never specified what information was needed to | | | | cover 77.7 million insured lives. Oligopsony allows |
| make the denied claims eligible for payment. | | | | the systematic and continuous cost reduction |
| Are these three isolated incidents or are they | | | | without extra investment, e.g., annual cut of |
| three symptoms of a growing problem with the | | | | allowed rates (such as the average |
| entire provider's reimbursement system? The | | | | reimbursement for E&M allowable dropped 10 |
| owners of health care practices easily recognize | | | | percent in 2006 and another 6.5 percent in 2007), |
| these painfully familiar symptoms. The better | | | | payment suspension for specific procedures (such |
| questions are: how are they related to the rising | | | | as EKG tests for routine physicals), offering "all or |
| healthcare costs and what can a provider do to | | | | none" participation alternatives, or the creation of |
| help? | | | | "tiered networks" that profile providers and |
| In 2005, national healthcare costs rose 6.9 percent | | | | incentivize patients to see lower cost providers. |
| - twice the rate of inflation, reaching $2 trillion. | | | | Tactical insurer's weapons |
| National healthcare costs are predicted to double | | | | Increasing billing process complexity and inventing |
| to $4 trillion by 2015. While key health care cost | | | | new denial reasons through arcane terminology, |
| factors include aging US population, the arrival of | | | | disparate data formats, and modifications of CPT |
| new and expensive drugs and bio-tech devices, | | | | ICD codes and medical necessity rules - these are |
| and the defensive medicine, the insurance costs | | | | all examples of tactical methods designed to |
| alone stand out as a key contributor to rising | | | | increase providers costs for both billing and follow |
| healthcare costs. Exorbitant executive | | | | up and reduce the payments at the expense of |
| compensation became a hallmark of healthcare | | | | practice owners. These methods need continuous |
| insurance industry, where William McGuire, CEO of | | | | investment in personnel training, better process |
| UnitedHealth Group, has reportedly received over | | | | management, and improved technology to keep |
| $500 million since 1992, more than $1 billion worth | | | | them effective as the providers begin building |
| of options, a lump sum payout of $6.4 million upon | | | | more sophisticated systems to scrub and analyze |
| leaving the company, and an annual pension of | | | | claims and discover payment discrepancies and |
| $5.1 million. But such compensation can be easily | | | | irregularities. |
| justified on Wall Street, when comparing it to | | | | Provider's Response |
| outstanding insurance industry profits, such as 38 | | | | Returning to the three incidents mentioned at the |
| percent growth in earnings in the 3rd quarter of | | | | outset of this article, the joint Department of |
| 2006. | | | | Managed Health Care and Insurance Department |
| The problem for any successful insurance | | | | determined that these are not isolated cases. It |
| company is how to make such growth | | | | analyzed 1.1 million paid claims from June 2005 to |
| sustainable? This question is difficult because the | | | | May 2007 that covered about 190,000 members |
| premium growth (68.4 percent) has | | | | in PacifiCare's HMO plans and PPO coverage |
| disproportionally outpaced both inflation (16.4 | | | | [Gilbert Chan , "PacifiCare fined record $3.5 million," |
| percent) and workers earnings (18.2 percent) | | | | , January 30, 2008] and discovered 30 percent of |
| during the same period (2001-2006), making it | | | | the HMO claims wrongly denied and 29 percent of |
| impossible to continue to rise the premiums | | | | the disputes with doctors were handled |
| without losing major segments of insured | | | | incorrectly. PacifiCare paid out over $1 million and |
| population. | | | | was fined additional $3.5 million. |
| Without the ability to attract new clients or to | | | | In summary, providers need new and effective |
| further raise insurance premiums, cost reduction | | | | approaches to mobilize both legal and |
| becomes the next most important approach to | | | | organizational talent to reverse their revenue |
| enhance profitability. Such cost reduction can be | | | | decline. Legal methods battle market conditions |
| done in a variety of ways, which we conveniently | | | | like oligopsony while large-scale medical billing |
| divide into strategic and tactical or opportunistic | | | | networks aggregate claim volumes and create |
| approaches. | | | | resulting economies of scale to enable analytical |
| Strategic insurer's arsenal | | | | discovery of under-payments. |