When comparing plan alternatives, a traditional method for measuring cost effectiveness is to look at provider discounts and fee/unit price information. And while these are key considerations, savvy purchasers are beginning to understand that these indicators only show part of the picture.
To help them make better purchasing decisions, these purchasers are demanding information that delves deeper—analyzing provider cost, efficiency and total cost.
As you work with your customers to determine the health care options that will best meet their needs, here are some things you should consider.
Big Discounts, Not Necessarily Low Cost
Calculating Discounts
Unit Price/Fee Level vs Total Cost
Big Discounts, Not Necessarily Low Cost
The biggest discounts may actually be with providers who are delivering care at a higher total cost. That means, as more individuals utilize these providers, the average plan discount improves, but total plan costs increase.
Conversely, the smallest discounts may be with more efficient, cost-effective providers. Savings are substantial as individuals migrate to these providers, but the average discount appears to be lower.
Calculating Discounts
For all plans, the fee level and rate of discount varies by provider. Various methods of calculating an “average” discount can skew results, based on concentration of provider use, mix of service types, and geographic variation. For example, plans are often asked for their average discount. If 80% of their members used a provider with a 25% discount, and 20% used a provider with a 75% discount, the average discount is 50%. However, the weighted average discount is just 35%.
Unit Price/Fee Level vs Total Cost
Simply defined, the total cost of health care services is determined as:
Utilization (type & mix of services) X Unit Price/Fee Level = Total Cost
A focus on unit price/fee levels without utilization and its affect on total cost misses the largest component of the health care cost equation.
A growing body of research showing that providers who charge lower unit prices can actually cost more in the long run utilizing unnecessary services and/or not effectively managing their patients who have chronic illnesses, resulting in more avoidable complications or hospital admissions.
The image below uses actual data to show the dramatic variation in price and total cost.
Relying on an approach that focuses solely on unit price/fee levels can actually drive costs up.
Patient Choice programs offer competitive discounts, and our unique tiered networks help consumers identify and choose more cost-effective, efficient providers—reducing cost trends for your employer customers. |
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