What Role Do Perverse Incentives Play in Our Current State of Healthcare in America?
The answer, unfortunately, is HUGE. Perverse incentives are rampant in the healthcare system, but today we will address three specific areas where a health plan sponsor must remain vigilant: out-of-network claims, PBM rebates, and broker compensation.
Out-of-Network Claims: The Hidden Perverse Incentive
One of the most obscure and challenging areas to uncover involves out-of-network claims. The perverse incentive here arises from how these claims are handled. Health plans often use a Medicare reimbursement model or something similar. Typically, a legal defense or repricing vendor is involved in out-of-network negotiations. This all seems reasonable, but consider this: these vendors are often paid a percentage of the “savings” they generate through their “hard work.” The reality is that this creates an incentive for out-of-network claims to occur. The percentage of savings is usually calculated from the billed charge, meaning these vendors can collect up to 30% of what can be tens of thousands of dollars. Do they care that your employee is exposed to higher out-of-pocket costs because of these tactics? No. Are you any the wiser? Likely not, as these practices are often buried in the details or omitted altogether.
PBM Rebates: A Game of Hidden Costs
The world of PBM rebates is another critical area to be wary of. A rebate is essentially a delayed coupon. If the PBM plays the game correctly, they will generate enough volume of a pharmaceutical product with a specific manufacturer to claim rebates. The issue here is that PBMs often craft formularies to exclude medications that do not carry rebates, favoring those that do. The problem on the front end is that there may be an equally or more effective, lower-cost medication your employees could be taking. However, since that option is not profitable for the PBM, they push a higher-cost alternative onto your employees. The back-end issue is whether the PBM is passing 100% of the rebates back to you as the employer, with ample proof. These rebates can be substantial, and even a small percentage can significantly increase the revenue of vendors within your plan.
Broker Compensation: Transparent or Not?
The final perverse incentive to be aware of is broker compensation. While many brokers are properly disclosing their compensation to the best of their abilities, it isn’t always enough. You need to carefully review vendors like telehealth and diabetic management programs, where you’ll often find small hidden fees resulting in revenue for your brokers. PBMs and out-of-network claims are other areas where we routinely find brokers taking a small slice for themselves. I fully support generous compensation for a high-quality broker, but I am not in favor of underhanded tactics that allow them to profit at the client’s expense.
Empowering Employers: Take Control of Your Health Plan
The big issue here is that many employers are experts at making widgets or providing stellar services—they are not experts in identifying the areas where their health plan is hemorrhaging cash. The goal of this article is to empower you to identify areas where you may be taken advantage of and how to stop it.
