For many observers, the June 2015 King v. Burwell decision upholding the federal subsidies of the Affordable Care Act signified the end of the legal battle over Obamacare. Employers who adopted a wait-and-see approach as the litigation unfolded now face compliance with the ACA on an expedited schedule.
One notable trend of the post-reform era is the rise of self-funded employer health plans. In self-funded plans, employers set aside resources to pay employees’ medical bills themselves rather than paying premiums to an insurance company. Employers may secure “stop-loss” insurance to protect against catastrophic claims, but stop-loss coverage does not kick in until employers meet a predetermined payment threshold. Nonetheless, medium-sized and smaller employers increasingly are willing to take the risks inherent in self-insuring in return for exemption from certain regulatory requirements of the ACA and potentially lower health care costs.
The Chargemaster Challenge
The increase in self-funded employer health plans has triggered an unintended consequence for hospitals with respect to payment for services: a rise in patients considered “self-pay” or “uninsured” by hospital billing departments. With the exception of large employers like Boeing or Wal-Mart, self-funded plans rarely contract directly with providers. In the absence of a contractual agreement, hospitals routinely charge patients enrolled in self-funded plans according to the prices established in the hospital’s chargemaster or charge description master — the comprehensive price directory of goods, services and procedures that can be billed by the facility.
Each hospital has its own unique chargemaster, and prices can — and usually do — vary greatly. A hospital’s chargemaster typically serves as the starting point for price negotiations with commercial insurance companies and government payers. Because of their size and bargaining power, these payers are able to secure rates significantly more favorable than those listed on the chargemaster for the goods and services hospitals provide to their members.
The Role of Third-Party Administrators
Because chargemaster rates are higher than most negotiated contract rates, employers with self-funded plans often hire third-party administrators to analyze hospital bills and assign repriced costs — much lower than the chargemaster rates — to each service and supply. The employer then pays the hospital bill at the repriced cost determined by the administrator, calling it “reasonable” payment for the hospital’s services. However, these payments typically cover only a fraction of the patient’s total hospital bill.
Hospitals then find themselves in the unenviable position of billing the employer, the patient or both to recoup the balance of the patient invoice. When the patient refuses to — or cannot — pay the balance, the delinquent bills are turned over to collection agencies. Notably, many third-party administrators also assist balance-billed employers or employees with collections activity and resulting lawsuits. These lawsuits can be costly for hospitals, both in terms of legal expenses and in reputational damage.
A Proactive Approach
Hospitals can — and should — take steps to manage billing and collection for patients with self-funded health plans.
Take charge of your chargemaster. Are your prices rational and defensible? Pursuant to the 2014 guidelines issued by the Centers for Medicare & Medicaid Services, hospitals are required by the ACA to make public their standard charges for the items and services they provide. CMS has interpreted “standard charges” to mean the prices established in the chargemaster. (Some states, like Massachusetts and New Hampshire, already make such pricing information available.) A common chargemaster complaint is that the prices listed bear no relation to the actual cost, the amount usually charged or the amount hospitals actually accept from payers.
Consideration of these issues is an essential step in ensuring that chargemaster prices are rational and defensible. A chargemaster should be:
· Consistent. Track specific items in different hospital departments to ensure that prices are internally consistent. Evaluate any differences in costs throughout a health system’s various facilities and investigate the reason for the variance.
· Comparable. Compare your chargemaster prices with the acquisition costs of equipment, items, supplies and drugs. Track markups and compare those with the payments received from commercial and governmental payers. If possible, review the pricing data of your peers.
· Current. Conduct a chargemaster analysis every year. Have a team and process in place to evaluate new items as they are added, and adjust as necessary.
· Collaborative. Talk with your physicians about physician preference items, and the effect they can have on cost-per-case variability. Look for opportunities to partner with physicians to establish reliable procedure cost estimates.
Communicate with patients and with the public about your facility’s prices — before and after you provide services. If you choose to make the chargemaster available online, include a Frequently Asked Questions page explaining how to understand and use the information it contains. List the name and contact information of individuals at the hospital who can navigate the chargemaster and educate patients about potential charges.
· Provide comprehensive information about the hospital’s financial assistance plan and how to apply; offer patients assistance with eligibility determinations.
· For scheduled procedures, consider offering nonbinding cost estimates for patients who will be self-pay.”
· Describe all prompt-pay discounts, self-pay discounts, cash-only discounts, charity care and other available discounts or assistance.
· Hire and train financial counselors who can work with patients to review their itemized bills for accuracy and establish payment plans if necessary.
· Maintain a clear and comprehensible collections policy.
Empower your staff to handle self-funded plans. As you become aware of local employers with self-funded health plans, maintain an updated list of such employers that is accessible to admissions personnel. To the extent possible, have admissions personnel provide detailed information to affected patients, including a plain-language explanation of the patient’s financial responsibility for health care expenses.
Specifically, make sure patients understand that an assignment of benefits could mean balance billing after the claim is submitted to the employer (or employer’s third-party administrator) for payment. Make sure your admissions staff are trained to recognize patients with self-funded plans and are able to address patient inquiries or refer patients to financial counseling. Offer — and document the offer of — the opportunity at admission to ask questions about how patients will be billed for services. Finally, if you encounter multiple patients with the same employer, consider offering contracted prices to the self-funded plans.
To paraphrase Heraclitus of Ephesus (c. 535–475 B.C.E.), “The only constant is change.” These ancient words seem particularly applicable in today’s health care environment. As hospitals navigate the post-reform era, statutory and regulatory changes will create new challenges that call for flexible and creative solutions. Continued success — and survival — will demand that hospitals engage their staff, providers and community in ways that will allow all stakeholders to have a voice in those solutions.
Emily M. Scott is a partner and member of the health care practice at Hirschler Fleischer in Richmond, Va.