Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Reimbursement News

Are the Cheapest Provider-Owned Health Plans More Expensive?

By Jacqueline DiChiara

- The demise of the fee-for-service model may be unsuccessful in producing the most economically efficient health plans, confirms a new study from HealthPocket. Demonstrating significant findings that are simply “contrary to expectations,” HealthPocket confirms the most cost-effective healthcare provider-owned insurance plans are, on average, 12 percent more expensive than the cheapest insurance plans not owned by healthcare providers.

fee-for-service provider-owned health plans

“The result of HealthPocket’s research is neither an endorsement for the fee-for-service model nor is it a rejection of the provider-owned health plan model,” states Kev Coleman, HealthPocket’s Head of Research & Data. “Rather, the research raises questions about the theory that eliminating the fee-for-service model would produce dramatic reductions in healthcare costs and, as a consequence, health insurance premiums,” Coleman adds, additionally referencing the words of biologist T.H. Huxley: “the great tragedy of Science – the slaying of a beautiful hypothesis by an ugly fact.”

Many fee-for-service models – where health insurers pay third-party physicians, hospitals, and healthcare providers for a variety of services according to an insurers’ health plans – are already associated with quality over quantity. Within the next three years, the Department of Health and Human Services (HHS) set a goal shifting 50% of fee-for-service payments to value-based payment models. As reported, by the end of next year, it is expected 30 percent of fee-for-service Medicare payments will transition into value-based payments via alternative payment models, including bundled payment arrangements and accountable care organizations (ACOs).

As HealthPocket confirms, the removal of the fee-for-service model has been referenced as a means of reducing healthcare costs. Although provider-owned plans cover less than 10 percent of the privately insured market, there was a 4 percent membership increase between 2012 and 2013. This growth is noted as being higher than other plan types, HealthPocket maintains.

“The financial conflict of interest associated with this model has been credited as an important factor contributing to high American healthcare costs and, by extension, the health insurance premiums resulting from those costs. In the provider-owned health plan model, the insurer and the healthcare providers belong to the same organization,” confirms HealthPocket’s press release regarding the study.

“Consequently, there is a disincentive for delivering unnecessary medical services to patients because, instead of increasing revenue for the healthcare providers, unnecessary care drives up costs for the company employing the healthcare providers and, thus, reduces profitability.”

The results of this investigation, says HealthPocket, highlight the notion that even the very best intentions in reforming the healthcare system are not necessarily the most advantageous in terms of cost. “Despite their theoretical promise of reducing expenses by eliminating the waste associated with the fee-for-service model, a cross-country analysis found that far from being the least expensive health plans, the provider-owned health plans without a fee-for-service model were, in fact, more expensive on average than their nonprovider-owned counterparts,” confirms HealthPocket.


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