Continuing Upheaval in the U.S. Health Care Business

Fall 2003 CSANews Issue 48  |  Posted date : Apr 25, 2007.Back to list

Last year was a difficult year in the travel insurance business. A turf war is currently going on between the U.S. hospital groups and what are known as PPOs. "PPO" is an acronym for Preferred Provider Organizations, which act as middlemen between clients seeking health care and the hospitals and doctors. A PPO gathers together many groups of people, normally employer groups, and then offers the combined health care of these groups to the hospitals. You could compare this to "buying in bulk." There are several forms of payment, but the most widely used is the negotiation of substantial discounts from the hospitals, and a percentage of that discount becomes the PPO's payment for referring patients to the hospital or doctor. This fee can range from 10 to 30 per cent of the negotiated discount.

To give you an example, a hospital might bill a patient $300,000 for surgery, but the PPO has a contract that says they only have to pay $100,000 for that procedure. The "savings" is $200,000 and the PPO will bill the patient, in many cases through an insurance company, up to 30 per cent of $200,000 for arranging the discount. That means a fee of up to $60,000 US is earned by the PPO for referring the patient to that hospital. No wonder the hospitals are upset, to say nothing of the client who must pay both bills. You would automatically think that these must be second-tier hospitals because they had to enter into such an arrangement. You would be wrong. Almost every hospital in the U.S. has these PPO arrangements, and the very best ones often give the best discounts because they are the most efficient.

Hospitals dislike the huge discounts they are often forced to give, but the PPOs have been very aggressive in signing up large groups, and they represent a very large portion of many hospitals' business. There has been a great deal of amalgamation in the hospital business over the past few years and the larger health care companies and associations feel they can now do their own "deals" directly with the end client. So, to make a long and complicated story short, the hospitals are cutting way back on their discounts to PPOs; pricing to the end user has skyrocketed; and the hospitals are attempting to rid themselves of the middlemen.

Medipac deals extensively with PPOs and we have seen our prices for most procedures increase dramatically. Our average daily cost for a hospital bed, for instance, increased by over 40 per cent last year. As I said, it has been a difficult year in the travel business. To overcome these hurdles, we are dealing more and more directly with the large hospital groups and negotiating our prices for procedures, almost as they are happening. While our doctors and nurses are taking care of our clients, our financial staff is dealing with the hospital administration on pricing. It seems to be working. We are very fortunate to have custom-designed computer systems that allow all of our various staff to share information on an "as it is happening" basis.

It will be very interesting to see if many of our competitors have weathered this storm of hospital and doctor price increases. We easily surpassed our record Early Bird sales of 2002 and, with tight pricing of our main season insurance program, we hope to earn more and more of your business. We have also not forgotten your many requests for a claims-free discount, and as we go to press we are doing battle with our insurers.

Please remember to call us for your travel insurance arrangements, before you travel, at 1-888-MEDIPAC; and for all of you who purchased our Early Bird Program - Thank You. Our negotiations certainly include you, as well.