“Medical Cost-Sharing”​ Plans: What Your Hospital or Practice Needs to Know Before You Agree

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Maria K Todd, MHA PhD is a trusted adviser to the healthcare industry in the USA and abroad.

By MARIA K TODD, MHA PhD

Know the financial risks associated with these plan participants and prepare in advance to protect your business.

What they are

Medical Cost Sharing plans claim to be an alternative to health insurance. That confuses healthcare providers and their revenue management team members immediately. Learn what you need to know and what to set up as far as internal policies and procedures when you encounter patients with these plans. You cannot pre-determine your position against or in favor of these plans until you have worked with them for awhile. Each should be judged on their own merits and conduct.

If you’ve seen one… you’ve seen one.

They describe themselves as patient advocacy or benevolence organizations and are often set up as non-profit companies that pay their executives normal executive compensation. They just don’t pay taxes like other businesses.

How they came to exist -a brief history lesson

These plans are not new. Many religious groups that culturally shun “insurance” (e.g. the Amish) have operated these healthcare needs sharing programs among their members for decades. They interpreted the Biblical mandate of “bearing one another’s burdens” the same as they would a barn raising.

More recently, non-faith-based commercial companies organized as not-for-profit concerns have moved into the space. Members pay monthly fees each month to essentially to find other members willing to agree to share one-another’s medical expenses through voluntary giving.

In the past, similar services were offered by Preferred Provider Organizations (PPOs) to group health purchasers and to individuals through a program called Discount Medical Provider Organizations DMPOs. DMPOs are regulated in some states but not others. Many shut down after the ACA was enacted. One of the largest was operated by Optum.

In 2007, the National Association of Insurance Commissioners (NAIC) drafted the Discount Medical Plan Organization Model Act because of the rampant problems with DMPOs and a need for consumer protection. In fact, to quote the Model Act, “The purpose of this Act is to promote the public interest by establishing standards for discount medical plan organizations to protect consumers from unfair or deceptive marketing, sales, or enrollment practices and to facilitate consumer understanding of the role and function of discount medical plan organizations in providing access to medical or ancillary services.

The DMPO was defined as, “an entity that, in exchange for fees, dues, charges or other considerations, provides access for discount medical plan members to providers of medical or ancillary services and the right to receive medical or ancillary services from those providers at a discount. It is the organization that contracts with providers, provider networks, or other discount medical plan organizations to offer access to medical and ancillary services at a discount and determines the charge to discount medical plan members.

Back then, some of these plans charged a fee of $39 to $99 a month to be connected to DMPOs that negotiated contracts with providers for discounts. The healthcare cost-sharing plans are different in that they don’t negotiate contracts with providers, so there’s no understanding about fees, discounts, timely payment, covered or non-covered services, deductibles, balance billing, or patient indemnification and member hold harmless typically included in managed care arrangements.

The monthly fees collected from plan members are not considered “premiums” because the plan is not “insurance”. So the money paid each month is like a club membership fee… from which some of the monthly fee goes into a “money box” to pay one another’s member needs. And some plans only provide for 3 shared “needs” in a year.

What is the role of the company offering the sharing plan?

To create and maintain a custom framework and administrative support for a medical cost sharing membership, as well as access to numerous ancillary health services. 

Monthly fees paid by members

To get an idea of the fees that are paid by plan members, here are some examples:

First, there is a quasi-deductible called an initial unshareable amount (IUA). But it really isn’t a quasi-deductible in reality. That’s because deductibles are often satisfied once a year.  These amounts apply to each healthcare expense, not an episode of care.

For each healthcare expenditure, the Plan member pays this IUA amount first on their own without sharing the burden. And again, that’s for every medical bill. For an initial unshareable amount of $500, that family could pay as little as about $200 a month for a single to as much as $750 per month, but that amount (as much as $9000!)! In some plans, those membership dollars reserve some amount for covering shared needs of members, and an amount towards plan administration, marketing, salaries and sales commissions like any other business.

While each member’s monthly share in monthly paid plans is voluntary, it is usually also a requirement in order to remain an active participant in the membership. A patient in one of these plans takes the risk that while they may have dutifully paid up each month, if others don’t pay their share and drop out, their may not be enough money in the money box to cover the cost of a huge tertiary care bill for a long, high-intensity confinement such as burn care, multi-trauma, a cardiac event or a cancer treatment sequence or transplant.

There are also plan options that have initial unshareable amounts of $1000 and $1500. Their monthly fees are lower. but a family that opts for an initial unshareable amount of $1500 may pay $500 or so for membership every month ($6000 per year). A percentage of that payment goes into the money box to pay shared medical expenses with other members.

Show down at the front desk

Imagine the wrath of a patient at your reception desk screaming at whoever is in front of them because they really didn’t understand how their plan works and they paid $9000 but have no insurance and are now being asked to sign financial responsibility paperwork for the cost of their care and pay as much as their Initial Unshareable Amount for each visit. Not pleasant!!! Not for that plan member, your staff, or the other patients sitting within earshot! Who needs the risk of that that commotion at the front desk?

What members have been told to do and how to act

In one example, the member handbook characterizes the require to pay up front as a cash patient as something that happens only on occasion. I know for a fact that most patients classified as self pay are required to pay for any elective care up front.

Plans frequently tell the members to make every effort to limit their up front payment to no more than their initial unshareable amount and push to be billed for the remainder, if any. That’s because they want to be able to control the cash outlay on the remainder. So expect pushback. 

If you, as a provider demand full payment up front, it really isn’t a problem – for you. If advanced payment is required, that exceeds the member’s IUA, the amount will be paid from the money in the money box assuming it is in accordance with the plan’s qualifying guidelines and adequate shares are available. If there isn’t enough in the money box, the member must pay the rest. Without advance payment, you may be forced to adjust the bill further at an unanticipated financial loss.

The risk(s) assumed by the provider

All in all, if the call to help out arrives at an inopportune time since everything but the monthly fee is voluntary, money may not materialize as anticipated. Neither the medical cost sharing plan or the Members assume financial liability for any other member’s risk.

Plans are often unregulated, meaning that you may not be able to dispute or appeal to insurance authorities about plan conduct or non-payment. You are on your own to collect from the patient. You should categorize the account under “self-pay” the same as if a patient came to you and said. “I set up a “Go-Fund-Me” page to get help to pay this bill.

When you render service under these plans, typically, they require the patient to organize their bills and complete a Needs Processing Form that includes several pieces of required documentation. These documents include the bills, receipts for payments made to the provider, to satisfy their initial unshareable amount. So, if the patient is too ill or too preoccupied or depressed and overwhelmed, and doesn’t get around to filing the paperwork, you face a risk of delayed payment. If you offer to help, that adds to your overhead expense and cuts into your margins. I’m all for lending a hand on occasion, and I actually do a fair amount of patient advocacy pro bono when needed, but time for this takes away time for other “must do” tasks. 

Payment turnaround time once all the paperwork is in and accepted as complete could be from 14-60 days. Some only pay out a few times a month. So, how quickly you may be paid from the needs funding account can be a matter of the payment cycle, what may not be qualified or allowed under sharing rules, or other delay causes.

One of the causes of a delay could be that they are “in negotiations” with the provider to accept less than billed charges. So if you aren’t going to accept what they offer, put an end to the negotiation so you can be placed in line for payment. Don’t let these requests and negotiations sit on the desk unfinished. Have a denial letter drafted and sent that includes your policy on these arrangements ready. Have it at-hand as a template, pre-drafted and ready to be signed and sent out immediately. Be sure to include in your terms and conditions that any offer or agreement to discount granted is only valid only if the bill is paid in full within X days. Otherwise, the discount offer is voidable.

You may also face a risk of a non-covered service because some of these plans won’t pay for certain services if they believe that the medical treatment was to address a problem that the religious sect fees is immoral. In the vernacular of these plans, these are not “non-covered” services. They are called non-qualified needs.

There’s also a risk that the patient refuses to authorize the plan to negotiate rates after the fact with the provider. In that case some of the plans have a penalty clause that can reduce the shareable amount by as much as 50% on bills over $500. This too is a reason why I don’t support the tactics by these plans. Why not negotiate up front instead of after service is rendered and the doctor-patient relationship is established?

The amounts earmarked to pay shared needs reserved from the monthly fee is not 100% of the monthly fee. I saw one plan that revealed how much of the monthly fee was designated for shared needs. But the assumption is that everyone pays. If people don’t pay, money doesn’t get into the money box.

There is no reinsurance that can be relied upon to make the provider whole for their billed amount in the event the “need” before their bill was presented consumed all the cash in the money box to be shared. There may not be adequate reserved cash in the money box for the next need.

Also, the amount of the discount negotiated with the provider is not always transparent. That means you as the provider could agree to give a 40% discount. But the 40% may not benefit the patient entirely. Here’s an example of what I’m getting at:

  • Provider bill: $10,000
  • IUA: $1500
  • Net remaining before discount: $8500
  • Money in the shared needs money box $8500 available.
  • Negotiation by plan; 40% off. Net due after discount $6000 – $1500 IUA = $4500 paid from the money box. Provider adjustment: $4000. Balance zero after shared need payout.

But wait… what if the plan says, “We could only get a 25% discount.” while in reality it did get a 40% discount? There’s no regulation or oversight to say that the plan could not take 15% of that discount out of the money box to pay itself for its negotiation? And hey, didn’t it already pay itself for negotiations out of the member fee each month? Is that a risk for double dipping?

And what if there isn’t enough cash in the money box?  In a regulated health plan, the plan would be forced to suspend operations and if it couldn’t fund claims on demand for covered services, it could be forced into involuntary bankruptcy and supervision by the state regulators. But not these plans.

This is also where reference-based pricing can also pop up. You may be offered a reference-based price amount that is a percentage above or below Medicare. But not so fast! Medicare’s prices reflect several elemental considerations. One is that payment problems can be brought before an Administrative Law Judge in the event of dispute. Another is published transparency of rules, regulations and payment and coverage policies. Another is the sheer critical mass as the nation’s second largest “regulated” group health purchasing entity that purchases with buying power, pays timely according to state and federal regulations, pays a transparent published fee amount, may pay more for services billed with a modifier for extended services, and adjusts allowable fees in accordance with the marketplace conditions. How one of these plans negotiates and chooses the amount to offer you as full and final settlement is only taking into consideration the price as a number, not a value of all of these other considerations. And, they are only dealing on the leverage of a single one-off, financially risky, uninsured case. They aren’t steering business volume to you by contract.

Your rights as a provider

  1. You are not under obligation to accept assignment.
  2. You are under no obligation to write off unpaid amounts.
  3. You are under no contractual obligation with the healthcare cost sharing plan to agree to any terms after you have delivered care. There is no contract with the medical cost-sharing plan, itself.
  4. Your ultimate means of enforcing any agreement is against the patient as an individual the same as you would pursue any other self-pay patient.
  5. You are entitled to collect your full billed charges from members of these plans in advance or under any other financial arrangement you see fit.

How these plans work

Discount negotiations are often attempted after the fact, after you’ve already rendered care you cannot “repossess” if payment doesn’t materialize.

If they were so righteous and virtuous, why don’t they teach their members to negotiate transparently, up front? That’s my main complaint with them. I have tremendous disdain for the element of surprise tactics in which they frequently engage and teach their plan members to utilize. If some one wants a discount, they should ask up front and be grateful!

Many plan members are led to believe that it is their right to expect at least a 40% (or higher) discount off billed charges. Meanwhile, many providers have developed “cash prices” that already embed a price reduction for payment in advance or at the time of service. So the attitude of the person led to believe they should expect another 40% off is both unfair and unreasonable. Your revenue management staff should not be subjected to hostility and resentment from patients instructed to demand additional price reductions.

You need to pursue legal action to enforce your agreement with the patient who may not have the means to pay the bill. Decide if it is worth the cost to collect before assigning these accounts to collection with intent to pursue legal action if necessary. You could incur legal costs and still not meet your objectives and desired key results, you’d be left with a judgment to collect, a possible garnishment account, or a probate claim against the patients’ estates.

What you should do to protect your practice, clinic, hospital or business.

Establish internal policy about how to administer patient accounts from patients with these plans.

Train your staff. From call center staff and/or receptionist to appointment schedulers, to front-end registration, to patient accounts and self-pay collections, teach your staff what to do, what to say, how to ask for payment and how to vet ability to pay in the event the other members don’t follow through with their contributions to the “need”. Also train those who work with auto accident, slip and fall, controverted work comp accounts, and probate accounts.

Talk with legal advisers. You may benefit from legal counsel to set up template agreement forms for informed consent about bills, charges, and financial policies in advance of treatment, where applicable. That way, at least you’ll be sure to have an enforceable contract with the patient that authorizes you to bill the patient at your usual and customary charges and expect to be paid your usual and customary invoiced amounts, and set forth the terms of payment and consequences for non-payment. Your Direct-pay Agreement can then also set forth terms for any discounts you agree to such as timely payment, interest rates, cost to collect, and late payment penalties.

Revisit charity care policies and means testing. You might also speak with legal advisers about the need to update charity care policies and means testing so you don’t have an issue with reverse discrimination risk and the public relations nightmare that could arise with patients who are not members of these programs asking why they may be required to pay more than plan members of these healthcare cost sharing programs.

What about ACA Compliance?

There is no insurance or contractual obligation behind the claimants. How does this work in light of the ACA? 

The legislators who enacted the ACA acknowledged the effectiveness of these religious groups and their sound legal history, enshrined their legitimacy in law by granting an exemption to the law’s penalties for those who were a part of these recognizable groups. The commercial organizers of these plans seized the opportunity to form a not-for-profit and operate a non-church-based plan.

No contracts to negotiate … But that’s not always a good thing

Some medical cost sharing plans steer plan members to pre-vetted healthcare providers that have been inspected and “approved” but not “contracted.” These providers may include telehealth services, second opinions, and services may include “advisers” who inform patients about how to negotiate surprise discounts from you after services have been rendered, or alternatively, the plan handles the negotiations as authorized by the plan member. I’ve heard from many clients that when the plan does this, there are frequent strong-arm tactics used to persuade providers to give in just in order to get paid promptly. And that’s not fair. 

Your practice or hospital or ASC is not a flea market where haggling over prices is expected for each transaction. This adds costs to the provider’s overheads while trading at a lower price. If too many needs are paid short or not at all, the boomerang effect of this healthcare cost funding strategy could result in higher prices overall and everyone forced to pay more to cover the unpaid balances. 

Medical tourism? Yes. Both Domestic and International.

Lately, I’ve been approached by these plans to help them design a medical tourism platform. Some have approached me to help them locate high-value providers in the USA and abroad who will accept these financial risks and payment terms.

To date, I only know of one small, independent U.S. ambulatory surgery center who will quote transparent prices for cash patients and accept the arrangement of waiting to see “if” the plan will pay the bill. If my clients were to agree to this, I would ask that they adopt a policy to take a credit card pre-authorization in advance of service to protect themselves against the risk they undertake for non-payment or underpayment.

Maria K Todd, MHA PhD is a trusted adviser to the healthcare industry in the USA and abroad.

About Maria Todd

Maria Todd is an internationally renown healthcare industry consultant. She advocates for fairness, transparency and reasonableness in healthcare business transactions.  She isn’t against healthcare cost-sharing plans, but instead objects to how most of them operate…in particular, the practice of asking for provider discounts after treatment has been rendered, and the coaching of plan members to carry unreasonable expectations of discount ranges without consideration that the provider may have already offered a discounted price for a self-pay transaction.  For questions or training for your staff, please contact her at (800) 727.4160.

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