Manageing Cost Per Service Robert Prochnow

Managing The Cost Per Service Of Medical
Expenses
in Health Insurance Coverage

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student
Actuary


Premise of Risk control
through payment structure
The basic premise of risk transfer in an insurance
system is:

•

transfer the risk to the party who controls the risk

but not to exceed the amount of risk they can
hold.
•

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide


Considerations in what

controls on medical payment
to apply

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

Match the method to the risk

•

Make sure you can administer the control method

•

Do not set up too many mechanisms to control
the same risk

•

Different controls can achieve different payment
levels

•

Make sure the system can be monitored

Medical Expense Charge
Levels Vary by

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

The service itself

•

The provider

•

The place of service

•

Whether the patient has insurance coverage

•

Whether the insurer has any tariff structure

Types of Risk
a.

Morbidity Risk: Controlled by insurer

b.

Incidence Risk: Impacted by insurer, providers,
and insured
• Propensity to use care
• Intensity of care

c.
By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

Payment Level


Who Controls the Payment
Level?

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

Insurance companies control the level of benefits
and allowable fee levels

•

Physicians control their charge levels and which
hospitals used

•

Hospitals control charges and type of room

•

Insureds control what care is provided


Controls of provider
expenses - provider
payment methods
Some of the common payment level controls are

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

1.

None

2.

UCR’s

3.

Fee schedules :

•

Physician fee schedule

•

Hospital fee schedule


Provider Payment Controls:
None
Prevalence: Primary model currently in place in
India.
Philosophy: insureds are given a benefit that they
can use at any properly credentialed provider.

Strengths:

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

Easy to set up

•

Customers used to that

•

For a time, payment levels may not become
unruly

•

Unlimited access to providers


Provider Payment Controls:
None (cont)
Weaknesses:
•

Over time, providers will charge more and more

•

No structure

•

Only benefits and selection can control costs

•

The cost of insurance will be far greater than the
actual risk cost

Impact on provision of care:
•
By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

Pays professionals on a piece-work basis


Provider Payment Controls :
UCR
What it is: Usual, Customary, and Reasonable limits

on the fees paid for a service. Such limits
generally agreed and based on typical payment
levels.
Prevalence: Not really used in India.
Philosophy: The free market should control charges
but there should be limits.
Strengths:

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

relatively loose

•

understood and accepted

•

adjusts to the charge levels in a controlled fashion


Provider Payment Controls :
UCR (cont)
Weaknesses:

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

This only controls the rogue providers

•

Will allow for continued inflation


Provider Payment Controls :
Fee Schedules
What it is: Agreed payment levels between the
insurance company and the provider
Prevalence: Moderately used in India at some
hospitals for a small subset of services and are
regularly circumvented
Philosophy: The provider is a vendor for the
insurance company and this is the payment for
services that has been agreed
Strengths:

By Robert Prochnow, FSA
Assisted by Shruthi

Srinivasan, Student Actuary

Slide

•

logical way to do business

•

allows for changes over time


Provider Payment Controls:
Fee Schedules (cont)
Weaknesses:

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

Contracts must cover a tremendous number of
facilities and physicians in all markets the
products are sold in.

•

The tariffs must cover a long list of medical
services.

•

Updating schedules is an intensive and ongoing.

•

Claims processing must track each contract .

•

For services and providers not covered, some
other method of payment level must still be
applied.


Control of Provider Payments
Through Selection and
Benefit Design
This is designed to impact the pricing behavior of
providers by giving the insured a share of the costs.

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

Control of Provider Payments
Through Selection and
Benefit Design
Insureds can keep the costs down through:

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

Which provider

•

Whether to get treatment, what services to get

•

The charge level

•

The accuracy of the provider’s bill

•

Any fraudulent excess billing


Control of Provider Payments
Through Selection and
Benefit Design
Some controls include :

By Robert Prochnow, FSA
Assisted by Shruthi
Srinivasan, Student Actuary

Slide

•

Selection of insureds

•

Fixed benefit coverage

•

Copays

•

Benefit limits

•

Controls on place of treatment