Their Margin is Your Opportunity, Seize It

Jeff Bezos has famously said, “Your margin is my opportunity”, implying that Amazon delivers lower prices by removing unnecessary costs added by middlemen in the supply chain.  Amazon is very successful doing this, and it continues to deliver real value to consumers through lower prices.

However, removing middlemen isn’t always so easy in healthcare.  Does that mean that someone else’s margin can’t still be your opportunity?  No.

More than ever, data and information are critical to controlling and managing healthcare costs.

IF YOU ARE A SELF-FUNDED EMPLOYER, we can help you.  There is so much “margin” in healthcare which presents massive opportunities for your organization.

Innovation and proactive supply chain management is the way to “out (profit) margin” your competitors.  That is opportunity.  Think of it like this…..take a book, any book.  Open it up and look at the margins on the page.  Now calculate the area of margin vs. the area of the page that contains content.  The margins don’t have to be larger to still be valuable.  Any space for margin is an opportunity to capitalize on, you just have to know how to do that.  The question is, can you see the margin opportunity in your health plan as clearly as you can see the margins in a book?  Are you looking for margin in your health/benefits plan? You should be.

But maybe you just don’t know where to look exactly……

This is one worksheet from a Cost Report submitted by a hospital where employees in this particular region of the country go for care.  Every hospital in America that services Medicare patients is required to submit certain data and information like this (worksheets) to the Centers of Medicare and Medicaid (CMS), so this isn’t just ONE hospital in ONE location.  

Take a look at the worksheet.  In a nutshell, this is self-reported cost and charge data from the hospital’s submitted report.  Look at the Operating room costs vs. what they charge for OR services.  The reported just over nine and half million in OR costs in a full year versus over $150 Million in CHARGES, making the cost to charge ratio .064289 for this service.

TRANSLATION:  For every dollar they charge for OR services, whether they charge it to you, to your plan, to an insurer, to a stop-loss carrier, doesn’t matter….for every dollar they CHARGE, their self-reported COST is just over a nickel!

Other services are marked up even further. Anesthesia services, for example.  For every dollar they are charging for anesthesia services, their self-reported cost is barely more than a PENNY!

Their margin is your opportunity.  When they report cost of a PENNY, but they’re charging your plan a dollar, your plan isn’t paying a dollar, most likely.  You are getting a “discount” off that dollar through things like a PPO network.  But how big are those “discounts”? Most network discounts are defined as either a “percentage of” or “percentage off” BILLED CHARGE AMOUNTS. So here’s how that works.

For anesthesia services, if this hospital charges your plan $1000 for the service, and you get a 50% PPO network discount, the price just dropped to $500, which your plan/employee (any combination) will owe.  But keep in mind, this hospital’s cost to charge ratio for anesthesia services is .013594, just over a penny, which would added up to $13.56.  So, your plan is still paying $500 for something that cost this hospital $13.56.  Now that’s margin!  It’s also your opportunity!  Opportunity to save!!!

This is the kind of information and data that self-funded employers need, and it’s this kind of conversation you need to be having!  Getting this information is the first step. Applying it takes a bit more know-how….

One more example, because this one is so easy to solve: First column is the hospital’s “COST”. Second column is “CHARGES”. Third column is cost-to-charge ratio.

Every employer has multiple employees who need imaging services every year, such as MRI’s and CT Scans.  This is an area that self-funded employers can fix immediately, and here’s why they should.  This particular hospital reported $1,019,004 of COSTS associated with administering CT Scans in their hospital for a full year.  But they CHARGED (billed out) $173,243,051 to third party payors, like your self-funded health plan.  For ever dollar they charge for CT Scans, their self-reported cost is about a half a cent!  Just stop and let that sink in a moment….

So, when your health plan gets a bill for $4800 for a CT Scan from this facility, know their cost is about $28.00.  When your network discount is applied, your plan/employee will still pay approximately $2400 for that CT scan, which costs the facility only $28.00. Watch this short video testimony about a client we helped in this area. It will shock most of you.

THEIR MARGIN IS YOUR OPPORTUNITY.  This hospital profited $60 Million in this reporting year, after everything was paid, and all costs accounted for, including bad debt and uncompensated care. We want our hospitals to profit, don’t get us wrong, but for far too long, there has been very little transparency into the true cost of care in this country. And the phrase we’re all too familiar with is “the rising cost of healthcare”…..well, are COSTS really rising so fast? As fast as your insurance premiums, deductibles, and the price we are all paying for care?

It’s a question to consider, and a question we think should ignite different conversations around innovative solutions for how we purchase care, how we finance care, and how we purchase insurance products that insure that care.