Understanding the guts of the insurance system: Ron Peck

Filed Under: Costs

Summary: Understanding the guts of the system — arcana  such as plan documents, stop-loss, self-insurance, ERISA commitments, balance billing, subrogation and generally chasing down the money — may not seem like fun stuff. But it actually is, when you get to talk about these things with Ron Peck, senior vice president and general counsel at the Phia Group, a Boston area law firm that says on its site that it  “provides health care cost containment techniques to help you control costs and protect plan assets.”  Ron is a force in drafting benefit plans, handling complex third-party recovery disputes, and efforts to combat health costs   Here’s another in our “Spoken Word” blog series, with phone interview transcripts lightly edited for clarity. Also: You might be interested in the Phia Group’s webinars.  (Disclosure: We do not have a business relationship.)

Jeanne Pinder: Hey, Ron, thanks so much for spending some time with me! First question: Who are your customers?

Ron Peck: You’re probably thinking that would be an easy one to answer. But you might be surprised to learn it’s not quite so simple. When the Phia Group was first founded, nearly 20 years ago, we focused almost entirely on servicing third party administrators —  TPA’s — and self-funded employers, those who were self-funding their own health plans. Those plans were being administered by the aforementioned TPA’s. The service that we were providing at the time was almost exclusively subrogation and claims recovery services.

What is subrogation, and why should we care?

JP: Can you define subrogation for people who don’t know what that is?

RP: Absolutely. Subrogation, in a nutshell, occurs when a health benefit plan, an insurance carrier, really anybody, pays some expense, a medical bill, a claim. And it’s later determined that that expense is the responsibility of some other third party — either because they caused the injury, or because some insurance policy was primarily responsible to pay for that type of claim. So what will happen: one of two things. Either the health plan is going to file a claim against that responsible payer and seek reimbursement directly from the responsible third party, or if the plan participant — the employee, or the person who is covered by the plan — receives payments from that liable third party payer,  they reimburse the plan.

For example: Let’s say hypothetically I’m covered by a benefit plan. I’m injured at work. I rush to the doctor, the doctor treats me, then my health insurance pays the claim. I later determine that because I was hurt at work, I go file a claim with my worker’s compensation. They pay me, for among other things my medical expenses. But I didn’t pay for my medical care. My health plan did. And so. If I kept that money as an individual. I would have been compensated twice: Once by my my health plan, once by my worker’s compensation, for the same injury. And that’s just not O.K.

Another phrase that you often see is “coordination of benefits” — insuring that the right payer pays the right amount, at the right time, in the right order. That’s subrogation.

Third party administrators, when they’re processing claims for these employer health plans: Subrogation and coordinating benefits is a service that the TPA is obligated to provide to that employer, to that health plan. But the law has gotten much more complex, and the requirements to successfully pursue subrogation have gotten so much more complex, that these people who for a long time were able to do this in house can’t handle that anymore.

So they hire a subcontractor — somebody who really specializes or focuses in on that particular service and just does it better than anyone else. And that’s really where we cut our teeth.

Those people and groups — those those self-funded employers, we call them groups — were our initial clients, because we were recovering money for them as the contractor. Over time, as we got more familiar with self-funded plans, through our subrogation work, we started to realize that there were things we could do better, outside of subrogation.

We would look at the plan document — that’s the contract, the policy that controls what the plan covers, what it excludes, how to submit a claim, how to appeal a denial. It’s all contained in that massive document you get when you first sign up for a health plan. And we realized: You know there’s language in here that doesn’t make sense. Or there’s recent law that’s been passed that would require you to update the language and you haven’t done so.

It really started with subrogation, because in order to successfully subrogate and recover all the money for the plan, you need to have very specific language in that plan document. So we started off drafting plan language just for subrogation. And it expanded from there into the rest of the document. So we started writing plan documents for these clients. When you write the plan document, then that client, who knows you’re  familiar with the terms of our plan, might ask: “Are you willing to help us make decisions when it comes to claims payment denials?”

Is this claim payable? Well, maybe.

For example, looking at a police report. Helping us determine is this claim payable. Or is it something that we should deny — and so that expands our work into a general consulting service. The more services we provide, each one leads to the next, and to more clients.

All of a sudden advisors and brokers who work with these employers were coming to us for advice — for example, stop-loss carriers, reinsurance carriers. Those are the insurance carriers that provide coverage to these self-funded employer health plans if and when these health plans pay or are required to pay for a large catastrophic claim, something that they maybe don’t have the finances to cover. Once they hit a deductible. They could submit these excess payments to these stop-loss carriers, and see their stuff on the plan reimbursed by the stop loss carrier.

They all started coming to us looking for advice or assistance as well.

So: Our clients now include employers, third party administrators, stop-loss carriers, reinsurers, brokers, advisors and vendors in the health benefits industry — who offer incredible services. But they need somebody to help them either with implementation, improving their programs to be in compliance with law, or they need plan language to be written for the plan document that would allow that employer’s health plan to utilize that service.

An example: Medical tourism

Here’s an example. I’m sure you’ve heard of medical tourism. Somebody needs a surgery, so they put them on a plane and they fly out to Argentina to have that knee replacement.

That’s well and good, if it’s going to save your plan money.

But what happens if that plan document specifically excludes claims for providers outside the United States? That seems like a conflict. So having somebody go through the plan document to ensure that that service is covered by that plan and there aren’t any conflicts. That’s another service that we’ve been providing.

Who should pay: insurance or a class action suit?

JP: So can you tell me of an interesting recent case and what you learned from it? Obviously we’re not asking you to tell us who your clients are, but I just have this feeling you have great stories to tell. So tell me a story.

RP: Sure. You know it’s fascinating because people don’t necessarily think about how these stories impact each individual employee. You know we all look at the news and we all  complain that the cost of health care is going up — the cost of insurance is so high my premiums are going up. But  often it’s difficult to put your finger on why that is happening, why are my premiums going up? And I have all sorts of examples.

For instance we had one situation where a benefit plan sponsored by a self-funded employer received medical bills for a child. A very unfortunate situation —  a child who suffered severe burns in a house fire. And ordinarily you look at a situation like that. And it’s tragic. But rarely is there any kind of a third party that’s responsible to pay for those claims. Homeowner’s insurance usually is only going to protect people that are not part of that family — not the resident, so if you have a guest over who  is injured in a  fire, your insurance will protect them but you in your own family — you  really have to lean on your health insurance to cover your medical expenses that arise from a house fire. So ordinarily somebody would look at a case like that and they would say this is tragic but the health plan is on the hook to pay these medical bills, because there is no responsible third party.

We actually did an investigation. And I can’t go into too great detail but I will tell you that a device of some sort actually shorted and caused the fire. And there was a lawsuit against the manufacturer of that device. And this family didn’t realize that there was in essence a class action suit against the manufacturer.

So by doing this investigation we were able to inform them that they could file a claim, and join this class action. And as a result not only did the health plan end up recovering from this liable third party, the manufacturer of the device, money that they spent on the medical bills, but the family also received financial compensation for their damages as well.

Furthermore I can tell you that the medical bills that we reimbursed or had reimbursed to the plan exceeded $700,000.  That goes back into the self-funded plan to pay for future medical care.

But for the subrogation, that probably would have come out of premiums or contributions from the individuals over time. So if somebody ends up being diagnosed (knock on wood) with a form of cancer or somebody has a premature birth, and there’s nobody out there to pay for it other than the health plan. The $700,000 we recovered from subrogation is now there to help pay for those medical expenses. That’s money that otherwise would have come out of premiums or contribution from the employees.

Encouraging employees to review their bills and statements

Another example of cost containment, this one through plan provisions. We saw a plan document that encouraged employees to review their own E.O.B.’s,  or explanations of benefits. That’s the document you get whenever you have a medical claim paid by your plan — it usually says across the top “this is not a bill,” and once you read that, you pretty much think “Then I’ll just throw it out.”

This plan incentivized its employees to examine that E.O.B. And if they identified anything that didn’t make sense, anything that seems off, that plan would look into it. And if they were able to avoid payment of a claim, or seek reimbursement of an overpayment, they would compensate that employee up to 20 percent of the savings. Now all the employees are incentivized to actually look at their E.O.B. and make sure there are no mistakes. One employee identified a scenario where they were charged for a private room. That employee, meanwhile,  knew that they were in the E.R. overnight.

I don’t know about you but I can only be in one bed at one time. So they’re in the E.R. bed, but the plan is being charged for the emergency room as well as the private room. And that employee spotted that mistake on the E.O.B. and brought it to the plan’s attention.These are just the types of examples of putting a forward-thinking cost containment program in place.

A hospital, a ‘never event’ and an astronomical bill

JP: Could we have another story?

RP: this is this is an interesting one. There was an individual who was being treated at a hospital, and that hospital had what they call “a never event.” I’m not going to call it malpractice, because that’s in some sort of gross negligence. You know it requires a lot of money and a lot of experts and a lot of time in court to prove medical malpractice. So we’ll call it a mistake, or “a never event.’

And they decided not to treat the individual at that facility for the consequences of the “never event.”

The reason they didn’t want to treat the person was because that person’s plan document indicated that this plan would not compensate a provider to fix their own mistake.

So the provider was aware of this. And when they realized that this person required treatment for injuries arising from a provider error —  rather than basically do it for free, they had the person airlifted from that facility and taken to another facility to repair  the injuries that arose from the mistake.

The medical bills for this airlift exceeded $30,000. The person was transported miles — mere miles — to the other side of town. Same city. Same zip code. We ended up discovering that  this person could have easily been transported with no negative medical impact by ground. It would have taken less time, would have been equally if not more safe for the individual, and would have cost hundreds of dollars instead of tens of thousands.

So forget the fact that they were trying to avoid fixing their own mistake. That’s another tale. So it took some creative leveraging of the plan’s medical necessity language, which basically indicates that the plan won’t pay for anything that doesn’t improve the individual’s well-being or health or is something might be more expensive but no more effective than a less costly procedure. Then the amount that’s covered is whatever they would have paid for the less costly procedure.

They ended up paying to this air ambulance company  what they would have paid for ground ambulance transport instead. And the air company the air ambulance company ended up taking that payment as payment in full.

I think everybody understood. That the behavior was a little wrong — so I’m not going to say it was fraudulent, but it comes pretty close.

Making sure the employee is not billed in error

We were fortunate that they took it as payment in full, because often when these types of instances happen, and when a provider receives a much smaller payment from the plan — then they often the balance bill the patient for the difference. And unfortunately that’s the one sort of scourge that we’re seeing as it relates to these types of plans and programs.

As these employers, the plan sponsors, become more aggressive in creating savings, they’re being more careful about what they’re paying there. They’re looking at these medical bills with a fine-tooth comb and identifying these — we’ll call them mistakes, maybe they’re even good natured mistakes. I’m not saying it’s intentional or like I said fraudulent. They’re identifying these issues. They’re paying what they think is appropriate or fair as a self-funded employer. We’re not talking about an insurance carrier but a self-funded employer, which has a fiduciary duty to be prudent with their plan members’ assets.

So I would argue they have a legal obligation to review these claims, and do what’s best for the plans. That’s the kind of the universe we’re dealing with — a bit of a tug of war with the patient stuck in the middle.

The narrowing of the network

JP: So there is an interesting trend to balance billing. Are there other remarkable trends in either employer-sponsored or a self-funded insurance?

RP: You know it seems like I’m bullying medical providers, hospitals or physicians with some of my stories. I want to apologize. I probably have many more friends who are in the medical provider industry than in the legal field. These medical professionals are wonderful people.  They work very hard to improve people’s health. So I would never want to make it seem like I’m attacking the medical profession. I think a lot of this is inadvertent, or inefficient.

One trend I’m seeing: This is actually a collaborative effort by medical providers and payers.

When you look at your traditional PPO preferred provider organization or network, historically. Providers would sign up to be in network because by being in network they would see a few benefits. One benefit of being in network was that you would receive what they call steerage  — the employer, the plan, the insurance carrier tell employees “Hey, guys. If you go to an in network facility, you only are responsible for your co-pay and deductible. You won’t be balance-billed — the  insurance company’s payment is payment in full. So all you’ve  got to worry about is your co-pay and deductible. But if you go out of network your co-pay goes up. Your deductible goes up, and anything that the provider charges that is not covered by the plan, that’s your responsibility.”

So it creates the steerage — people want to go to that network provider.  Even even the layman who knows nothing else about their plan knows I want to go in network. So the provider, by being in network, gets steerage. That’s number one. Number two. The provider knows that by being in network they could submit the claim directly to that insurance carrier. And they’re going to receive payment directly from that insurance carrier within a certain period of time, usually it’s 30 days. Or thereabouts.

So  I’m getting customers — I’m filling my beds. I also have access to deep pockets, the insurance carrier or the self-funded plan.  If I’m a payer, I utilize the network because: One. I know that the provider is going to take that payment. As payment in full. They’re not going to balance bill my insureds. Two. I’m going to get a discount — 10, 20, 30, 40, 50 percent off the charged amount — network discounts, we call them.   So there’s a benefit to being a network payer as well.

So everyone’s living in this utopia where everyone’s happy to be part of the network.

‘My network is bigger than yours’

Unfortunately what happened was that people started to say “Well, I don’t like this in-network hospital. I like that hospital. Why are they out of network? I want them in the network.” The network administrators scramble to get this hospital and that hospital into their network, and pretty soon the quality of the network was based on its size.

How many physicians, how many hospitals  are in network? My network is bigger than yours. The problem is that from the provider’s perspective, the more network providers there are in the area, the less exclusive in-network status becomes.  Suddenly that steerage that I was looking forward to is being spread amongst many  facilities, and pretty soon everybody’s in network. So  being a network provider was no longer special. So that means that as a provider, I’m willing to give a smaller discount. I’m increasing my billed charges to make up for the fact that I’m losing that steerage to other network facilities. So by more selection — by wanting more providers to be a network —  it punished the providers who were in network. And it resulted in less benefits.

So it really didn’t work out for anyone at that point. And it was really nobody’s fault. It was it was just you can’t have it all. You know you can’t have all the selection and at the same time really get massive benefits.

So as a result we’re starting to see a trend now towards narrow networks and direct contracting. This is a return to shrinking the network down. Basically you’re saying, “Look, we’re going to pick one or two facilities in the area that have the best track record when it comes to safety, that offer the highest quality care for the lowest cost. And these are going to be our exclusive network providers and we’re willing to reduce the selection, the options — in exchange for real benefits, really substantial discounts off of very fair prices, rather than small discounts off of inflated rates.” And so that return to smaller, narrower networks is one thing.

We’re also starting to see direct contracting — anything from on-site clinics, where some employers will really build their own onsite clinic, to an exclusive hospital provider.  An employer will tell its employees “We only have one hospital in the city under contract. That’s the hospital you should go to. If you go anywhere else you’re going to be  out of pocket. And so that willingness to reduce selection in order to achieve true savings for the plan, and to reward the provider that’s willing to offer the best care for the best price is a trend we’re starting to see as well.

The effects of events in Washington

JP:  I know the future of the Affordable Care Act is being decided even as we speak. But standing back from any kind of legislative development — or incorporating legislative developments into the discussion of marketplace trends — can you say what you think the future looks like?

RP: Interesting question. What’s on everyone’s mind  is what does it mean for health care? What does it mean for my plan? You know clearly things are in disruption and honestly things never really settled down even from the previous administration and they were still rolling out new regulations and adjusting the terms of the A.C.A.

One thing that I always said about the A.C.A.: It wasn’t necessarily a bad law. It was more that it was an incomplete law, because I’ve always felt that health care and more importantly the cost of health care can be broken into three parts. I call them the three pieces of health care expense. One is the provider. Two, the payer. And three. Is the patient.

Unfortunately so much of the focus is on the payer. Right: We need to get everybody insurance. We need to get everybody insured. What’s the best way to do it? You know, do we go with a stick approach — where there’s a penalty if you don’t buy insurance — or do we go with a carrot approach — where we give a tax subsidy or a tax break or some other benefit to someone who purchases.

Ignoring the issue of cost

Everybody’s fighting over the best way to get people insurance. But the problem is that even if everybody has insurance, you’re not addressing the issue of cost. That being what is the insurance paying. For you know, if I charge everybody $5,000 for a single aspirin, it doesn’t matter how many people have insurance, because insurance is going to be bankrupt in a year. The problem is that we’re not addressing the other two — the patient and the provider. The payer is the only one we’re addressing.

What is being charged? And what are those charges for? Are we overtreating people? Are we charging unjustifiable, unfair amounts for services? Is there inefficiency at the hospital and caregiver level, that if cut away could allow these facilities to make more profit off of less revenue?

What can we do to actually reduce the cost of care?  People talk about things like malpractice insurance and how much that threat costs these providers. Well could we address that. Like I said before, I refuse to just point the finger at the provider. But I’m certain that there are inefficiencies and costs and expenses and let’s admit it, fraud, in certain instances in the provider market that we need to address it. It’s unacceptable that it costs millions of dollars to deliver an infant.

It’s interesting you might recall a few years back when the CEO of AOL was talking to his company and  he remarked that the cost of their health plan was growing so much because they had had a couple of million-dollar infant deliveries. People  lashed out at him and they basically said “how can you blame this on the baby?” At the same time nobody stopped to say “Why does it cost a million dollars to have a baby?”   I understand that that’s not every instance, and more often than not you’re talking maybe $10-20,000. But even so. The costs are skyrocketing.

People look at  the Epi-Pen example, where these pharmaceuticals that we need in order to save lives — the cost is just excessive. And when you look at the trend, the rate of increase, it is much deeper than any other expense in our GDP.

The law didn’t do an adequate job of trying to contain the cost of care itself.

The patient, the oil change and common sense

The third piece that I mentioned is the patient. By giving somebody insurance — basically instead of saying “well now you pay for care out of your own pocket,” you say that now somebody else will pay for it. That’s not going to do much to adjust people’s behavior.

I have insurance. I know now that it’s someone else’s problem if I get sick. How is that going to incentivize me to seek out preventive care? To go see my PCP for a regular checkup just to make sure I’m doing all right?

I’m more likely to get an oil change from my car — because I realize if the engine blows that’s my problem — than I am to take care of my own self. Because it’s someone else’s problem. That’s a bad mentality.

If we’re going to adjust or fix the cost of care and health care in this country we need to address that as well and ensure that every person has some skin in the game. Not only for their own health, but for the cost of their own care. So until we address all three of those pieces — who’s paying, what are we paying for, and what are we doing to try and contain those costs as the individual, who’s causing those expense in the first place — nothing’s going to happen.

What we can do now is try to be creative and apply some common sense to healthcare. And if employers are looking to insurance carriers or the government to fix things for them, they’re in for a rude awakening.

Employers taking an active role

The employers who are going to be able to offer the best benefits for the least cost to their employees are the ones who are going to take an active role. We’re going to get creative. We’re going to get our hands dirty. And they’re not going to shy away from this problem.

I know it’s uncomfortable to talk to people but if you tell your employees “Hey, listen. If you get pregnant, go online. Look at these resources. There are resources out there that are going to tell you which hospitals are the safest. Which ones have the best quality outcome. I don’t want your newborn infant to suffer an injury, not only because I care about these children. But because it’s also very expensive to deal with that problem. Here are some resources you could use to insure you’re going to the best possible facility to have your child.

“And hey — keep an eye on these E.O.B.’s.  I realize you think it’s somebody else’s problem. It’s not because those costs pile up it’s going to impact your rates next year.

“If you see a mistake or an error, if you save the plan some money I’ll cut you a check. Why not? It’s a win win.”

So unless employers get creative and actually get their hands dirty and ensure that both they and their employees have some skin in the game I don’t think you’re going to see the needle move at all. It

JP: Thank you so much for your time. Always a pleasure talking to you.

RP: I really appreciate it. Thanks.

Ron Peck is Senior Vice President and General Counsel with The Phia Group.  Ron is a force in the drafting of benefit plans, handled complex third party recovery disputes, and spearheads efforts to combat healthcare costs.

Ron is one of the nation’s premier health plan consultants; with his theories being published by many periodicals and lecturing at various industry gatherings. Prior to joining The Phia Group, Ron was a member of a pharmaceutical company’s legal team, a general practitioner’s law office, and a judicial clerk.

Attorney Peck obtained his JD from Rutgers and earned his undergraduate degree from Cornell University.