While it is common to have payer contracts include a substantial percentage discount off of your billed charge, the practice creates avoidable risk.
Healthcare pricing is atypical, or maybe even unique. While some industries have unusual pricing, such as the dynamic pricing used by airlines that can result in two people in the same row having paid radically different fares, in that case the consumers have explicitly agreed to the deal. It’s rare to see situations in which transactions occur in the absence of any prior agreement about the price.
One of the few times I can think of when people periodically buy a product not knowing the price is the “special” in a restaurant. But typically, the waiter discloses the charge. When a buyer and seller enter into a deal without an explicit agreement on reimbursement, you have what’s called an “implied contract.” The buyer agrees to pay, and the seller agrees to accept, a “reasonable amount.” In the event of a dispute, the judge will make a decision about what “reasonable” is.
You can see this play out in the independent dispute resolution (IDR) process of the No Surprises Act. Common sense will tell you the sorts of things a judge might consider when determining reasonability.
Obviously, market data from other organizations will be a factor. But the rate that your organization accepts as payment from other similarly situated patients seems like an extraordinarily compelling piece of evidence.
Imagine the following scenario: the bill charged for a service is $1,000. You have contracts with many insurers wherein they pay you about 60 percent of your billed charges; in other words, the contract’s insurer pays you $600 for the service. You have a policy that says uninsured patients pay 70 percent of your billed charges, or $700, for the service.
Now imagine you’re the judge.
A patient with indemnity insurance receives the service. The indemnity insurer balked at the $1,000 bill, claiming it’s too high. “Other insurance pays $600, and patients without insurance pay $700. We should not have to pay $1,000.” How would you rule?
While I’m typically not terribly sympathetic to insurance companies, in this case I think the indemnity insurer has a pretty good point. If an uninsured patient walking in off the street is going to pay $700, why should their insured patients walking in off the street be expected to pay more, in the absence of an exclusive agreement?
My main point is that when most patients are paying 20, 30, or even 40 percent less than your billed charge, there’s a compelling argument that your fee is 20, 30, or even 40 percent lower than you claim it to be. I can make arguments to defend the arrangements, but there is a real risk those arguments won’t carry the day.
As a result, my advice is to avoid situations in which you have significant percentage discounts, whether they are agreed to contractually or established via policy, unless it’s something provided to a patient with demonstrated financial hardship. While not perfect, an agreed-upon price is far superior to a percentage discount. Some of the same issues exist, but at least you aren’t making it easy for someone to argue that the billed charge isn’t real.
When you have a percentage discount, you may be giving insurance companies a “cheap trick” to demand lower prices. So I will close with reference to a pair of Cheap Trick songs. I hate it when I have to say to my clients, “didn’t I, didn’t I, didn’t I see you crying?”
And I hate when they “surrender, surrender.” So don’t give yourself away! Stomp out those percentage discounts.
